Otto Group in Retailing (World)

SCOPE OF THE REPORT

Scope

ll values expressed in this report are in US dollar terms, using a fixed exchange rate (2011).

011 figures are based on part-year estimates.

ll forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data are expressed in current terms; inflationary effects are taken into account.

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The Otto Group global company profile looks at Europe's second largest non-store retailer.

Founded in 1949, Otto has evolved from a handmade catalogue company to one of Europe's largest multi-channel retailers. The profile analyses the performance of Otto during 2011 both in its domestic market, Germany, and in international markets. The profile also examines product and geographic expansion opportunities within non-store channels that the Group could undertake in the short to medium term.

Otto Group to focus on core operations as profits continue to tumble

Despite a significant sales boost, 2011 yielded lower profits for the Otto Group as the non-store specialist continued to struggle to turn around its business.

The 12% increase in sales was attributed to organic growth as a result of improving conditions in several retail markets, most notably in Germany. However, inorganic growth from the acquisition of Quelle also aided 2011 sales growth.

Otto Group grew from a non-store retailer to a conglomerate with sizeable operations in consumer credit and logistics. Otto Group operates through 123 major subsidiaries including several brands that compete against each other in the same market.

In a bid to streamline its operations, Otto Group has vowed to return to its core business. Consequently, over time the company has sold a number of its non- retail subsidiaries. 2011 saw the completion of the sale of Cofidis group, the consumer credit side of the business. Otto Group is likely to continue to divest businesses not essential to retail.

Leveraging the Crate & Barrel store network to break into the US non-store retailing market

rate & Barrel operates 90 stores in the US and a further five in Canada.

ith such an extensive store network and supply chain, Otto could introduce further non-store retail brands into the North American market without the same costs associated with a market entry.

he key challenge for Otto will be standing out in a very saturated and competitive internet retailing market.

Expanding its product scope to cover other fast- growing non-grocery areas

C tto operates a number of non-store retail brands such as Bon Prix and Freemans. However, the majority of these focus almost exclusively on apparel as the primary W product area.

ith such strong penetration in the non-store market across

T

Europe, Otto has a number of opportunities to widen its product scope and cross-sell further non-grocery products such as beauty and personal care and homewares.

Improve profitability by continuing its disposal or divestment of non-core businesses

ince 2006, Otto has divested a 49% stake in OFT, a major travel agency chain in Germany, and 2011 saw the completion of the disposal of its former consumer credit supplier, Cofidis. The sale of the subsidiary helped Otto turn a profit in the financial year 2010/2011.

espite these disposals, Otto owns a number of horizontally-linked subsidiaries in 2012 which could be sold, including Hanseatic Bank.

Streamlining its brand portfolio by rationalising the number of apparel brands on offer

tto maintains separate websites for apparel retailers including Otto, Schwab and Bon Prix. Invariably, many of these retailers target the same audience leading to unnecessary competition.

hasing out some of the less successful brands and focusing on the stronger ones would create cost savings. This, in turn, could be used to invest in other areas of the business such as expanding its m-commerce offering.

A: Otto Group forms a joint venture, Baumarkt Direct, with store-based DIY retailer, Hagebau. The new operations take Otto into a new territory in terms of product mix and marks a clear move away from apparel.

B: Otto expands its internet presence with the acquisition of private shopping club, Limango. The acquisition takes Otto into new markets, including Turkey.

C: Milestone year for Amazon as it overtakes Otto to become the largest non-store retailer in Western Europe. Despite strong growth, reliance on the German market sees Otto lag Amazon’s sales growth.