Otto Group differentiates brands as part of overhaul

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Germany-based Otto Group is to restructure its core business after revenue growth slowed down from 12.5% to 1.7% in 2011.

Mail-order business Otto group is moving more towards ecommerce

The predominantly fashion company, which sells goods through catalogues, ecommerce and in stores, aims to improve its sales and earnings by investing in ecommerce and high-growth markets.

During 2012/2013 the company will refocus its efforts into restructuring to save costs and invest in price. As part of this, the company will offer a clearer differentiation for its key brands – Otto as a general merchandise retailer with a focus on fashion, and Baur and Schwab as specialist fashion retailers.

The company will also work to implement m-commerce shops for these three brands, a move long overdue in a sector that is implementing technology so rapidly. However, as a company organised as a holding of largely independent retailers, Otto Group’s ability to push through innovation has always been hampered and, as an example, the company has struggled to implement a common SAP IT infrastructure for its brands.

Complementary to the group’s shift away from the declining business of catalogues, and into e- and m-commerce, Otto Group has revealed plans to establish an online, mobile and stores payment service called Yapital, which is to be positioned as a competitor to PayPal.

In terms of internationalisation, Otto Group is moving decisively into growth markets such as Russia, Brazil and Turkey. Things are looking up in Russia, where Otto Group Russia sales jumped 34.9% to R487m (£391m). With a growing middle-class, low market concentration and a largely absent Amazon, Otto Group aims to achieve revenues of R1bn (£802m) over the next few years in this market. There are also signs that growth in Brazil is an objective with the retailer looking to achieve sales volume of $500m (£319m) within five years.

At the end of this period, it is hoped Otto Group’s efforts will lead to more competitive pricing in the German market and stronger differentiation of its core brands. Its ability to innovate is important and the retailer has participated in an investment company for start-ups – the Oryx Project – which should lead to access to new ideas and opportunities. Things should be looking up for Otto Group, but only if the company can position itself away from its mail-order business in markets where ecommerce is thriving.