Missteps and tough backdrop dent KappAhl Q1 sales and profits

By

Sandra Halliday

Published
Dec 20, 2017

“Lower sales as competition toughens”. That was the headline statement in Nordics fashion retailer KappAhl’s latest sales and earnings report and it underlined just how tough Northern Europe’s fashion retail market is at the moment.

The company, which operates in Scandinavia, Poland and the UK, had signalled last month that its Q1 sales (to the end of November) had slowed and this report confirmed it with the firm saying its turnover “did not live up to our expectations.”

What went wrong? Its strategy of “changing the price and campaign structure” didn’t work as well as it had in the previous year "in part due to a tougher market climate.” That tough backdrop was partially caused by “warmer weather during the autumn, but also a change in purchasing behaviours with accelerated online shopping.”

That all added up to a 7.5% sales fall to SEK1.166 billion and a gross margin decrease 0.7 percentage points to 64.6%. The operating margin fell to 7.8% from 11.4% a year ago and operating profit dropped to SEK90 million from SEK144 million.

President and CEO Danny Feltmann didn’t mince this words saying “the autumn range and the way it was presented to the market did not appeal sufficiently to our customer.”

AND THE GOOD NEWS?

There was some good news with Feltmann adding that the firm’s “intensive digitalisation work was been well received in the quarter.” The services it launched in the autumn “contributed to the important work of creating seamless shopping experiences” so more than half of its online customers now choose to collect their goods in our stores through click & collect “and many decide to buy more when they get to the store.”

And it’s going further than click & collect in its omnichannel approach. Since October its employees have been able to help customers via its ‘Shop Online in Store’ service to make 7,000 direct online orders in-store when a product isn’t available at that physical location. 

Additionally it has become the first major fashion chain to offer the opportunity of mobile payments in-store via Klarna. The service has been picked up fast by its customers and it’s seeing “a steady increase in its use since the service was launched at the end of November.”

KappAhl has also been focusing on store upgrades and made-over 12 of them during the quarter, as well as opening six Newbie Stores. Newbie’s online shopping in the UK started in October and in November it opened its first standalone in Richmond, just outside London. This has been “well received” by UK shoppers, it said.

But the company still expects group sales to remain under pressure in the coming quarter, again, partly as a consequence of that change in buying patterns. 

So what will KappAhl do about this? For the spring, it plans to “focus more on targeting consumers who still prioritise shopping in physical stores while continuing to develop [its] digital platform in parallel, as well as [a] continued focus on the Newbie concept.”

It also said that it’s entering December “with satisfactory inventory levels [of] SEK697 million, which is a result of the long-term sourcing and inventory control that has been in progress for a long time. The work of developing KappAhl as our customer’s first choice continues. It takes time and many challenges remain.”