California Apparel News

Australian retailer out to conquer U.S.

If you haven’t heard of a teen retailer called Cotton On, you’re not alone.

The Australian brand, which has been selling in the Land Down Under since 1991, is basically an unknown quantity in the United States even though it has more than 660 stores in its home country as well as in New Zealand, Malaysia, Singapore and Hong Kong.

But since November, the Aussie chain, whose cheap, cheap clothes cater to 18- to 30-year-olds in search of casual but trendy fashion, has been quietly planting its retail flag on Southern California soil.

It now has six stores in the Los Angeles and San Diego areas with a seventh store, billed as a 5,700-square-foot megastore, slated to open on the Third Street Promenade in Santa Monica, Calif., in the next few weeks.

“Our dream goal is to open 2,000 stores in the United States,” said Rebecca Luscombe, the retail-operations manager in the United States for Cotton On. She is joined by three other Australians on the ground here to chart new retail territory. She works with a visual/merchandise manager, a brand/country manager and a trainer.

Last year, Cotton On signed a lease for a 100,000-square-foot warehouse in Carson, Calif., as its staging point for its aggressive take-no-prisoners business plan. “We are opening as many stores as we can,” Luscombe noted.

Retail-industry experts acknowledge that 100,000 square feet is an enormous warehouse space that can easily support distribution for more than 100 stores, and there is plenty of warehouse space available in Los Angeles County’s South Bay for expansion.

Conveniently, most of Cotton On’s bargain-basement T-shirts, blue jeans, knit dresses, shorts, shoes and cardigan tops are made in China, a direct journey across the Pacific Ocean to the Los Angeles/Long Beach port complex.

But what retail analysts find amazing is that Cotton On has been slowly seeping into Southern California’s shopping malls without a word of advertising to stir up customer interest.

Betty Chen, vice president of research at Wedbush Morgan Securities in San Francisco—who monitors retailers such as Pacific Sunwear of California, Urban Outfitters, American Eagle Outfitters and Aeropostale Inc.—was surprised a new fast-fashion retailer was making its way into California. “Certainly real estate is in your favor with better lease rates, but competitively it is a pretty saturated market,” she said.

Liz Pierce, a retail analyst at Roth Capital Partners in Newport Beach, Calif., had never heard of Cotton On. She had no idea the company had opened its first U.S. store in November at Westfield MainPlace in Santa Ana, Calif. Pierce visited the mall about one month ago and missed it. The tiny Cotton On store, at 2,700 square feet, is on the mall’s second level between Nordstrom and Macy’s.

Hearing of the company’s fast-fashion business model and rock-bottom prices, she wondered what will distinguish it from Forever 21, H&M, Zara, Abercrombie & Fitch and American Eagle Outfitters, which are all vying for the same young customer. “What do they bring to the table, and what is special and different about them?” she asked. “Do we need another one of these kinds of stores? With the size of the company, maybe they have some great sourcing and can bring some great value to the table.”

That could be true. Cotton On has seven different store nameplates, which range from Cotton On Body, with activewear and intimate apparel, and T-Bar, with T-shirts, to Rubi shoes and Cotton On Baby. It even has a stationery store called Typo.

The first store was launched 19 years ago by Nigel Austin, 21 at the time, with his now ex-wife, Tania, The first retail spot was in Geelong, near Melbourne on Australia’s surf coast, and it has grown consistently over the years. Plans are to launch stores in China this summer.

Cotton On’s steady expansion has made Austin, valued at more than $154 million, one of the wealthiest men in Australia, It has also made him media shy, and interviews are hard to come by. But Luscombe, Cotton On’s retail-operations manager in Los Angeles, said her boss had been over to California two or three times to check on the team’s progress. Kangaroo cachet

The traditional Cotton On stores are filled with a mix of sporty, casualwear, and trendy dresses and skirts. Not much sells for over $29.90, with sleeveless tunic-style knit dresses going for $14.90 and skirts for $19.90. Discounted items sell for as little as $10, including shoes and boots.

Luscombe said the retailer’s competitive advantages are its fashion-forward collections, cheap prices, customer service and the fact that they are Australian. But a visit to the Santa Ana store revealed nothing particularly Australian that said, “Good day, mate.” The store looked very generic.

Luscombe said Cotton On barely has an advertising budget. Instead, the retailer relies on co-op ads with Westfield or its vendors, which are practically free.

Sales, however, are on target. “We have been very successful with our sales,” Luscombe said. “We have made our sales budget every month since November.”

To grow beyond its 660 stores, Cotton On decided it needed to look outside the countries it currently occupies. “We chose to expand into the U.S. market because the markets that we currently operate in are smaller economies that have a capacity for how many stores we have [now],” wrote Elissa Holloway, Cotton On’s public-relations manager, in an e-mail from the company’s headquarters in Geelong. “We chose the U.S. as a large economy to alleviate the capacity issues we’ve got with other markets.”

She noted the company had the ability to open 100 stores in the United States fairly quickly, depending on market conditions, “which we are keeping a close eye on.”

The short-term growth map has at least eight stores opening soon, including one at the Del Amo Fashion Center in Torrance, Calif., in June, with retail sites being considered in Arizona and Florida. Holloway noted the company believes there is potential to open thousands of stores in the United States. By comparison, Gap Inc. in San Francisco operates nearly 2,500 stores under three different names in the United States.

Cotton On’s foray into Southern California started in November with three spaces. The first was in Santa Ana and then two others, located at Westfield West Covina and Westfield Plaza Bonita in National City. In December it debuted a store in the Glendale Galleria, followed by a store in January at Westfield Santa Anita.

It is no coincidence that many of the retail openings are at Westfield shopping centers, an Australian company whose U.S. headquarters are in Los Angeles. “We knew them, and they knew us from Australia,” explained Katy Dickey, a U.S. spokesperson for The Westfield Group. “They are an entrepreneurial group with an affordable product and an interested market. There are more stores to come.”