Cotton on Group

By Paige Rundle

S3567307

Word Count: 3994

Executive Summary

This analytical report reflects on the current and complex fashion market situation.

The Cotton on Group has been around since 1988 and has grown enormously since then

consisting of 7 brands.

An analysis of the environment was undertaken by the author using the PESTEL method;

Political, Economic, Social, Technological, Environmental and Legal.

A TOWS (Threat, Opportunity, Weakness, and Strength) Matrix was done on the company.

The industry was looked at with the 5 porter’s forces looking at the impact that each force

will have on the company.

A BCG model was done on the group identifying the Stars, Cash Cows, Question Marks, and

Dogs. Rubi shoes were identified as the brand that is a dog and should be harvested.

Strategies implemented by the company was differentiation and cost strategies which the

group can look at working on.

The general recommendations made for the group were advancing in technology, research

into generation Z, supply chain transparency, expansion into new markets.

Guerilla recommendations were also used for specific brands.

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Table of Contents

Introduction ..................................................................................................................... 4

1.Analysis of environment ................................................................................................ 5

1.1 Political ............................................................................................................................. 5
1.2 Economic........................................................................................................................... 5
1.3 Social................................................................................................................................. 6
1.4 Technological .................................................................................................................... 6
1.5 Ecological .......................................................................................................................... 7
1.6 Legal ................................................................................................................................. 8

2. TOWS Matrix ................................................................................................................ 8

2.1 Strength and Opportunity ................................................................................................. 8
2.2 Strength and Threat .......................................................................................................... 9
2.3 Weaknesses and Opportunities.......................................................................................... 9
2.4Weaknesses and Threats .................................................................................................... 9

3.Industry Analysis ......................................................................................................... 10

3.1 Barriers to Entry ............................................................................................................. 10
3.2 Substitutes ....................................................................................................................... 10
3.3 Buyer Power.................................................................................................................... 11
3.4 Supplier Power ................................................................................................................ 11
3.5 Rivalry ............................................................................................................................ 11
4.1 Stars ................................................................................................................................ 12
4.2 Question Marks............................................................................................................... 13
4.3 Cash Cows....................................................................................................................... 13
4.4 Dogs ................................................................................................................................ 13

5.Strategies .................................................................................................................... 14

6.Recommendations....................................................................................................... 14
6.1 General ........................................................................................................................... 14

7.Appendices.................................................................................................................. 22

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Introduction

This report was prepared by Paige Rundle, a third year RMIT student undertaking the

Bachelor of Fashion.

Cotton on Group was founded by Nigel Austin selling denim jackets from the boot of his car

in Geelong. The company has massively expanded since 1988 and now has 7 brands in their

Group. The brands consist of Cotton on, Cotton on Body, Supre, Typo, Cotton on kids, Rubi

and Factorie, a wide variety of adults, kids and teen clothing, stationery, shoes, sleepwear,

and undergarments. They have over 1400 stores covering 19 countries and are still rapidly

growing.

The data from this report was obtained from secondary data

This analytical report is directed to Tarun Panwar at RMIT University, Brunswick.

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1.Analysis of environment

The analysis of the environment is done by using the PESTEL system which looks at the

political, economic, social, technological, environmental and legal macro environment. See

Appendix A.

1.1 Political

In 2017 when Donald Trump became one of the most powerful men in the world as president

of the USA, it caused many problems for the country as well as the rest of the world.

Australia has been and will continue to be affected by the Trump government as one of the

first things that they did was abandon the Trans-Pacific Partnership agreement which has still

gone ahead with Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico,

Peru, New Zealand, Singapore and Vietnam (Department of Foreign Affairs and Trade,

2018). With these 11 countries and USA, it comes to about 40% of the world's trade (BBC,

2017). It benefits the nations in the partnership as it extends economic ties by getting rid of

tariffs and helping trade between the countries. Trump government got out of it because they

believe that there will be job loss within America as people are more likely to buy goods that

are in this trade deal if they are cheaper. This could affect Cotton on Group (COG) as it could

now make trading to the USA more expensive as the USA has pulled out. There is still a new

opportunity for COG to enter new markets within the partnership that they have not already

tapped into.

