Case study · FMCG and retail · Fashion accessories · 14 min read
Source: Pricing Insight Pricing Strategy Diagnostic (June 2018) and Price Optimisation Recommendations (September 2018) for Oroton, and Pricing Insight engagement records. The more than A$2m a year is realised, as confirmed by Pricing Insight; the A$7.0m and A$3.0m are identified EBIT. Not independently audited. None is a benchmark for another business.
More than A$2m of incremental EBIT a year realised, from A$7.0m identified. Oroton, the Sydney fashion accessories house founded in 1938, came out of voluntary administration in 2018 under a new owner, with about A$102m of sales a year through 62 stores, an online store and department store concessions. Its unit sales were growing, but the growth had been bought with price: across the business, units rose 7.2 per cent while average prices fell 2.7 per cent, and in the full-price First Retail stores units rose 14.1 per cent on prices 8.9 per cent lower, for gross margin dollars only 1.2 per cent higher. First Retail stores realised on average 59 per cent of RRP, and the Factory Outlet stores marked down about A$21m a year, an average of 49 per cent off RRP. Pricing Insight analysed 1.4 million rows of daily store data, built price elasticity models by product, recommended a four-tier price architecture and re-optimised Factory Outlet markdowns at story and description level for a controlled store pilot. The diagnostic identified A$7.0m of EBIT a year across three phases, starting with A$3.0m in the first: A$2.5m from Factory Outlet markdowns and A$0.5m from First Retail RRPs. More than A$2m of incremental EBIT a year was realised.
| Client | Oroton, Sydney: Australia's oldest luxury fashion house, selling handbags, wallets and leather accessories through First Retail stores, Factory Outlet stores, the online store at oroton.com and concessions in department stores. |
| Service | Strategic EBIT Opportunity and Risk Diagnostic, followed by Factory Outlet markdown optimisation and a store pilot using the Project Blackbird method. |
| Status | Realised. More than A$2m of incremental EBIT a year, as confirmed by Pricing Insight. A$7.0m of EBIT a year identified across three phases, including A$3.0m in the first phase: A$2.5m in Factory Outlet and A$0.5m in First Retail. |
| Scope | 104 weeks of daily store data, 8,119 SKUs, 62 stores in Australia and the online store; about A$101.9m of sales and A$51.5m of gross margin in the 52 weeks to 12 May 2018. |
| Period | 2018 to 2019: diagnostic in June 2018, Factory Outlet recommendations in September 2018, the pilot price file from October 2018, and implementation through 2019. |
The brief
Find the EBIT in Oroton's pricing and markdowns that the business could take quickly, without damaging a premium brand it was trying to rebuild.
01An 80-year-old luxury brand, out of administration, selling more bags at lower prices
An Australian luxury house with a new owner and a balance sheet to rebuild. Oroton was founded in Sydney in 1938 as an importer of European textiles and became known for its mesh evening bags in the 1950s, before moving into leather handbags, wallets and accessories. By 2017 it was listed on the ASX and losing ground to international brands such as Michael Kors, Kate Spade and Coach.
OrotonGroup entered voluntary administration on 30 November 2017, after losses on the six Gap stores it ran under licence, debt of about A$40m and a 6 per cent like-for-like sales decline in its own stores in FY17. The chief investment officer of Caledonia Funds Management, an existing shareholder and creditor, acquired the business through a deed of company arrangement that creditors approved in March 2018, and it became a private company. The new owner and management set out to rebuild Oroton as a premium brand, with a new creative director appointed in 2018.
The business had four channels. Factory Outlet stores carried 43 per cent of sales but earned 37 per cent of gross margin dollars, First Retail stores 33 per cent of sales and 39 per cent of gross margin, the online store 15 per cent of sales and concessions 8 per cent. A chain of outlet stores selling a premium brand at deep discounts was the largest single source of revenue.
02What the diagnostic found: growth bought with discounts, and a brand priced as if it sold bags
Three findings, one for each pillar of the Pricing Periodic Table.
Value
Oroton was not in the bag business. A customer buying a mid to upper priced handbag is buying an identity product: something that signals belonging and status, bought off the shelf. The diagnostic's mystery shopping and market review placed Oroton there, and the pricing did not match. Average selling prices had fallen across every channel for two years. In the 52 weeks to 12 May 2018, units rose 7.2 per cent, average prices fell 2.7 per cent, revenue rose 4.3 per cent and gross margin dollars rose 5.7 per cent. First Retail sold 14.1 per cent more units at prices 8.9 per cent lower, for 1.2 per cent more gross margin. Online, units rose 70 per cent on prices 17.3 per cent lower.
Store data showed where customers would pay more. Bags sold for a higher average price in Chermside, A$224, than at Warringah Mall, A$205, although Warringah's catchment had higher household incomes. The diagnostic read this as higher-income customers moving to European brands, and the brand's core customer paying more than its pricing assumed.
