The Magic and Paradox of Otara

Otara Gunewardene’s success in the world of entrepreneurship is a jaw dropper. Now by giving up control of Odel, she perhaps gives a glimpse of that passion behind the success

By Shamindra Kulamannage.

Published on November 01, 2012 with No Comments

In a country that sourly lacks chief executives with star power Otara stands tall.

In love, letting go is sometimes the only way to hold on to what’s important. Be too possessive, and it risks throttling the magic. Letting go too soon resonates a promiscuous passion sapping abandon.

Entrepreneurship is often a similar pursuit of passions. Like in love the culprits that dull the entrepreneurial senses are responsibility and pressures of adulthood. It takes remarkable focus and skill to balance passion with responsibility and still maintain a Peter Pan and Tinker Bell type adventurous outlook on life. Successful entrepreneurs overcome challenges in ways that don’t dull their senses or wear down the magic.

On the flipside, success and the pressure of being a public company often tempt founders to compromise the ideals in favor of scale and fatter bottom lines that come with it. An entrepreneur’s raw passion and identity is often diminished because success sometimes also leads to complacency from the founder and often more delegation to a team which may not share the same mad passion about the business.

For a lifestyle brand after greater market share the challenges are particularly daunting because consumers are unwilling to pay premiums for ubiquitous products. However it isn’t impossible to grow and continue to demand premiums like some firms including the makers of Hermes scarves and Louis Vuitton bags have shown. Attention to detail and a sheer passion for excellence define them and other haute couture brands which have generally done well even during recessions.

Sometimes entrepreneurs will do anything to nurture the passion and remember they are in love with what they do. Lifestyle retail store Odel’s founder Otara Gunewardene faced such a choice of having to pick between giving up control of a brand she built to ensure it would continue to grow or keep majority and tight control in the expectation that more of her magic will rub off.

Otara Del Gunewardene gives the impression that giving up majority control of her life’s passion Odel and its brands, wasn’t a big deal. “It was all about growing the business,” she says during an interview at her small ground floor office entered through the frosted glass doors at the end of the gift wrapping department at Odel’s flagship store at Alexandra Place in Colombo. “I can see so many opportunities and possibilities with the brand and I just feel there is much more to do,” she claims.

Otara Gunewardene and her two brothers, who are also shareholders in the business, sold a 42% Odel stake to Parkson Retail Asia, a Malaysian department store chain. Although the trio received Rs23.50 per share they have undertaken to subscribe to a one for one rights issue at Rs20 per share handing back most of the cash as reinvestment. Parkson has also pledged to subscribe to the rights as part of the share sales agreement and if holders of the publicly held shares also took up the offer Odel will raise Rs2.9 billion at its conclusion for ‘investment in retail spaces,’ according to the firm. That’s an investment eleven times greater than the Rs250 million Odel raised through an IPO in 2010 when the company also went public.

Parkson is a 25 year old business compared to Odel’s 22 years. Since Parkson’s founding, its home base Malaysia transformed from a regional backwater to a manufacturing and service center. Malaysia attracts 20 million tourists annually about the same as Sri Lanka’s population. Parkson, with its only three year head start against Odel, is around twelve times the size based on its Rs44 billion (Singapore Dollars 442 million) turnover in the last financial year. Singapore listed Parkson Retail Asia, which has stores in Malaysia, Indonesia and Vietnam; last year achieved a net margin of over 10% plus compared to 5.3% at Odel last year, the highest the firm has achieved.

More than anything however the fortunes of Parkson and Odel are about the divergent paths of their home markets in the last two decades. Malaysia rapidly urbanized fuelling a ravenous demand by its population for the goods they couldn’t have a generation ago. Government policy also promoted domestic consumption and positioned Malaysia, with low import duties, as a shopping destination for tourists. Growing incomes at home and demand from millions of foreign visitors boosted the fortunes of retailers like Parkson who were quick to seize the opportunity.

