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Oroton puts shine on its split from Ralph Lauren

Oroton: Contingency plans in place.WHILE Oroton Group had been hopeful of retaining the licence to exclusively distribute Ralph Lauren in Australasia, it could not have been too surprised this week when the global apparel brand decided to take back the business as of June 30 next year.
Nanjing Night Net

While the news shocked the markets enough to send Oroton's share price down as much as 20 per cent yesterday, the signs were already there in 2010 when the two parties extended a relationship two decades old.

At the time, Ralph Lauren took back the licence from Dickson Poon to distribute the brand in China, Hong Kong and a number of other Asian countries. The US-based company had earlier taken control of its brand in Japan and Europe.

It did not go unnoticed at Oroton.

Chief executive Sally Macdonald told BusinessDay: ''While we're disappointed, we had contingency plans in place.''

Oroton, one of the few star performers among Australia's listed retail stocks, said Ralph Lauren currently accounted for 45 per cent of group sales and 35 per cent of net profits.

''This is clearly a disappointing announcement,'' said Goldman Sachs analyst George Batsakis.

The broker dropped its price target on the stock from $9.90 to $6.95 and slashed earnings estimates by as much as 35 per cent over the next two years but retained a buy recommendation on the stock.

''Despite [the] announcement, we believe Oroton will be in a strong position to grow earnings from the 2014 financial year,'' he said.

Ms Macdonald stressed the opportunities in Asia the company could pursue with the freed-up capital, and ''the opportunity to consider complementary acquisitions of owned and licensed brands that under the [Lauren] contract we were precluded from pursuing''.

But she said the company was not preparing to ramp up its Asian expansion plans from its target of opening about four new stores a year. ''To successfully build brands in new markets you need to do that in a measured way,'' Ms Macdonald said.

The company is expected to open new stores in Hong Kong and Shanghai next year.

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Meritocracy takes a nose-dive as Japan Airlines soars again

JAPAN Airlines owes me something as it plans an $US8.5 billion initial public offering: a thank-you. Not because I'm a frequent flyer, but because I'm a Japan taxpayer.
Nanjing Night Net

In the euphoria over the carrier emerging from bankruptcy, aren't we forgetting the jumbo-sized role of the state? A $US4.5 billion government-orchestrated bailout and even bigger subsidies that let it avoid billions of dollars in future tax payments.

So, next month, when JAL tries the most ambitious IPO since Facebook, it should do so with humility and full knowledge of how its trajectory is another blow to Japan's status as a meritocratic economy. The goodies JAL is using to resurface as a public company are weighing on rival All Nippon Airways, an outfit that actually tries to run itself as a for-profit enterprise.

The airline's IPO is being held up as a good-news story of rebirth, reformation and fresh opportunities - when it's anything but.

You can understand the desire for a promising turn-around tale. The past year has been a dismal one for Japan Inc. From Tokyo Electric Power Co's incompetence, to scandals at Olympus, not to mention Daio Paper, Nomura Holdings and AIJ Investment Advisors, examples of weak corporate governance abound. It's only in contrast to this wreckage that JAL can look like a success story.

In reality, the public coddling JAL enjoys as it returns to the stockmarket is emblematic of so much of what ails Japan. All Nippon rebounded to profit in the first quarter as air traffic recovered from disruptions caused by the Japanese tsunami and nuclear crisis of March last year. The airline succeeded on its own in a turbulent global environment, not because of a government lifeline.

Now, All Nippon's outlook is in jeopardy. JAL's unfair, taxpayer-supported leg-up on All Nippon will inhibit competition and further delay the creation of a viable budget-airline industry.

JAL hasn't come up with a low-cost carrier strategy, and its advantage will slow All Nippon's full embracement of a trend that has long benefited consumers in Europe, America and other parts of Asia. Japan's ''budget'' carriers are cheap in name only.

The unseen costs of publicly financed corporate favouritism riddle Japan's economy. Investors forget that when Japan grows 3 per cent a year it's only because of an endless cycle of fiscal stimulus, deficit spending and zero interest rates, which have distorted the nation's credit system. If Japan Airlines' IPO is a roaring success, few will pause to consider the artificial stimulants that make it so.

Such cosseting of national champions doesn't get the attention it deserves.

The post-tsunami nuclear crisis that almost caused the evacuation of Tokyo was a direct result of Tepco's incompetence and the company's government enablers. Decades of lax safety policies were ignored by bureaucrats looking for cushy post-retirement gigs in the power industry. Tepco's pervasive influence explains the decision of Prime Minister Yoshihiko Noda to allow the restart of reactors after the disaster, defying the public backlash against nuclear power.

