AN INDUSTRY IN RAPID TRANSFORMATION
KappAhl is one of the Nordic region’s leading clothing chains with a total of 363 shops. The company is listed on the Mid Cap list of the Nasdaq Stockholm exchange. In a year of major challenges in the clothing and fashion industry in general, and with downward pressure on the share price, Mellby Gård has stepped up and significantly increased its holding in the Group.
KappAhl dates back to the 1950s and is one of Sweden’s most well-known retail chains. With some variation over the years, the focus has been on clothes for the whole family, both adults and children. In recent years, KappAhl’s sales mix has changed. Today, children’s clothes and clothes and accessories for mature women dominate.
Norway is KappAhl’s second-largest market and KappAhl is also established in Finland and Poland. During the past year, Newbie was launched – a brand of organic children’s clothing developed by KappAhl and marketed in the UK through proprietary shops and e-commerce.
During 2016/2017, KappAhl harvested sales successes, which had a positive impact on the share price. Over the past year, however, the company has faced both short and long-term challenges. MD Danny Feltmann stepped down in June 2018 and, at the time of writing, Göran Bille is the Acting MD.
Among other causes, the management change was motivated by the MD and Board holding different views regarding target group priorities, primarily regarding who KappAhl’s women’s clothing customers are and should be – a key issue because it involves the company’s largest individual area of operations. Another important issue on which consensus was not reached was the need for differentiation in communications and shop expression given that KappAhl addresses several different target groups with different behaviours.
Combined with changes in the product range and an excessively rapid realignment from printed to digital customer communications, weather effects, which often impact the industry both favourably and unfavourably, had negative effects evident in KappAhl’s earnings for the first half of its split financial year. The stock market’s judgement of the outcome was harsh, since short-term challenges were also placed in relation to uncertainty regarding how the industry’s future conversion from retail to online sales will progress and where owners of major retail networks may experience a cost disadvantage compared to companies only operating online.
However, as the largest individual shareholder, Mellby Gård assessed several of the problems to be temporary and KappAhl, with its awareness and expertise, as having good prospects of turning its challenges into opportunities. Accordingly, Mellby Gård increased its holding during the spring. From May 2017 to May 2018, ownership has increased from just over 20 percent to 29.6 percent.
“Although the realignment to e-commerce is clearly one of KappAhl’s long-term challenges, the days of its physical shops are definitely not over. Moving forward, the difference is that shops and e-commerce must support one another, while we should recognize more the differences in behaviours and preferences between the various target groups that KappAhl addresses,” says Chairman Anders Bülow.
An example of functions launched to link shops and e-commerce is the Click&Collect concept, in which the customer shops online and collects the goods from a shop, creating opportunities for additional sales. Conversely, opportunities for online shopping are provided in shops, with the option of home delivery. Now, customers also have the option of paying using their mobile phones and Klarna’s payment service.
During 2017/2018, KappAhl has begun to see positive results in the shop network from its restructuring of the operations in Poland. Shops in 30 locations have been closed and rental contracts have been renegotiated for some 25 remaining shops in attractive retail locations. During the year, decisions were also taken to establish a few new shops in the Polish market.
In 2017, KappAhl also launched the Newbie brand of organic children’s clothing in the UK, with shops in and around London, as well as proprietary online sales. Initially, the shops have developed favourably, while it takes time to build broader awareness and volumes in e-commerce.
KappAhl is vigorously committed to sustainability. More than half of the clothes in the product range are eco-labelled and the proportion is continuously increasing. KappAhl is a member of the international organization Better Cotton Initiative, which promotes sustainable cotton farming. In the video series “Make It Feel Right”, presenter Annika Leone tells us how we can make clothes feel right, for ourselves and the planet.
“Although we have many good projects in progress, we need to improve at reaching out with our stories so that customers see how hard we work for the environment and how attractive our offerings are,” says Anders Bülow.
Moving ahead, KappAhl’s strategic efforts can be summarized with three “Cs” – Collection, Communication and Channels.