Meanwhile in Sri Lanka retail evolved at a slower pace. During the 1980s’ many stores had indifferent men behind counters displaying the available wares. Shops were stuffy and readymade clothes were particularly hard to find because they were shelved, out of customers view, in tall glass cabinets behind a counter.

The communist era type approach to retail layout and service continued even after imports were liberalized. The retail liberation for apparel started when readymade clothes retailers here picked up surplus garments, sometimes with tiny imperfections, and sold them in the local market. Since these garments were unpacked: retailers with cabinets couldn’t accommodate them. Soon enough stores with more modern layouts, displaying readymade clothes on hangers, which allowed customers to try garments out for size before buying, started appearing.

Odel also owes its beginnings to factory surplus clothing which Otara, who was then a part time model, sold to friends and family from the back of her station wagon. A 1,100 square foot retail store selling apparel export surplus soon flowed.

Otara’s idiosyncrasies are a paradox. Being naturally reserved she doesn’t go out of her way to impress people with charming banter. Her speech is cautious and mellow with a measured cadence that’s generally uncharacteristic of chief executives. During her daily inspections of Odel department stores, she is completely focused on the product and displays indifference even when the narrow aisles are crowded with shoppers. However among Odel’s Sri Lankan customers, who account for 70% of its turnover, the electric charge is palpable when Otara is spotted in the store. Every ion in the store gains a proton and unconsciously drawn towards the vortex that is Otara. Shoppers nudge their partners, ‘it’s Otara,’ they whisper.

In a country that sourly lacks chief executives with star power Otara stands tall. Perhaps no other chief executive in Sri Lanka can claim their being, adds oomph to their brands. She exudes sparks of the vision of famous female entrepreneurs like Bodyshop’s Anita Roddick who created a brand with a social conscience. “Within the organization everything revolves around her. She’s very central, that’s because she clearly knows what has to be done,” explains an associate who has seen first hand how Odel transformed over the last two decades. “She is not an extroverted leader; she is introvert and it works because the whole system is built around that personality,” he goes on to explain.

But in contrast her status as a fashion icon is a carefully crafted one. Since Odel’s inception her fashion icon status has been rubbing off on the brand’s success on top of the huge cash outlays on promoting the brand. “It’s really paid off in the end,” she says about the early years when a disproportionate amount of cash was invested in the brand. “When I started 20 years ago, I used to spend a lot of money on the brand and for many years the company didn’t actually make a lot of money because I used to spend so much on the whole drama, the whole excitement.”

A combination of an alluring brand, focus on great products and creating drama around the Odel shopping experience has paid off for the firm. “You can build the brand but what you sell has to match that promise, otherwise you will only have fancy exteriors,” she says while admitting the firm as a share of revenue spends less on the brand than it did during the formative years.

Building an alluring brand and creating drama around such an otherwise mundane task like shopping for clothes takes ingenuity, and because it costs money it also requires guts. During much of Odel’s growth phase Sri Lanka was engaged in a long drawn conflict. Although incomes rose nominally during conflict years that increase paled in comparison to achievements of other Asian countries. The middle class here is not nearly as rich as the middle class in Asian markets like Malaysia for instance.

Unlike industries that supply the global market, which are immune to local demand and actually benefit when they can hire cheap labor, Odel faced a difficult predicament. The type of lifestyle products on its shelves and experience it offered isn’t recession and mood proof. When things aren’t going so well, people don’t shop. “Even if we brought items to sell it was not about the profit I can make,” she explains. “It was really about ‘will the customer buy it all?’. That was really the excitement, ‘it was never oh I made X amount by selling it all’, it was instead, ‘oh gosh! they loved it and I sold it all,” explains Otara of the choices that may appear flippant at first but were actually hardnosed decisions that kept attracting shoppers to her stores even during hard times.

