Cotton On Group expands mega stores: Is this mimicking other brands?

The head of retail at youth brands network Cotton On Group says apparel is no longer king. But as the company focuses on opening more “mega stores” encompassing all of its lifestyle brands, one expert warns price is still the most important factor in capturing consumers.

Natalie McLean, who heads up retail strategy at the nation’s third largest privately owned retailer, has told Fairfax this week that many categories other than clothing have been outperforming for the retailer.

Despite this, the company’s focus will be expanding its network of one-stop shops. These include products from the company’s imprints Cotton On, Cotton On Body, rubi shoes and Typo.

There are currently 90 mega-stores in Australia, as well as sites in Malaysia, New Zealand and South Africa. McLean told Fairfax Cotton On will close up standalone stores when leases finish in favour of opening new mega-store formats in future.

The news comes as other bricks-and-mortar stalwarts announce radical changes to their floor designs. Last week, department store Myer shared news that it would be trialing ‘off price’ discount floors within some of its stores to capture bargain-hunting shoppers.

Cotton On’s decision to bring together more brands into one space might seem like a forward-looking strategy to capture customers. However, Paul Harrison, professor of marketing and consumer behaviour at Deakin University, tells SmartCompany it’s likely this is a tactic to fight the fact that shoppers already expect a diverse product experience in all stores.

“What we’re seeing is basically a reflection of what everyone’s trying at the moment,” Harrison says. 

In the homewares and lifestyle retail space in particular, there are already competitors who offer one-stop shops for clothing, lifestyle and consumer goods in one space. Harrison says in the race to take customers away from the competition, Cotton On’s mega-store strategy looks to keep customers in one place for as long as possible in an otherwise fractured retail market.

“All they’re doing is to a certain degree is copying Muji, copying Kmart, and making things a bit more of a ‘lifestyle’ kind of thing. They’re responding to the market,” he says. 

Maintaining the “Cotton On segment”

IBISWorld’s 2017 report into the discount department store space found incumbents would be challenged by online competitors in the next 12 months. However, sales in the $10.6 billion industry are dominated by the product categories Cotton On is looking to grow.

Sales of clothing, footwear and accessories make up 29% of overall sales in the discount retail market, while furniture and homewares make up 20% and stationery six percent.

Retail experts have previously told SmartCompany Cotton On’s strength has come from the company’s speed to market and product range. 

Harrison agrees, and says while the format of stores is an important sales tactic, the most important thing for the brand moving forward will be the price and appeal of its product for its core base: the “stylish young segment” of Australian shoppers.

“Maybe they [the customers] are in their first jobs, at uni, house sharing,” he says.

The Cotton On core market, which includes a large percentage of “people starting out in life” don’t tend to care so much about store layouts as much as they do about price and whether the products work for them, he says.

Keeping that customer base on board as competitors continue to flood in will be about resisting the temptation to jump into a higher-end offering.

“Pricing is always going to be an issue. If Cotton On try to be too premium, they will lose that segment.” 

The company is now more than a quarter of a century old, but Harrison believes shoppers care less about how Cotton On changes its format compared with years gone by, and more about whether the products on offer.

“It’s a younger target market, and a very broad segment, and generally they are not hung up on what Cotton On ‘was’ in the past. The critical thing is, ‘do the products actually suit what they want to buy?'” 

Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on Twitter, Facebook, LinkedIn and Instagram.