1.2 Economic

Exchange rates can highly affect the Australian retail industry in positive and negative ways.

According to the Reserve Bank of Australia (RBA), the exchange rate for the 12 April 2018

was $1 AUD equaled to $0.7751USD and 0.5466 Pounds. This can be seen as a negative for

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the industry as having a lower exchange rate encourages Australian customers to shop online

from overseas brands as they are getting a cheaper rate instead of buying locally. However,

this can also impact Australian brands positively as getting their products manufactured

overseas is cheaper and most manufacturers use USD to do their transactions. Overall COG

can benefit from having this exchange rate as they save revenue on production but in turn,

could lose customers as they are saving money from buying online internationally.

1.3 Social

Buying behavior can depend on 4 different factors being physiological e.g. perception and

attitudes, personal e.g. age and occupation, social e.g. friends and family, and cultural e.g.

environment and country grown up in. There are many different theories for it which makes it

hard to narrow down on the original theory but they all look into different parts; psychology,

sociology, economics, personal and environmental variables (Stavros et al, 1999). With

generation Z on the rise to be the largest generational group, the industry needs to be aware

that they have completely different buying habits than other previous generations (Australian

College of Marketing, 2014). The current baby boomers are not priced sensitive as they have

the most disposable income and are more likely to be a returning customer if they get the

right service (Eastman and Liu, 2012). Generation X is known to interpret advertisements

differently to any other generation, they are not impressed by designer labels or smart

commercials (Leung & Taylor, 2002). For Generation Y they are more impressed with the

brand, style, and price as well as the social identity that comes with that. Gen Y spend close

to 70% on the fashion retail industry (Valaei & Nikhashemi, 2017). Generation Z are

majority smartphone users for online shopping purposes, they have a lot of time on their

hands so they can research what they are buying e.g. getting the best price. They have no

brand loyalty but still expect to get the very best service (Claveria, 2017). COG is affected by

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this as they need to make sure they are marketing to each generation correctly for each brand

and if they were to introduce new brands.

1.4 Technological

Technology is advancing rapidly which makes staying on top of it extremely difficult for the

Australian industry especially as it is a common assumption that Australia is outdated in

technology. Companies like the COG are doing some things that are up to date like using

suppliers who have the newest technology advancements for making garments but this is not

widely known and also not made in Australia (Cotton on, 2018). Technological

advancements are happening all the time around the world, with Virtual Reality and

Augmented Reality being large contributors in the retail industry right now. These two

technologies have not been widely introduced into Australia yet so there is room for COG to

bring these in.

1.5 Ecological

Sustainability has become a huge part of today and what we buy. With more and more people

learning about the consequences of fast fashion on the environment it is making it harder for

the fashion industry to get away with as much especially with annual reports such as the

Baptist Report which gives companies an overall rating on policies, knowledge of suppliers,

auditing the supplier and having a good relationship, and worker empowerment (Baptist

World Aid, 2017). The fashion industry currently contributes negatively to the environment

with so much manufacturing being done in Asian and Indian countries we don’t first handily

see it in Australia. Companies like Reformation are unique in the fact that they focus more on

the sustainability side rather than staying on trend and having fast fashion. They send out a

sustainability report quarterly, in this report, it shows that they use the eco-friendliest

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materials and also use second-hand materials and give it new life, they have green building

infrastructure and they recycle 75% of all their rubbish. On every product on their website,

they tell the customer how many Carbon dioxide, water and waste savings that product has

used compared to the industry standard. (Reformation, 2018). Currently, COG does hundreds

of audits every year on their suppliers and all of their brands on the Baptist Report scored A-

which is very good in terms of sustainability.

1.6 Legal

Having stores in many different countries can make it difficult to know all of the laws around

trade and restrictions. This could affect the COG as it can make employment, opening new

stores, shipping produce etc. in a new country. It could delay orders and therefore make the

company behind and miss drops which could be very costly for the company.

