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Cottoning On to a good thing: Inside one of the most private retailers

But despite being a mainstay of Australian shopping centres, not very much is known about Cotton On.

To industry insiders, the two men running the company, CEO Peter Johnson and chief financial officer Michael Hardwick, are one of the sharpest leadership teams in Australian retail.  It’s easy to see why. Speaking to The Age and The Sydney Morning Herald, the two come across as pragmatic and decisive managers, who despite a laid-back attitude run their business with precision.

Mega stores for mega growth

Alongside its namesake Cotton On chain of budget fashion, the company runs accessories and footwear brand Rubi, youth fashion brand Factorie, and stationery retailer Typo. It also bought iconic womenswear brand Supre in 2013, its first-ever acquisition.

The company sells its products across its 667 Australian stores, and operations throughout Africa, South-East Asia, Africa and New Zealand.

With such a diverse portfolio of brands, Hardwick and Johnson say they’ve been moving away from  a standalone flagship store model for each brand towards embracing more department-store-like ‘mega’ stores which showcase Cotton On’s entire range.

“Mega stores have certainly become our most preferred style of retailing. We want customers to be able to shop all those brands under one roof and do so in an environment that provides a higher level of customer experience than you would get in smaller footprint stores,” Hardwick says.

Mega stores such as those the group runs in Westfield’s Sydney city mall and in Melbourne’s Chadstone centre, now generate about 40 per cent of Cotton On’s revenue. They have the added bonus of reducing the retailer’s exposure to the whims of shopping centre landlords and allowing it to get the better lease terms that larger footprint stores can achieve.

Tax cuts no stimulus

Over 80 per cent of Cotton On’s stores sit below the equator, with its leadership duo acknowledging the company is “very much a Southern Hemisphere business”. But with its American footprint growing rapidly both on and offline, up north is where the company sees much of its future growth.

One of Cotton On's megastores in Cape Town.

One of Cotton On’s megastores in Cape Town.

At home, the two are pragmatic. With around 150 stores coming up for lease renewal each year, Hardwick and Johnson aren’t interested in any dead weight across their network amid Australia’s unforgiving retail environment and keep only those that perform.

“The Australian market is competitive and it’s been getting more competitive for a number of years as other international retailers have joined in,” Johnson says.

Yet much like with other low-cost retailers, the difficult environment isn’t necessarily seen as a terrible thing by the Cotton On chiefs, with Hardwick saying the company “probably over-trades” during tougher times.

Retailers had been hopeful the Morrison government’s income tax cuts, coupled with the Reserve Bank’s three interest rate cuts, would see those tough times come to an end. Yet consumers have not been any more inclined to “go out and spend”, Hardwick says, making the latest tax cuts markedly less effective than Kevin Rudd’s 2009 stimulus package.

“I don’t think that we’ve seen a marked step-change in the business or consumer behaviour,” he said. “If we go back to the Rudd stimulus, almost every retailer saw the immediate impact of those two packages. So [the tax cuts] are certainly not at the level we’ve seen before.”

Ethical sourcing ‘just the steak knives’

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Sustainability, ethics and broader social responsibility issues have become increasingly pertinent for retailers over the last decade, with some companies willing to air their dirty laundry, and others opting for ignorance.

Cotton On boasts comprehensive ethical sourcing policies, environmental practices and supply chain transparency as it seeks to convey that being cheap ‘n cheerful doesn’t have to come at the expense of others.

The company scores almost full marks on both Baptist World Aid’s Ethical Fashion Report and Oxfam’s What She Makes campaign, which tracks companies’ commitments to ensuring suppliers pay workers a living wage.

“Supply chain transparency allows brands to be open and honest about where they’re sourcing their clothes from, and it’s a really crucial step towards being an ethical company,” Sarah Rogan, Oxfam’s What She Makes project lead said.

“On those things, Cotton On is doing what we have asked of them.”

Since its inception in 2014, over 2500 farmers have been involved in the group's Kenya Cotton Program.

Since its inception in 2014, over 2500 farmers have been involved in the group’s Kenya Cotton Program.

Despite these accolades, Johnson disputes that Cotton On has been actively pushing a sustainability angle, saying instead the company’s just “tried to do the right thing” for the last 30 years.

“I think what changed was what the customers were telling us was important to them. We were hearing more and more it was important to understand where our product came from, so we put a lot of effort into making sure our supply chain is ethical and transparent,” he says.

“But that’s just the steak knives now. It’s become about actively improving how your product is made, which goes beyond sustainability.”

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Part of this push involves the company’s Kenya Cotton Program, which it introduced in 2014 to help Kenyan farmers sustainably transform their business models, along with increasing their income.

The program has reached 2500 farmers in the region so far, with a goal of 10,000 by the end of next year. By 2021, the company has pledged for all of its cotton to be sustainably sourced, up from 60 per cent currently.

Hardwick and Johnson say Cotton On is eager to work with all of its suppliers to improve their processes where possible, but note their expectations for conduct are black and white.

When the company discovered alleged forced labour at some of its Xinjiang-based suppliers, it was a “very easy decision to make”.

“There’s no misunderstanding there, that is a business we won’t do business with,” Johnson says.

Keeping it private

With a revenue and store footprint that would be the envy of some of Australia’s premier listed retailers, Cotton On has been hounded for years over a potential sharemarket float.

Asked the IPO question, both Hardwick and Johnson laugh and confirm a listing still isn’t on the cards.

“The beauty of being a private company is that you don’t have to answer that question,” Hardwick quips.

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