Why Kookai is sticking to its niche

Rob Cromb, founder and CEO of the Kookai fashion empire, has some simple advice for textile or retail: find a niche, something that can’t be replicated anywhere.

It’s a formula that has worked for Kookai. Cromb has a creative, risk-taking mindset. He reinvented the business several times and settled on the principle that every item of clothing can be individualised to create one’s own look. Kookai’s niche is basics for the 22-year-old girl. Although the company sells a full range of fashion, about 70 per cent of the business is basics such as T-shirts and jackets.

The company has two unique differences.

One is to manufacture craft each item individually. Using Australian fabrics, Kookai does not use mass production techniques such as mass cutting and assembly. Instead, it focuses on having lots of variety in its designs, and making sure no two jackest or T-shirts are identical.

The other is that the company is vertically integrated: it makes clothes for itself and no one else.

Australia’s textile industry has been contracting since the tariff walls started coming down in the ‘70s but Cromb says you can still make good money if you manage it well. “The problem with textile is that anyone can go into the rag trade. So many people want to go into fashion; they see it as quite glamorous.  You don’t have to have a degree, you don’t have to have anything.

“You have low barriers to entry and the industry has lots of people who struggle. Eighty per cent struggle. You have got to find a niche; you’ve got to find a reason to exist like any business. What I found was the textile business, if it’s managed really well, can be very profitable.”

Kookai has 26 stores in Australia and four in New Zealand. It employs 400 staff including in its factory. Cromb will not disclose the company’s profit or sales but says Kookai has experienced considerable growth in the previous two seasons, averaging 17% increase on sales against the prior year.

He set up the business 20 years ago for his then-wife, former model Danielle Vagner. At the time, he was working as a financial controller for a construction and engineering company. He took out the Australian and New Zealand licence for Kookai from the parent company in France. When he started out, the idea was to import clothes from Paris.

“It was just a little hobby business,’’ Cromb said. “I didn’t think it would amount to anything important.”

“I just set it up and I said, ‘Why don’t we import clothes from Paris and on Friday night, we’ll take $200 out of the till and go out for dinner’. That was the idea and it gave my wife something to do after modelling.”

Vagner struggled at first so Cromb became more involved and was eventually absorbed into it. The couple has since divorced but they still work together. “Actually it works better now than when we were married,’’ he says. “I had known Danielle since she was 14 and I was 15 years old. We were friends before we started dating and we are still very close friends today.

“Things didn’t work out, which is unfortunate, but we always had a very strong bond. And now we can argue [about business] and I don’t have to go home and carry on the argument.

“There is a lot of respect for what we both do, which is very different. She respects what I do and I respect what she does. She is into visual merchandising and styling and the campaigns. I tend to the background work and I do design as well.”

Kookai’s key demographic is a 22-year-old female, the age the couple were when they started the business. “She is the most fickle, she is the most challenging, she tends to be the most interesting in terms of her social life and her spending habits. We chose her because we wanted someone who was going to push us as designers, someone who was constantly pushing the boundaries for herself and that would force us to keep up.”

After the business had been running for two years and not attracting enough customers, Cromb decided it was time to take the matter in hand. “The problem was that I was the same as everybody else. I had good knitwear coming in from Paris but I watched women walk in and walk out without spending money,’’ he says. “So I started scratching my head to work out what it is I could make for a relatively affordable price that they can walk in and buy. I went out and looked at all the stores in Australia and I found that no one sold basic T-shirts for girls. Eighteen years ago, a woman couldn’t buy a basic T-shirt for herself in colours.”

He asked Danielle why; she said maybe no one wanted them. But how would they know if no one was selling them, he wondered. He found a manufacturer who started making the T-shirts for Kookai. They sold well.

“The only reason I started manufacturing for myself was because the guy who was making it for me put up his prices by 40 per cent and I started asking questions,’’ he says. “I mean, how hard could it be to make a T-shirt and I found I could produce a T-shirt for about a quarter of the price.”

Cromb hired five women to make the tees and then realised he couldn’t keep producing the same item; he needed variety. So the former number-cruncher learned design. Two years later, he bought a small manufacturing plant in Suva, Fiji.

Cromb was going back to his roots. With a Fijian mother and Scottish father, he had grown up on the island of Vanua Levu, Fiji’s second biggest island. His parents brought him to Australia when he was 12 to get an education.

Kookai has a competitive advantage manufacturing out of Fiji, he says. “Many years ago, I saw everyone heading to China. I felt eventually that China would go the same way Japan did; they would move to areas of business that would deliver higher outcomes for themselves and clothing is not one of those fields. Companies there could see they would earn more money with electronics,’’ he says. “Doing business out of China is now more comparatively more expensive for than getting products out of Fiji.”