2. TOWS Matrix

TOWS meaning threats, opportunities, weaknesses, and strengths and looks at the internal

and external factors. See Appendix B

2.1 Strength and Opportunity

Currently, COG is in 19 countries around the world with over 1400 stores. This shows that

they have the power to expand internationally already. As they have already got a strong

brand image from being an established Australian brand they are more likely to be accepted

by overseas countries and environments. As they have some stores in the USA already they

could look at expanding more there as that is one of the largest markets. They could also look

at expanding more into Asia and making themselves a well-known international brand. This

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could be an expensive process as they would have to alter the designs and sizes as it is a

completely different market compared to expanding into USA or UK. (Cotton On, 2018)

2.2 Strength and Threat

A large threat to every company/ brand is the ethical problems you can have with suppliers

and manufacturers. However, COG promotes their ethics very strongly in-store and online,

which gives the impression that they take sustainability and ethics very seriously. On their

website, it states from July- December 2017 there was a 41% improvement on management

practices in their factories and 98% of all their employees are employed full time giving them

the chance to earn a living wage. (Cotton on, 2018).

2.3 Weaknesses and Opportunities

By vertically integrating the company COG would be much more aware of what was

happening within the company at all stages and can ensure that the quality is of the standard.

Currently, the perception of the company from the consumers is that it is cheap and good for

basics and not always going to be great quality. By vertically integrating they could have so

much more control over products, environment, ethics, sustainability and possibly have

quicker lead times as well. Although it is difficult to become fully integrated it would make a

big difference to start off partly integrated.

2.4Weaknesses and Threats

As the company is out of date with technology as well as most of the retail industry in

Australia they have an ongoing threat of being outdone by local and international

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competitors. Currently, each individual brand under the COG is on social media sites such as

Facebook, Instagram, Snapchat, YouTube and Twitter, all of these accounts are updated

regularly which is a positive. Other than this they could invest in Augmented reality and

Virtual reality and bring this into their stores as they are big in the industry internationally at

the moment.

3.Industry Analysis

3.Industry Analysis

The porter 5 forces analyse barriers to entry, substitutes, buyer power, supplier power and

rivalry of a company or brand and look at the impact level they will have. (Appendix C)

3.1 Barriers to Entry

As the COG already have so many brands under their wing, most startups but also some they

have acquired, they are at an advantage. The Australian fashion industry can be very difficult

to tackle and thrive in for new businesses as there is so much competition already

(Courtenay, 2016). Startups need to look into untapped areas of the market to get them into

‘blue water’. With COG, they already have the experience and expertise for their brands so

won’t make the same mistakes as brands with less capital and less experience. With this

experience, they will be more likely to have high returns on their investment which is why

the impact level of entry is moderate.

3.2 Substitutes

The impact level for substitutes is moderate for COG as they already offer such an array of

products that if a customer is looking for another option or replacement they can easily go to

any one of the other stores under the COG group. Although if a customer is wanting quality

and don’t mind paying a bit more than they could go to a more expensive store that offers

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what they are looking for. This is something that COG can’t compete with as all of their

brands are on the cheaper side.

3.3 Buyer Power

COG’s buyer power is low as they already know their customer very well from extensive

research. They know that their customer is looking for low cost casual products however the

customer also wants quality for that same low price which could be something they could

have power over as brands are having to listen more and more to what their customer is

saying and wanting now.

3.4 Supplier Power

As COG has 7 brands they have many different suppliers for all of their brands some of

which they have worked with from the start so have a long-lasting relationship with them.

Everbright Fashion supplier has worked with the group since almost the beginning and

creates around 9 million garments for them every year as they have some of the newest

technology (Cotton on Group, 2018). Suppliers like these would have more power on the

group than some of the new suppliers as they produce so much. Having so many different

suppliers can be hard to keep consistency on quality.