Otara is enviably calm and uncomplicated according to colleagues who also admire her relentless drive. “She is very diligent and focused. She doesn’t take no for an answer and will keep at it, until the task at hand is completed. I think at the end of the day, she believes in herself and works hard towards achieving the goals,” observes Sanjay Kulatunga, a Director at Odel PLC. During the final touch-ups to the new wing of Odel’s Alexandra Place flagship outlet in 2001, Otara was at the site for 16 hours a day.

Otara is very diligent and focused observes Sanjay Kulatunga, a Director at Odel PLC

Otara has a highly developed sense of style; is a late bloomer on financial literacy; pursues the simple pleasures in life like happiness and love – and, above all, a psychotic obsession over the details. “Retail is about detail,” Otara explains. “From the paint on the wall to how the floor looks are really important. Otherwise you can have the products but it still looks shabby.” Few Chief Executives will manage the details as closely as does Otara and now that Odel is a public company influential stakeholders worry about that sustainability. “Odel is Otara dependent and it’s not a good thing for sustainability but we are constantly building capability in the organization,” points out a business associate.

Despite the fashionista image ironically Otara is no diva; she isn’t given to diva like tantrums and lacks any pretense according to people who know her. A colleague describes her as down to earth: ‘she will eat durian in the middle of Pratunam market or take a foot massage in one of those street side joints in Bangkok’s night market.”

However like an apprehensive little girl she is very private and takes time to warm up to people, even colleagues at work. Those in her inner circle claim she is charming, fun to be around and has no interest in the gossip. Her passion for the business is often shared by her senior colleagues who she often motivates. A sms from Otara to a colleague read “you get what you deserve and it is only the beginning. I want people who contribute well to grow with me and the company,” shares Ahamed Barry who quit his long term job at Odel this year to focus full time on his clothing brands Insomnia and Six Runs.

Her hands on style to management may have made it even more difficult for her to give up majority control. “I think so. For any self made entrepreneur, letting go is difficult. They like to get involved in every decision and want to have a say. The real strength is her ability to identify the need for change be it the IPO, or the sale of a stake to a strategic investor, in order to make sure the overall goal is met,” says Sanjay Kulatunga who joined the Odel board as an independent director ahead of the IPO.

“The big change came from the IPO, where she had to report to a formal board, from the family setting she was used to,” he adds about the first Techtronic shift for Otara.”Going public was a challenge for me. Although it didn’t change how the business functioned it was quite a big shift for me on how I looked at the business and managed the business,” Otara admits.

The second challenge was the entry of a new shareholder. “It was a good option and there was synergy between the two. They have a lot of expertise in the region, and it was also really a meeting between the two parties. More than selling shares or the business, the synergy has to be right.”

Otara’s obsessive focus over the product and its presentation keeps her entire team on their toes. “Ten years ago I would spend 70% of my time on the shop floor and obviously that has reduced, but I don’t cut myself off from the stores because that is really the bread and butter of Odel. If that’s not working at its best really there is no point looking at the financials.” Staff and creative people arrive up to two hours ahead of the flagship store letting in the first customers for the day for an obsessive session of sprucing, scrubbing, rearranging and restocking.

“That’s what I love; I love the experience in the store, the products, the visual and the look of the store, that’s why I walk around every day to try to improve it.” Otara, whose control of Odel was halved to 27.9% after Parkson acquired half her shares, will continue as Odel PLC Chief Executive. She along with her brothers Ajit and Ruchi control 44.8% of the firm’s equity. After the conclusion of the mandatory offer Parkson now control 44.5% of the company. During its 2010 IPO Odel offered a 15% stake in the company to the public.

“I will just sit on top of it,” she laughs in a rare burst of humor, asked about what she intends to do with the Rs2.8 billion in cash a successful rights issue will generate. In the short term Odel may have to do just that, sit around with most of the rights issue cash after retiring its Rs800 million or so debt and other loans for working capital. Despite Odel’s over 15% top line growth in 11/12 financial year and 36% in 2010 and 24% a year earlier, the firm has few choices but to accept a new equity partner if it wished to double its footprint in Sri Lanka in a few years as Otara envisages. However, now, unlike at any point in the past Odel has the resources to place a few big bets on exciting new retail stores and develop new brands without becoming dangerously indebted.