Some day Japan will have a finance minister with the courage to tell companies to stop bellyaching about the strong currency and learn to adapt the way the Germans did. The present occupant of that position, Jun Azumi, isn't that man. He should spend less time threatening to intervene in markets and more working to make the Japanese economy more competitive. He has done nothing to increase female participation in the shrinking, male-dominated labour force.

To its credit, JAL has done some heavy lifting since its 2010 bankruptcy. It slashed thousands of jobs, cut debt and retired older, less fuel-efficient aircraft. But at what price? Its bankruptcy wiped out shareholders. And even if the airline repays the government-backed Enterprise Initiative Turnaround Corp of Japan, which financed the company's bailout, Japan will still be giving away untold billions of dollars in tax breaks.

Nor is it clear that JAL has learned the right lessons after at least four bailouts in the past decade. Knowledge that the government is always at the ready as a back-up removes the urgency to make the wrenching, but needed, reforms. Thanks to the latest rescue, consumers and businesses will continue overpaying for flights and have fewer scheduling options.

The other question is whether the market will give JAL the Facebook treatment. The social-networking company and JAL share something in common in the hype department. Facebook's buyers bought into the mania and have regretted it ever since as the shares slide. JAL's supporters, rather than trying to ride the next big thing, will be domestic retail investors desperate for a feel-good business story.

If JAL really is a happy tale, it will probably end once its executives hit up taxpayers for another handout.

BLOOMBERG

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Ignore the propaganda: cutting wages will not fix productivity

Managers are to blame.''The most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly - it must confine itself to a few points and repeat them over and over.''
Nanjing Night Net

SO SAID Joseph Goebbels, master manipulator of the truth in Adolf Hitler's evil Third Reich. Although not as well-known as his more famous ''if you tell a big enough lie and keep repeating it, people will eventually come to believe it'', it more succinctly encapsulates the spin and hyperbole that is the hallmark of the debate over our economy.

For the past few years, we've been bombarded by a constant theme from the business lobby groups: Australian productivity is slipping and unless we have a more flexible labour market and governments reduce regulation, we'll all be ruined.

There's a sliver of truth to the argument. Productivity indeed has plunged. And labour productivity has slipped in recent years. But the real culprit in the great Australian productivity decline is capital, not labour. It is our managers who have let us down, rather than our workforce. And in any case, all the statistics have been thrown completely out of whack by the massive investment boom in our resources sector.

Those are some of the findings of a report this week by global management consultancy McKinsey & Co, which goes a long way to clearing some of the smoke around an issue that has become a lightning rod for the business community and is shaping as a serious election issue. Unfortunately, most who argue so passionately on the topic seem blissfully ignorant of even the fundamental meaning of the term.

For when they raise labour market inflexibility as a problem, they really mean wages or the price of labour, which has very little to do with productivity. Most business people figure, if you reduce the cost of labour, the firm will make a bigger profit and that must be a lift in productivity.

Sorry to disappoint. But cutting wages is more likely to reduce labour productivity, which, simply put, is the amount of goods or services a worker produces. If a worker produces more, his or her productivity has risen. If the same worker's output falls, productivity is down. Nothing to do with cost.

Apart from appearing to be a diversionary tactic from where the blame truly lies for our productivity slump, the unending campaign to drastically reshape our industrial relations system could come back to bite the business sector. It overlooks the potential damage of such action on the long-term profitability of our corporations, particularly those with a domestic focus.

What is often ignored in this heated debate is that, outside of work hours, labour usually is referred to as consumers. Your workers are also your customers.

Reduce their income and eliminate their job security and you may well end up selling less product. On the other side of the ledger, productivity is also likely to suffer. Let's face it, cutting wages and conditions is hardly an incentive to work harder.

In survey after survey, we are told of the dire state of consumer confidence and the impact this is having on sales and company profits. It may be indefinite if a radical industrial relations shake-up is thrown into the mix.

During the past 20 years, our industrial relations system has been constantly evolving and an increasing proportion of our workforce has become part time, casual or short-term contract workers. That has increased labour market flexibility, allowing companies to adjust employee numbers as conditions dictate.

But those workers, most of them younger new entrants into the labour force, are a greater credit risk for banks simply because their income is less secure. They are less likely to buy real estate as they are less willing to commit to long-term finance.

Those that do take the plunge often do so with financial assistance from their baby boomer parents, the ones who had a steady income and a secure job.