3.5 Rivalry

The Australian fashion industry is so competitive making it exceptionally hard to not have a

lot of local and international competitors for all of their brands. As none of their brands are in

the blue water area it means they need to stay up to date on technology, fashion and their

consumers to stay as a primary competitor in the market. A positive for COG is that they are

so well known in Australia and most of the brands are still in the growth stage so they can

still keep innovating and growing with the market. (Kimmorley, 2017)

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4.Portfolio

In the BCG matrix model, there are 4 squares being Question marks which suggest high

growth and low market share, Cash Cow meaning high market share and low growth, Stars

that are high market share and high growth, Dogs are low market share and low growth. As a

whole group, they have nearly 20% of the market share for fast fashion in Australia only

losing out to H&M who hold 22% according to Forbes. As the COG doesn’t release

information about each of their brands market share this has been done on other secondary

information found.

4.1 Stars

The stars in the group are Cotton on body as they offer so much breadth and depth of

products but still offer them at a low price. By starting off selling just lingerie and then

expanding into sleepwear, active wear and swimwear they cover more than most of their

competitors. They keep growing and bringing in new products like their ‘super soft range’

that has launched and also personalization on products such as dressing gowns, ugg boots and

make up bags (Cotton on, 2018). Cotton on Kids is also a star as they don’t have any major

competitors in their market so they would most likely hold most of the market share and also

have so much room in the market to grow. Cotton on is also a star as they have been around

the longest out of all the separate brands. It may be in a growth/maturity stage but it still has a

high market share as shown from the IBIS World Clothing Retailing in Australia report

where it states that the company has 3.8% of the market share in Australia. They also are the

brand with 700 stores around the world which is the most out of the 7 brands which shows

they are growing a large amount.

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4.2 Question Marks

Question marks in the group are Factorie as they have room for a lot of growth in the industry

as a casual teen brand but they do not hold much market share. At the beginning of this year

all their stores in Asia were closed with no explanation which could show that they tried to

grow to soon (Inside Retail, 2018)

4.3 Cash Cows

Cash cows are Typo as they have 4.9% of the current market share for stationery. In 2016,

they opened their first store in the UK and have no opened 2 more showing that the

expansion is going successfully. Typo does have competitors who are Officeworks with

46.7% of the market share and Smiggle who have 12.3% (Richardson, 2017). Supre has a

large market share and did grow when it was first acquired by COG in 2013. They turned the

brand around and changed how customers perceived it. Now it is very popular in the teen

market and seen as being fashion forward which was done by understanding their customer

(Whiting, 2018)

4.4 Dogs

The dog in the group is Rubi shoes as they have stopped growing and stores are being closed

and they don’t have much of a market share. This could have been from a few things like

quality, price and fashionability but as a whole the company should look at harvesting it from

their group.

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5.Strategies

Generic strategies were made as a way of gaining competitive advantage to a brand and

giving them something over competitors.

The cost focused strategy is about lowering costs and having ‘no frills’. There are two ways

of doing this, by reducing costs but keeping the same industry standard pricing the company

is likely to increase on their profits. Charging lower prices could increase your market share

as customers are always drawn to lower prices and therefore still making profit on products

as the cost has already been lowered. This can be a hard strategy as it is not enough to just be

the cheapest brand out there as there are so many other low-cost brands that you need to

compete with so the key is to be the leader in this area (Mind Tools, 2018). COG already do

this with Typo as they already have a low cost on their products which isn’t the cheapest in

the industry but could be seen as leaders.

The differentiation strategy is about making you product or service different to that of your

competitor. It could include product range, functionality, customers values or your brand

image. Large companies that choose to do this strategy need to beware of staying on top of

their product development so that smaller competitors do not take over them. COG could do

more on this strategy as they have no differentiation to their other competitors currently.

6.Recommendations

6.1 General

They could look at advancing in technology by bringing in augmented/ virtual reality to their

stores and online. Other types of technology currently being used successfully are robotics

which are already being used in department stores in areas of the world to direct customers to

certain parts of the store depending on what they are looking for. This could save the

company revenue in the long run if they can use robotics instead of paying staff wages.

Drone delivery is another form of technology that is taking off and has been seen to work by

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Amazon and 7/11 overseas. This may be a while off for Australia as they have strict laws on

drones at the moment (Oshea, 2017). Looking at technologies that other brands and countries

are using whether they are much larger or way off for Australia is educational for a brand and

something that they can build towards.