People
Discounts were set in the store. Mystery shoppers visited five stores in New South Wales and Victoria: Bondi Junction, Burwood, Macquarie, Chadstone and Emporium. They found 20, 30 and 50 per cent discounts running together, and at one store a staff member worked out the sale price of a handbag on a calculator, which the shopper compared with haggling at a market. The sales conversation started from the discount, not from the product.
Structures
The price structure was too wide. First Retail stores realised on average 59 per cent of RRP, and 90 per cent of First Retail gross margin dollars came from 20 of about 90 RRPs. The price bandwidth across SKUs, the spread of prices paid for the same product, was wide regardless of revenue, and gross margin was scattered across a long tail of low-margin products. Factory Outlet markdowns came to about A$21m a year, an average of 49 per cent off RRP, with about 60 per cent of outlet revenue price elastic.
Six priorities followed.
Price the brand, not the bag.
Set prices for an identity product, with a top tier that anchors the ranges below it.
Optimise markdowns in Factory Outlet.
Reduce markdown depth, length and frequency where demand does not need them.
Optimise First Retail RRPs.
Concentrate on the 20 RRPs that earn 90 per cent of First Retail gross margin.
Simplify the range.
Fewer collections and price points, focused on bags, wallets and accessories.
Change what the store sells from.
Signage, anchoring and selling that start from RRP and value, not from the discount.
Take the EBIT available quickly from markdowns and RRPs, in a way that supports the rebuild of a premium brand.
03What Pricing Insight did: elasticity models, a four-tier price architecture and a Factory Outlet pilot
Five pieces of work, run through 2018 and into 2019. Each built named elements of the Pricing Periodic Table, shown in brackets and mapped in section 05.
One data set.
104 weeks of daily store data, 1.4 million rows across 8,119 SKUs and 62 stores, with store demographics and a mystery shopper review of five stores. (41 Ci, 44 Or)
Elasticity by product.
Price elasticity models for Factory Outlet and First Retail, showing the price points where sales stepped up, such as A$158 and A$125 for one outlet range. (03 Vq, 46 Pm, 47 Ps)
A four-tier price architecture.
An ultra-premium anchor at A$1,500 to A$2,500, a premium range at A$500 to A$1,499, a core range at A$250 to A$499 with less discounting, and an entry range at A$100 to A$249. (08 Sg, 12 Mi)
Markdowns re-optimised.
Factory Outlet prices set at story and description level, because SKU-level pricing was not workable in the stores, and loaded to the FY19 price master file. (50 Md, 51 Dt, 57 Dq)
A controlled pilot.
A pilot SKU list for one or two outlet stores over four to five weeks, tracked daily by SKU, tested both inside and outside the store-wide promotions. (48 Kp)
“Season launch has been good … we have been doing a lot less discounting!” David Kesby, Chief Executive, Oroton, March 2019.
Price tiers gave each range a job. The top tier was not designed to sell volume: its role was to set the reference against which the collections under A$500 were judged, the way a 7 Series sets the reference for a 3 Series. The core range, where most volume sat, was to carry RRPs set from the elasticity models and be discounted less often.
The pilot was built as a pricing laboratory. The data used to set outlet prices excluded the five weeks before Christmas and any week with fewer than 10 units sold, so that seasonal peaks and thin weeks did not distort the price response. The recommendations for the stores were specific: RRP shown large and the sale price small on deep red signs with a white "SALE", the "buy two, get an extra 20 per cent" mechanic removed, bags above A$800 placed on high shelves as anchors, and staff selling from the product's value rather than its discount.
04What changed: more than A$2m of EBIT a year realised, from A$7.0m identified
More than A$2m a year realised. The diagnostic identified A$7.0m of EBIT a year across three phases. The first phase, for action from August 2018, was A$3.0m: A$2.5m from Factory Outlet markdown optimisation and A$0.5m from First Retail RRP optimisation. The second and third phases, timed for August 2019 and August 2020 and tied to the brand repositioning, took in the online store and concessions and made up the remaining A$4.0m. Oroton realised more than A$2m of incremental EBIT a year.
The outlet figure is small per unit. About 524,000 units a year went through the Factory Outlet stores, so every A$2 of average price kept per unit was worth about A$1m. The A$2.5m identified is an average of about A$4.77 a unit, against markdowns that averaged 49 per cent off RRP.
The business moved away from discounting. In January 2019 David Kesby, the chief executive, reported promotions reduced against the prior year and a plan for brand building, not discounting, to be the way Oroton traded from 1 February. In March 2019 he reported a good season launch with a lot less discounting.
Status: realised. More than A$2m of incremental EBIT a year, as confirmed by Pricing Insight; the exact figure and the measurement basis are not disclosed. Identified: A$7.0m of EBIT a year across three phases, sized by the Pricing Strategy Diagnostic in June 2018 from 104 weeks of daily store data to 12 May 2018, including A$3.0m in the first phase. Reduced discounting in early 2019 is as reported by Oroton's chief executive. Other changes ran at the same time, including a new creative direction and lower store costs.
