KappAhl has tough first half, but Newbie grows with new UK stores

By

Sandra Halliday

Published
Mar 23, 2018

Swedish fashion retailer KappAhl reported its half-year results on Friday and they didn’t make happy reading. Bad weather, heavy discounts and collections that didn’t prove as popular as hoped all dented its figures.

But it had more upbeat news as it also said that it’s expanding its Newbie label in the UK, a brave move given how local rivals Mothercare and Mamas & Papas are facing challenging conditions at the moment.

I will open two more stores next month following its two-store debut in Britain last October. The new stores will be at high-traffic destinations Westfield London (in the new extension) and Bluewater in Kent.

The company’s VP of new business Camilla Wernlund said “the reception of the Newbie brand in the UK has exceeded our expectations,” and added that Newbie Store is “well positioned in the market with its distinctive Swedish lifestyle concept, focusing on sustainability and affordable pricing.”

The Newbie concept now includes 20 stores in total in the UK, Sweden, Norway, Finland and Poland and clearly the focus on a sustainable outlook is resonating with the Millennial generation who are now buying clothes and accessories for their young children.

But despite Newbie’s expansion, the company as a whole still faces trading challenges as its half-year and Q2 report showed.

On Friday it said Q2 sales fell 6.2% to SEK1.115 billion while the gross margin decreased by 0.1 percentage points to 58.8%. And first half sales were down 6.9% to SEK2.28 billion while the gross margin dropped to 61.8% from 62.2%.

However, e-tail turned in a strong performance and continued the upwards trend of the past year with growth exceeding 30%.

But that didn’t rescue profits. KappAhl said pre-tax profit fell to SEK96 million for the half year from SEK 193 million a year ago, and profit after tax was SEK81 million, down from SEK141 million.

CEO Danny Feltmann said that “the effects of fewer visits to stores and aggressive [sales] campaigns that were so clearly felt by the industry in the autumn continued into the second quarter.” He added that: “The autumn women’s range did not entirely meet our customer’s expectations, [and] Black Friday and Cyber Monday resulted in Christmas sales not taking off until the week before Christmas. We also saw a general slowing of demand in the clearance sale period, due to the large number of campaigns in December.”

And the late winter weather in February affected the start of the spring season negatively. 

It all suggests that there’s a lot of work to do with the company needing to improve the product offer and get a grip on markdowns. But Feltmann is remaining positive. He said: “We see that 2018 will be a year of substantial transition. The customer wants faster and simpler shopping, both offline and online. We are monitoring and acting on the changeover we are seeing to international e-commerce operators and to other types of service. The work of developing KappAhl as our customer’s first choice continues. The surrounding world is increasingly rapid and many challenges remain. We are taking them on with determination and a lot of energy.”