That aside, the evidence is now clear. Labour market productivity is nowhere near as dire as our business leaders suggest.

According to McKinsey's Beyond the Boom: Australia's Productivity Imperative labour productivity rose at an annual 0.3 per cent during the past six years. That's a snail's pace when compared with the experiences of the 1990s when productivity grew at an annual 3.1 per cent. At least it is positive. Capital productivity on the other hand, has turned negative, wiping $43 billion from national income. Why? Well, a couple of reasons. One is that much of the enormous recent investment in new machines and building new mines has yet to generate an income. And so as that new plant and equipment starts churning out exports, a great deal of our productivity ''problem'' - both for labour and capital - will be solved.

But the report also highlights what must be an uncomfortable truth for Australian managers, particularly in our resources sector. It reckons a large portion of the cost increases in our mining sector is down to poor management. With a resources boom of unprecedented proportions, the scale and magnitude of the projects under construction has stretched management capabilities, many of whom have little experience with these mega projects.

The McKinsey criticism was not confined to the resources sector. It seems management in our manufacturing industries underperforms most advanced economies. We're ninth on the list after America, Japan and European nations such as Germany, Sweden, Britain, France and Italy with Canada in fifth place.

America's productivity has soared in recent years, although there is evidence it has begun to taper off. In part, that is because of its high unemployment. The most productive workers were the ones more likely to keep their jobs when the recession hit. But there is more to it than that.

Innovative management techniques - working out how to produce more with the same inputs including workers - has been a driving force behind the resurgence of US manufacturing, along with a weak dollar that has boosted exports.

Our productivity ''problem'' will best be solved through investment - in new and more efficient machines and in education to produce more skilled workers and better managers - not with a slash-and-burn approach to wages and conditions. That's something you're unlikely to hear in the coming propaganda war.

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Bargain sites face endgame

Online sales plus geographic convenience could add up for traditional retailers.MYER chief Bernie Brookes says online bargain sites, such as Catch of the Day, GraysOnline and DealsDirect, have ''had their moment in the sun''.
Nanjing Night Net

And he says Australia's traditional retailers will start to dominate online as they get ''fair dinkum'' about the web and integrate it with their stores as an omnichannel offering.

Mr Brookes said these ''flash sites'' all faced the same problem in terms of consistent availability of product and attempt to establish the brand trust of traditional retailers.

''They've been there when there has been no effective competition,'' Mr Brookes said. ''If we produce a list in three years' time of the top internet sellers in Australia, it will be dominated by the Myers, the David Joneses, the Kmarts, the existing bricks-and-mortar retailers. That's exactly what's happened in the US and UK.''

One critical advantage for traditional retailers was the geographic coverage of their stores. Once this was integrated with their digital service as an omnichannel offering, it would be hard for pure online players to compete with the convenience and service, Mr Brookes said.

But he admitted that global price harmonisation - to ensure local prices were competitive with what overseas sellers can offer - was one of the last pieces of the puzzle needed to make all this work.

He said surveys of in-store customers indicated that they rate convenience, fashion/style, service and price, in that order, but it was a different story for online.

''When we survey our customers online, price is No. 1,'' he said.

Mr Brookes said 20 per cent of the company's range was house brands and these were unaffected by price harmonisation. Another 40 to 45 per cent of Myer sales were globally price competitive.

''However, we've probably got 20 to 30 per cent of the range which is not competitive on a world scale,'' he said, naming cosmetic companies and men's apparel as two of the main culprits.

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Power and the passion play across the boards

An elite web of influence connects some of the fiercest corporate rivals.
Nanjing Night Net

LINDSAY Maxsted may be the most influential person in corporate Australia.

An analysis of public company directorships shows that Mr Maxsted, a director with BHP Billiton, Transurban and Westpac, is capable of exercising a more powerful influence over the most common measure of Australia's corporate performance than any other person - and that by a fair whack.

Mr Maxsted's positions give him board-level influence over companies valued at more than $182 billion. He takes part in decisions that change the course of more than 16 per cent of the total weight of the S&P/ASX 200 Index, the most-watched index of Australian shares.

The next-most-influential person, fellow BHP board member Carolyn Hewson, holds sway over nearly 10 per cent of the index. She is also a board member at developer Stockland.

The findings are part of a project carried out over months by The Age to chart the networks and influences that direct - quite literally - our largest, most important companies.