Another strategy is starting research into generation Z as there is not a lot known about them

so far there is a lot of unknowns for the whole industry around the world. If COG can get

ahead of other Australian brands and even international brands and find out what exactly it is

this generation are looking for and what their buying habits are going to be then they can be

leaders in this area. This can be done by doing primary research like focus groups and

surveys and can also look at what is already known to form their own marketing scheme.

COG has a massive opportunity to make their supply chain completely transparent. This has

previously been seen to work positively for brands as customers like to see a product and

know exactly where everything has come from, if it is ethically/ sustainably sourced and

know how it has effected the environment. Companies that have done this successfully are

Reformation, Honest By and Maiyet. By looking at these companies they do have a relatively

higher price range than any of COG’s brands as they use sustainable fabrics etc. customers

feel they are doing good for the world even if it is in a small way. With this being such a big

trend in the fashion industry now and for the past couple of years, COG is quite behind.

Another recommendation is for COG to expand to new areas that would suit each of their

brands. As Typo has recently opened in UK and doing well they could look at opening more

stores and also look at opening Cotton On their once they have become more educated in the

market. Supre could be suited to the USA market for expansion once they have fully cracked

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the Australian market and know what works here and doesn’t although US is a completely

different market and would need a lot of prior information so as to be sure that it succeeds.

Cotton on could expand more into the Asian market as it is already there but only has a few

stores. This could be costly depending what part of Asia they expand to but it is likely they

would need to change things about their brand e.g. size, styles, seasons. As different parts of

the world have different weather to Australia they would need to design different stock for

each part or only send certain styles to certain parts of the world which has been seen by a lot

of international brands e.g. Zara.

Guerilla Marketing Strategy

Ambient marketing is the placement of advertisements at unexpected or strange places. This

can be seen by Kit Kat having an advertisement covering a park bench (See appendix E).

This is an effective use of ambient marketing as anyone walking past or sitting down would

think of Kit Kat and likely to buy one or have it on their mind. It stands out as an

advertisement with the red wrapper on half of it. The ad can appeal to any age group or

market as these are all their target market so they have done this very well. Cotton On could

put large mirrors around the city on bus shelters with an item of clothing where potential

customers walking by can stop and see what they would look like in that item of clothing

(See appendix E)

Sensation marketing is one off advertisements that catches people’s attention as they walk by.

Sprite did this is in one of their advertisements seen in Appendix F which worked effectively

as they made it look like the showers on the beach were sprinkling out sprite from a soft

drink machine. This is an example of sensation marketing as they are getting wet by the

showers so it is touching their feel sense. This is an example of a well-done advertisement as

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they are targeting the right market and from the beach the people may have been dehydrated

and gone and brought a sprite. Cotton On could look into doing something like this.

Viral marketing is a technique that a company does to spread around something so fast

through social media. Pokémon Go the app was an example of viral marketing even though

they didn’t outright do much marketing for the release of it, the nature of the game being

augmented reality was enough to get people excited about it and get the word of mouth out.

The app had the most downloads in the first week than any other on the app store (Pilon,

2017) showing that therefore this was viral marketing. Supre could create a slogan that gets

so well known that people can know the brand from hearing the slogan similar to Nike.

Stealth marketing is when a company markets in a way that the customer doesn’t realise they

are being marketed to and therefore are unaware that they are being persuaded to buy

something. This type of marketing often happens on movies where use product placement.

See Appendix G. Apple often product places on tv shows and movies and majority of the

viewers don’t realize that it is purposely being used to market to them. Cotton On could look

at putting their clothes into films and more tv shows.

Ambush marketing is when a brand will use a big event to market or advertise without legally

paying. This is seen in Appendix H, at an Obama press conference where 3 people working

for Abercrombie and Fitch stood behind Obama and with the Fitch label in clear view for the

camera. This would of likely been a successful technique as millions of people watch the

press conferences and would have seen the label. Typo could put their pens and notepads into

people’s mailboxes like what happens with real estate agents.