“Synergy has to be right between the two parties. I could have got an investment from a fund, but I was keen to get an international retailer as a partner for the business,” says Otara about the Parkson holding. In Battaramulla, on the outskirts of Colombo and at Ward Place adjoining its flagship store, Odel has real-estate which it intends to add to its 160,000 square feet of retail space. Last year, a year in which it added a lot of new retail space, Odel earned a creditable Rs880 in profits per square foot occupied. Parkson’s 54 stores in Malaysia, Indonesia and Vietnam total nearly 6 million square feet and have a Sri Lankan Rs792 equivalent profit per foot. For inspiration Apple stores earn the equivalent of Rs140,000 per square foot and even US discount store Best Buy earns around the equivalent of Sri Lankan Rs2,000 per square foot.

Otara is cagey about letting slip exactly which expansion projects she intends to push. However Odel is likely to focus on building its own stores against occupying retail space in malls following the model adopted by most successful department stores like Parkson in Asia, Macy’s or Saks.

It’s not just Parkson which sees potential in Odel. Stock market investors have been generally paying a premium for the firm for years. Price to sales ratio commonly used to compare retail companies is 0.9 times for Odel. While there aren’t other listed fashion and lifestyles stores against other retailers it ranks well. For Singer and Cargills Ceylon, it’s 6 times and 5 times for Richard Pieris & Company. Odel stock also trades at 17 PER, higher than the market PE multiple.

Friends and colleagues admire Otara’s passion, relentless focus and positive attitude. “There is a very clear vision of what has to be achieved and a relentless focus behind it,” according to an associate. “She follows her dreams,” according to Ahamed Barry. “She works incredibly hard and perseveres,” he adds.

Ahamed Barry quit his long term job at Odel recently to focus full time on his clothing brands Insomnia and Six Runs, which are both available at Odel

Shopping is an emotional minefield, a fact well understood by retailers. Combine that irrationality with smart brands and drama around every corner of the store and even the most resolute shopper’s will-for-self-control; can be turned to pulp. Women, generally speaking, the more emotional of the two sexes are particularly vulnerable.

However Odel, which is tiny by the scale of any department store chain, is also special because of its ability to throw surprises at shoppers, even the ones visiting the store often. In various nooks and crannies shoppers are allowed to discover things and encouraged to linger. Monolithic department stores somehow lack that magic despite the profusion of choice.

Even during the leanest of times Odel’s revenue grew because it understood this irrationality and satisfaction a purchase brings to a shopper and combined that with causes, its founder was passionate about. In 2007 Otara’s pet pooches were her inspiration for a line of dog inspired clothes and accessories with the Embark brand that are the rave among teenagers. Backstage, an accessories brand was launched the same year followed later by LuvSL, souvenirs to capitalise on the tourist traffic. Otara says own brands (private labels), which includes all items that aren’t branded by someone else, account for nearly 80% of sales. Internationally department stores are pushing aggressively to increase the share of revenue from private labels because the margins are fatter. At Parkson private labels account for only 20% of sales, the exact reverse of their associate Odel’s position. “In department stores around the world the buzz is private labels and everyone is trying to develop them, so we have actually started the other way on brands,” she points out.

“It’s perhaps something that I’m good at,” says Otara about private labels. “It’s also something that we had to do because of the high duty structure in Sri Lanka; it’s really not affordable to import a lot of the brands. And we can better manage the whole collection, the look and the concept we give our customers.” To complete the experience Odel will increase the portfolio of imported brands over time.

As an entrepreneur Otara is also an uncompromising realist who understands her passion and love alone won’t be enough to drive the brands that she’s nurtured. Letting go of majority control of Odel is perhaps a rare insight in to the deepest recesses of her heart. It’s also perhaps the magic that makes Odel what it is.

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