CLICK HERE TO GO TO OUR INTERACTIVE MAP OF BOARDROOM CONNECTIONS

The primary outcome of the project is a map of board-level connections that tie the companies that comprise the 200 to one another. The map includes biographical information collated by Who's Who Australia and can be viewed at www.theage南京夜网.au/opinion/blog/the-crunch.

Companies tend to be spoken of as if they were distinct identities, engaged in bitter rivalry and constant battle for a share of consumers' wallets.

Incongruously, company boards tend to be spoken of as clubs, membership to which is reserved for an elite few who spend their careers flipping from one boardroom to the next.

Of the 1539 directors on our list, 205 hold positions on multiple boards. Qantas director Garry Hounsell alone holds five - Nufarm, Orica, PanAust and DuluxGroup are the others - making him the person with the greatest number of board seats.

And if Mr Hounsell is a hub through which many companies are tied, his influence extends further by the connections on his boards - particularly Qantas. Seven of the 15 directors at the notional ''national carrier'' hold additional seats within the top 200 companies.

Mr Maxsted says it is easier than might be imagined for directors to compartmentalise their responsibilities from company to company. ''In each of those three roles there are very clear mandates for what I need to do,'' he says.

However, he says it was invaluable to take lessons learnt in particular contexts and apply them elsewhere.

For example, he says he did not go to BHP to learn about China, but the knowledge is invaluable in his role at Westpac.

All the connections depicted in our project are public, but that does not make them obvious.

Many of the most interesting connections are at one or two degrees of separation from any particular company.

For example, BHP Billiton and Rio Tinto are the first- and second-largest companies listed on the ASX if measured by the total value of their shares. They are also, perhaps, the exchange's most prominent rivals. Yet, they are connected at a single degree of separation. Our map shows Rio director Richard Goodmanson is on the Qantas board with John Schubert, a BHP director.

As the benchmark index of Australian shares, the S&P/ASX200 Index, more than any other financial instrument, influences and describes the way the Australian corporate universe is perceived.

''Power,'' according to shareholders' rights advocate Dean Paatsch, ''is the ability to mobilise capital.'' It is that assertion that leads us to conclude that Mr Maxsted may be the most powerful in Australia's pool of public company directors.

Mr Maxsted connects BHP to Westpac, where he also sits as a director.

Companies are ''weighted'' within the S&P/ASX200 Index, and their shares influence the performance of the index depending on that weighting. BHP and Westpac are the first- and third-most influential companies on the list, carrying more than 15 per cent of the weight of the index between them.

Until very recently, BHP and Westpac shared an even greater bond, as Ms Hewson stepped down from the Westpac board just last June. During that period she would have sat comfortably atop our measures of influence as the nation's most influential corporate director.

A comparable nexus of power can be found surrounding the boardroom table at a much smaller corporate player, punting group Tabcorp.

That board boasts a prodigious financial pedigree, as it hosts one director from Commonwealth Bank (Jane Hemstritch) and another from ANZ (Paula Dwyer). Tabcorp director Elmer Funke Kupper also sits on the board of ASX Ltd, the company that operates the exchange itself, as that company's chief executive.

Tabcorp's board makes it possible to tie all four of the nation's largest banks within three degrees of separation.

■Westpac director Elizabeth Bryan sits on the Caltex board with National Australia Bank's John Thorn.

■NAB's Jillian Segal sits on the board of ASX Ltd with Tabcorp's Elmer Funke Kupper.

■Tabcorp links ANZ and Commonwealth Bank by hosting CBA's Jane Hemstritch and ANZ's Paula Dwyer, both on the one board.

The supermarket industry is similarly cosy. Coles and Woolworths are separated by a single company; infrastructure giant Lend Lease.

Colin Carter, a director of Coles' owner Wesfarmers, shares the Lend Lease board with Woolworths director Michael Ullmer.

The network can be extended from Coles to Metcash, owner of supermarket chain IGA, in one step: building materials company Boral. Both Wesfarmers' Bob Every and Metcash's Richard Longes sit on that board.

And to avoid suggestions of bias, it must be said that the board of media company Fairfax, the owner of this newspaper, is directly connected to Ten Network Holdings, with which we compete for online traffic.

Hungry Jack's founder Jack Cowin has been a director of Ten since 1998. He was appointed to Fairfax last month.

Through Mr Cowin, the media industry becomes very cosy indeed. He shares the Ten board with Lachlan Murdoch.

That association links, via one degree of separation, the company that owns this newspaper, to News Corporation, publisher and owner of The Australian and the Herald Sun, two of this paper's most direct rivals in every media platform in which we operate.

[email protected]南京夜网.au

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