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7.Appendices

Appendix A
Environmental Trends Is it What is the likely impact?
Factors opportunity
or threat?
Political -Government stability threat High
-GST -Makes it harder to trade with
-Brexit Brexit and Trump trade laws
-Trump Presidency
(TPP)
-Regulation
Economic -Economy Threat and Moderate to high
-Unemployment opportunity -economy is different in all
-Interest Rates countries but if Aus was unstable
-Exchange Rates would cause big problems for
-Inflation COG
Social -Education level Threat and Moderate
-Safety opportunity -Buying habits of each generation
-Buying habits can be very difficult to market to
-Population growth rate each segmentation
-with a bigger population rate
there will be a bigger market in
future
Technological -The Rate of Threat and Moderate
technological change opportunity -Australia is behind in
-Access to the newest technology
and best technology
-Access to internet
Ecological -Weather threat High

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 -Climate change -If the weather is bad then
-Recycling suppliers won’t be able to get
-Sustainability product to where it needs to be

Legal -Employment laws threat Moderate

-Increasing labour cost -Employment laws different in
in Asia every country

Appendix B

External Opportunities External Threats

Internal Strengths
-Strong Brand Image
-Established Australian
Brand
-Sustainability practices
-Multi-segmented
-Internationally known
-Family life cycle- age with
customer
-Promotion of ethics
-Australian based ownership
-Societal marketing
-Location
-Wider international
expansion
-Acquisition of new brands
-Collaborations
-Experiential shopping
-Cotton has become cheaper
-Disposable income increase
-Vertical Integration
-Trading up
-Product mix
-COG could use their strong
Australian brand image they
already have to expand into
more countries
-Acquire 1 or 2 new brands
that would build on their
multi segment
-Collaborate with a celebrity
or bigger brand to get them
more international presence
-Trade up so that COG can
keep their current target
market and family life cycle
but also create new markets
-Competition
-Global warming
-Economy
-Government stability
-Headhunting of employees
-Supplier ethical problems
-Use the strong brand image
of an established Australian
brand to beat competitors in
the market
-As COG are internationally
known even if the economy
falls in one country it will
still be stable in another
-As they already have a
good promotion of their
ethics and societal
marketing it would be
unlikely that they would

23
-Strong knowledge of
market
Internal Weaknesses
-Not up to date with
technology
-Quality
-On trend design
-Brand perception
-Social Media
-Product line
-Store merchandising
-Cotton has become cheaper
and therefore could spend a
bit extra to get the better-
quality cotton
- Acquisition of new brands
may help to increase the
trendiness
-Trading up would increase
the product line
-Vertical integration could
also help to improve the
quality
have any ethical problems
with suppliers
-As they are not up to date
with technology this could
cause them to fall way
behind in terms of their
other competitors
-Having good quality
garments can come back to
ethical problems with the
supplier and also not being
up to date on technology
-Compared to some of COG
competitors their stores are
very messy

Appendix C
Forces: Barriers to Substitutes Buyer power Supplier Rivalry
Entry power
Impact Moderate Moderate Low Moderate High
level: high,
moderate or
low
Detailing -High fixed -As COG -COG -They have -COG has so
costs for rent already offer customers so many many
etc. to open a broad want different competitors
new stores range of improvement suppliers for for each of
-High products, in quality but all of the their brands
returns from substitutes still to keep brands so it locally and
experience are not an low price isn’t a high internationally
as they have issue -Customers impact level -As most of
already been -Quality don’t have -The quality their brands
around a could be a much buying of the are still in
long time reason that power as product is their growth
-Being in customers COG knows still very stage of the
Australia substitute their important life cycle they
they have -If the customer and needs to are still
lots of customer very well so be competing
access to doesn’t want are already standardized very hard with
different clothing giving them -Completely their
suppliers then they mostly what transparent competitors
can spend they want supply chain

24
 -To start up their money is something
a new brand on a lot of that
under their other things customers
name may are wanting
be difficult now

Appendix D

Market Share
Low
High
Star Question Mark
Cotton on Body
High

Cotton on kids
Market growth rate

Cotton on Factorie

Cash Cow Dog

Typo

Supre
Low

Rubi Shoes

25
Appendix E

Appendix F

Appendix G

26
Appendix H

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