Fiji has other great advantages. Its proximity means freight costs are lower. It is a developing country so goods come in duty free and everyone speaks English.

But the biggest innovation was creating a vertically integrated company. No one had done that before. Companies like Sportsgirl have a manufacturing arm but the buyer can pick up items from elsewhere, like China, where they can get it cheaper, he says.

“The fundamental difference was that when I set up the factory, I made it compulsory to buy from our factory, even if it was cheaper somewhere else. The difference is Kookai has a dedicated customer for its manufacturing arm, come rain hail or sunshine. They know they are going to get orders and Sportsgirl didn’t have that.

Cromb says the factory is efficient despite its guaranteed custom. And, it has another advantage.

“What it forced my manufacturing arm to do was to really evolve. The longer we were in business, the more complicated the demands were on our manufacturing. That’s what allowed us… our point of difference, which is a level of craft within the business.”

While other clothing makers might think they are gaining revenue by selling wholesale to other companies, he says making it compulsory to sell only to Kookai minimises risk. “[Not doing this would increase risk] because then your guys say I have 20 orders ahead of you so you have to wait. Then there is no point in investing in your own factory.”

He says as a result of working with raw materials, the people in his factory become craftsmen which gives Kookai that edge. “Once you are working with the raw material, you become more of an artist and when you’re forcing your manufacturing arm to develop new concepts and designs and you’re pushing them as far as the design concepts are going, they develop the skills accordingly.

“Those skills are valuable in the business today. They have had no choice but to evolve that skill level, and today having access to that very flexible and high-end skill level has allowed us to be very competitive, not only in terms of cost but in terms of our ability to produce a more sophisticated garment than some of our competitors. It’s not just that we make our own clothes but it’s the level of skills that resides within [our] workers.”

An example is Kookai’s woollen T-shirts, a hot-selling item.

Australian wool was primarily developed for school uniforms: it was low micron wool with short coarse hair that felt uncomfortable when worn straight on skin. So Cromb developed finer micron wool for T-shirts that didn’t irritate bare skin. Similarly, Kookai has developed nylons that don’t attract heat. “We always look at the specific benefits of each yarn,” he says.

Quick turnaround times are another advantage of Kookai’s model. Buyers work closely with the retail arm, watching closely what items are selling well and what items need to be recalled and replaced, a model similar to that used by Spanish retailer Zara to gain world markets. “We can actually change the ensuring orders by telling the factory,’’ Cromb says. Most retailers have to put orders 10 weeks in advance.

“We make a change within the first week, generally speaking, if we change an order, the maximum will be two weeks in the factory. So within two weeks, we’ll get a change in the product coming through and each week we will adjust accordingly.”

Kookai is focused on its niche. “If you ask a girl what she loves about Kookai and she’ll say the fashion but our core business is our basics. We make sure we don’t lose focus on that core part of our business.

There is absolutely no prospect, he says, of Kookai diversifying its offering to a different age-group or into mens or kids wear for example.

“As tempting as it is to expand the product base and as tempting as it is to expand beyond the 22-year old, we very much stick to our niche and focus on our core customer.”

“I think that’s an unnecessary distraction. You’ve got to become really good at what you do, otherwise there is no place in the market for you and doing children’s wear and doing men’s wear is only going to be a distraction to your core business  and once you have those distractions, you lose focus. You lose focus, you lose money.”

With international chains like Zara targeting Australia, the market here will become more crowded. Retailers will have to specialise if they want to survive, he says. “You can’t be good at everything because you’ll never be able to compete with those international players. But what you can do is become very good in your specific space.”

And the same applies for the internet. “We have a product you can’t buy anywhere else because we produce it exclusively for ourselves. We don’t even wholesale it, so to be quite frank with you, we haven’t felt the impact of the internet on us.”

The French brand sells its gear online through the web clothing retailer Asos. Cromb’s business is not involved in that.

However, his company is now going through the process of setting up a website for online sales which will probably start next year. Kookai Australia and New Zealand is moving online, another reinvention for an empire that started out as a hobby business.

Still, Cromb says the internet is not going to be the answer for everything. “There are certain things that the consumer will be looking for so the retailer will have to turn around and say, ‘What can I provide that the internet can’t? How much smarter can I be than the internet?’

“The internet is just a two dimensional thing, it’s a picture and it’s a price. It can’t provide a service and service is a thing a lot of retailers don’t factor into their business.”

And the other important part, he says, is to stay close to your customers. “They say women shoppers are really fickle but they’re really not. Once they find a good supply for a particular item they will stay with that supplier, provided you stay on your game.”