During the second quarter, sales developed on a par with the same period last year. Currency-adjusted sales fell by 3%. There is still a certain amount of caution on several markets, particularly among major non-food chains in Scandinavia. In our opinion, the market is more volatile than before and it is difficult to adapt to this in the short term.
Above all, results have been adversely affected by the sales trend within lighting as well as by our unit in France. This, along with the trend within raw materials, has had a negative impact on profits. We are not satisfied with developments in recent times, particular with regard to profits. A series of measures have been implemented in order to adapt the cost situation in the Group to the prevailing market situation. We have implemented a cost rationalisation programme. We began to see the effects of this during the first quarter, although it has had less impact during the second quarter. The programme is continuing with the aim of optimising the cost structure.
The work regarding capital efficiency has continued during the second quarter, which has had a positive impact on cash flow.
During the first half of the year, sales decreased by 1% compared to the same period last year. Currency-adjusted sales fell by 3%. The first half of the year has been challenging in many ways. There is currently a great deal of change in the retail sector, and several chains are adopting a cautious approach. We have conducted a series of marketing activities during the period in the form of product development and sales initiatives. These have been intended to strengthen ITAB’s position in the shops of the future, and have resulted in increased sales costs in the short-term.
FUTURE MARKET CONDITIONS ACCORDING TO ANALYSIS
At the start of the year, and with the assistance of a renowned global analysis company, we have conducted extensive market analysis of all the European markets in which we currently operate. This study shows that the European market will grow by around 3% per year over the coming years. The market outside of Europe is generally expected to grow more. In Europe, investments will primarily grow within the food sector and the construction and home furnishings sector, whereas investments in fashion are going to decrease.
The market analysis has been divided into sectors and conducted on the basis of ITAB’s offer and market presence, and is not applicable as a general analysis of the market. According to the analysis, the food sector will grow in the region of 3% in future years, while DIY will grow by 10-15%. Within electronics as well as sport and leisure, developments are expected to remain unchanged, while fashion and other areas are expected to decline in future years.
At present, around 70% of ITAB’s operations are within the food sector and DIY. Approximately 7% of sales are within electronics and sport and leisure, while 17% are within fashion and the remainder within other sectors.
The study also shows that renovations and re-profiling will increase in all sectors, while the number of square metres per shop will decrease. The omnichannel experience, i.e. the combination of shops and e-commerce, is becoming increasingly important for the continued profitability and survival of retail chains.
ACTIONS TO ADAPT THE GROUP TO THE PREVAILING SITUATION
Based on the analysis, we have commenced the work by focusing on selected areas. We will develop our work within cross-selling and the cultivation of new customers. New customers have mainly been added within the food sector as well as construction and home furnishings. In Scandinavia in particular, they have opted to utilise a larger proportion of our offer. We can see considerable potential in the fact that several of our existing customers will also be doing so alongside renovation and reprofiling activities in future. Work has also commenced aimed at implementing internal adaptations in order to cope with this sales trend. We will be working more intensively to position ITAB as a brand for the shops of the future.
We will focus efforts on moving closer to several of the major e-commerce companies, which are indicating that they will be establishing physical shops in future in order to get closer to the consumer. Alternative market areas that could be relevant for us in future will also be evaluated.
The rationalisation work is continuing in our production facilities in order to increase our flexibility and efficiency. This will be an important factor in coping with future demands for rapid deliveries.
A PARTNER FOR THE FUTURE
Initiatives are continuing relating to our position in the shops of the future. Over recent years, ITAB has made considerable investments in product development and initiatives aimed at ensuring that the organisation will be well prepared for the developments that are taking place in the retail sector. The shop experience is becoming more interactive, with the focus being placed on the consumer experience. There is considerable interest in our digital offer, which links the physical shop with its e-commerce solution, among both national and international chain stores. Increased digitalisation in the physical shop is driving forward our sales and development.
We are still witnessing a cautious attitude on several markets. The change in the sector means that the market is difficult to assess in the short term, although at present we seeing no indications other than that sales, as in previous years, are expected to be lower at the start of the year before increasing during the second half of the year. We are monitoring market developments closely and adapting to the prevailing conditions to the best of our ability. We are also continuing to monitor the trend in steel prices, exchange rate fluctuations, the general political situation and the general development of the retail sector, which can change our conditions in the market.
Jönköping 11 July 2018
CEO, ITAB Shop Concept