05The Pricing Periodic Table elements this work built
Eleven elements built, seven identified and still open. The Pricing Periodic Table maps 61 elements of pricing capability in nine domains across three pillars: Value, People and Structures. Most of the work at Oroton sits in Analysis and Processes and Price Architecture; most of what remained open sits in Customer Value and in selling.
| Data and analysis | 41 Ci Market price intelligence, 44 Or Override and discount analysis: store data, demographics, competitor review and mystery shopping, and the markdown analysis. |
| Elasticity | 03 Vq Value quantification, 46 Pm Price modelling, 47 Ps Price position and key value items: elasticity by product and the 20 RRPs that earn 90 per cent of First Retail gross margin. |
| Strategy | 08 Sg Segment and channel strategy, 12 Mi Margin improvement program: channel roles, the four price tiers and the phased EBIT plan. |
| Markdowns and pilot | 50 Md Price-setting method, 51 Dt Discount structure and tiers, 57 Dq Pricing master data, 48 Kp Price realisation KPIs: story and description pricing, the FY19 price master file and daily SKU tracking. |
| Still open | 01 Vp Value proposition, 49 Lp List price alignment, 52 Rl Price relativities, 09 Ot Online and price transparency, 29 Vs Value selling, 30 Vt Value marketing and sales tools, 33 In Sales incentives: brand repositioning, First Retail RRPs and tiers, online pricing, store selling and store manager incentives. |
06Three lessons for a CEO or owner rebuilding a premium brand
Check what the growth cost
Oroton's units grew 7.2 per cent while average prices fell 2.7 per cent, and First Retail added 14.1 per cent more units for 1.2 per cent more gross margin. Volume growth that comes from lower prices should be read in gross margin dollars, channel by channel, before it is counted as recovery.
Treat a markdown as a cost to the brand
Factory Outlet marked down about A$21m a year at an average of 49 per cent off RRP. A markdown takes value from the brand as well as from the period's margin, so its depth, length and frequency are set from the price response, product by product, and tested in a store before they are rolled out.
Give every price tier a job
A premium brand needs a top tier that anchors the price of everything below it, a core range that is discounted rarely, and an entry range that is promoted at set times. Without that structure, store staff fill the gap with a calculator.
07Questions this case study answers
How much EBIT can markdown optimisation add for a fashion retailer?
At Oroton, more than A$2m of incremental EBIT a year was realised from markdown and RRP optimisation. The diagnostic identified A$2.5m of EBIT a year from Factory Outlet markdown optimisation, on about A$21m of markdowns a year at an average of 49 per cent off RRP. Across about 524,000 outlet units, that is an average of about A$4.77 a unit. A further A$0.5m was identified from First Retail RRPs, for A$3.0m in the first phase and A$7.0m across three phases. The size in any business depends on markdown depth and the price response of its products.
How do you reduce discounting in a fashion outlet without losing sales?
Set markdowns from measured price response rather than store-wide percentages. At Oroton, Pricing Insight built elasticity models from 104 weeks of daily data, set outlet prices at story and description level, and recommended a pilot in one or two stores over four to five weeks, tracked daily by SKU and tested both inside and outside promotions. The store recommendations removed stacked mechanics such as "buy two, get an extra 20 per cent" and showed RRP ahead of the sale price.
How should a premium accessories brand set its price architecture?
By giving each price tier a role. The recommendation for Oroton was an ultra-premium anchor at A$1,500 to A$2,500 that is not built to sell volume, a premium range at A$500 to A$1,499, a core range at A$250 to A$499 with optimised RRPs and less discounting, and an entry range at A$100 to A$249 promoted at key times of year. The diagnostic found 90 per cent of First Retail gross margin came from 20 RRPs, which is where RRP work starts.
Related case studies · FMCG and retail
How much EBIT is going out of your stores as markdowns?
A first conversation covers your markdown history, how discounts are set in store and the measure you would track, and whether a diagnostic fits. Ron Wood, +61 410 534 099.
Ron Wood is the Founder and Managing Director of Pricing Insight, an Australian pricing strategy consultancy he established in 2007. He has worked in pricing for around 30 years, first as a pricing and commercial manager in consumer goods, building materials and capital equipment, and since then across 160+ pricing engagements. He also founded Pricing University, which has trained more than 5,000 executives.
To discuss pricing and markdowns for your business, contact Ron Wood at info@pricinginsight.com.au or on +61 410 534 099, or visit Pricing Insight.
Company history is from oroton.com (brand history page, reviewed 12 November 2026). The administration, losses, debt and change of ownership are from Inside Retail, FashionNetwork and FashionUnited reports of November 2017 to April 2018. Engagement figures are from Pricing Insight's Pricing Strategy Diagnostic for Oroton (June 2018), its Price Optimisation Recommendations (September 2018) and engagement records. The more than A$2m a year is realised incremental EBIT, as confirmed by Pricing Insight; the A$7.0m, A$3.0m, A$2.5m and A$0.5m are identified EBIT a year. Figure 5 is illustrative arithmetic from the diagnostic's figures. The quotation and reports of reduced discounting are from Oroton's chief executive, David Kesby, in 2019. No figure on this page is typical or guaranteed.
.jpg)
