Cotton On is killing it

Cotton On Catwalk. Photo: Matt King/ Getty.

Twenty years after Cotton On founder Nigel Austin came to China looking for garment factories to supply his stores in regional Victoria, the fashion retailer has come full circle and is now seeking to open its own shops on the mainland.

It is yet another example of China moving from the world’s factory to a thriving consumer market, not that Austin or his colleagues are too concerned with such symbolism.

They are firmly focused on the future.

“I am very confident on our growth … our march will continue,” said Austin during a visit to Shanghai this week.

The mainland launch is part of a plan by the Australian retailer to open 570 stores over the next three years in locations as diverse as Southern Africa, the United States, Brazil and across South East Asia.

“We are just getting started,” says Austin of the company’s 1400 stores in 18 countries.

Cotton On, one of the few Australian retailers to go global, has three shops in Hong Kong at present, which are functioning partly as a testing ground for the mainland.

“Three of our top 10 stores in the world are in Hong Kong,” said chief financial officer Michael Hardwick.

But for a retailer that wants to challenge H&M and Uniqlo in the world of fast fashion, China is a country that can’t be ignored

“The market is too big not to have a presence,” said Hardwick.

“It [China] is going to be an important part of the future … it’s just a matter of what the timing is going to be.”

He says it will be at least 12 months before Cotton On is ready for the mainland, which is emerging as one of the most competitive and brutal retail landscapes in the world.

The likes of supermarket giant Tesco, Best Buy from the US and Germany’s Media Markt all failed in China, as their prices and offerings didn’t fit with the local environment.

For its part H&M is seen as a China success story having opened more than 300 stores across the country.

Yet the Swedish giant recently said it was not happy with its performance on the mainland, where margins were being squeezed.

Such margin pressure is despite China’s overall retail sales growing at a lofty 10.1 per cent in the year to April, according to government statistics.

Overcoming the curse of barely profitable growth in China will be the challenge for Cotton On, which had a team in the country this week looking at market entry strategies.

This coincided with the company’s annual suppliers’ conference held in Shanghai.

At the event Austin re-told the story of how he started out selling acid-washed denim jackets from the back of his car at a market in Geelong.

“I have been pretty fanatically obsessed with retail ever since,” he told the conference.

But this obsession won’t extend to a public float for the company, which employs 20,000 people and had sales of more than $1.5 billion last year.

“There is no need,” says Austin, who was estimated to be worth $295 million last year by BRW magazine, and said the company had funded its expansion from cash flows.

“We can take more risks than a public company … we can do the things a public company can’t tackle.”

For Austin, it’s about creating what he describes as “masterpiece”, which involves focusing on being a retailer rather than worrying constantly about short term financial performance.

This story first appeared in The Australian Financial Review. Read it here or follow the Financial Review on Facebook.

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.