RNB RETAIL AND BRANDS Overview 4
CEO Comments 6
RNB’s world 8
Business areas 10
Store Concepts 11
Department Stores 20
Polarn O. Pyret 24
Market 28
Logistics and distribution 30
Sustainable fashion 31
Employees and organization 34
Board of Directors’ report 2007/2008 46
Consolidated income statement 49
Consolidated balance sheet 50
Consolidated cash flow statements 52 Consolidated changes in shareholders’ equity 53 Parent Company’s income statement 54 Parent Company’s cash flow statements 55
Parent Company’s balance sheet 56
Parent Company’s changes in shareholders’ equity 58
Accounting principles, etc. 59
Notes 63
Auditors’ report 76
Corporate governance report 77
Senior Executives 80
Board of Directors 81
The share 82
Five-year summary 84
Key figure definitions 85
Financial calendar 86
Annual General Meeting 86
07/08AnnuAl RepoRt
RNB RETAIL AND BRANDS conducts operations involving fashion, clothing, accessories, jewelry and cosmetics through a network of stores in the middle and upper price ranges, with a focus on exceptional customer service. The number of stores included in RNB at August 31, 2008 totaled 475, of which 211 were operated by franchisees.
RNB is organized in two business areas – Polarn O. Pyret and a distribution platform for national and international brands. Polarn O. Pyret is a brand that focuses on baby and children’s wear.
The distribution platform comprises two business areas: Department Stores and Store Concepts. The Department Stores business area operates through shops at the department stores NK Stockholm and NK Gothenburg, Steen & Ström in Oslo, Illum in Copenhagen and Kosta Outlet. The Stores Concept business area comprises the JC, Brothers and Sisters chains. The company has been listed on the Nasdaq OMX Nordic Exchange since 2001.
RnB’s vision is to offer the ultimate shopping experience
RnB RetAIl AnD BRAnDS overview
Business concept
RNB RETAIL AND BRANDS’ business concept is to distribute brands using clear, attractive concepts and stores whose per- sonnel exceed customer expectations to ensure that each brand is delivered intact to the end customer.
Vision
RNB RETAIL AND BRANDS’ vision is to offer “The Ultimate Shopping trip” through extraordinary service to our customers, business partners and employees. By constantly evaluating and improving our processes, providing the best possible training for our store employees and always being receptive to customer wishes, RNB’s ambition is to provide the world’s best service.
Goals
Operational goals
RNB RETAIL AND BRANDS’ overall goal is to create a unique shopping experience for our customers. Trained and motivated employees shall provide something extra in meetings with customers in the store. By always prioritizing measures to create more time for customers in the store, RNB’s goal is to achieve a conversion rate of 20%, meaning the proportion of paying customers to the number of visitors to the store.
At present, Polarn O. Pyret, JC, Brothers and Sisters have an average conversion rate of 14%.
Fiscal year 2007/2008 in figures
• Net sales amounted to SEK 3,426.2 M (3,468.3), down 1.2%.
Sales in comparable stores declined by 2.3%.
• Operating profit totaled SEK 1.8 M (342.2). After net financial items, a loss of SEK 51.8 M was reported (profit: 305.8).
Nonrecurring expenses of SEK 35.3 M (income: 81.6) had a negative impact on earnings for the year.
• The loss after tax totaled SEK 63.2 M (profit: 255.8), corre- sponding to a loss of SEK 1.11 per share (earnings: 4.49).
• Cash-flow from operating activities amounted to SEK 4.8 M (233.1).
• Non-profitable operations at Illum in Copenhagen were decided to be discontinued. Impairment losses and close-down expenses of SEK 35.3 M were charged against earnings for the year.
• The Board of Directors proposes that no dividend be paid for the 2007/2008 fiscal year.
After the end of the report period
• The new share issue was subscribed for in full and completed in September, contributing about SEK 330 M to RNB after issue expenses.
• An action program is being implemented with the aim of reducing costs by approximately SEK 110 M and tied-up capital by about SEK 145 M.
Financial goals outcome, %
07/08 06/07 05/06
long-term operating margin of 15% 0.1 9.9 5.2 long-term sales growth of 10–20% –1.2 226.0 59.0 equity/assets ratio exceeding 30% 42.2 52.3 44.5
Net sales
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
oms. rorres. aktie
SEK M %
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Net sales, SEK M Change, %
Sales per product category, %
Men 37 %
Ladies 28 %
Children 21 %
Cosmetics 7 %
Underwear & accessories 4 %
Jewelry 3 %
28 %
37 %
21 %
3 % 7 %
4 %
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Important events 2007/2008
Weak trend at JC – Lea Rytz Goldman appointed new President RNB’s concept store JC reported a weaker-than-expected sales trend during autumn 2007 and spring 2008. Lea Rytz Goldman assumed the position of President in February 2008. David Thörewik succeeded Lea Rytz Goldman as President of Brothers and Sisters.
Polarn O. Pyret signed master franchise agreement for US – Roger Kylberg appointed new President
Polarn O. Pyret continued its international expansion and signed a master franchise agreement for the US in March 2008.
The US business partner is SPM Retail LLC. Roger Kylberg assumed the position as the new President for Polarn O. Pyret in June 2008.
Launch of Brothers Depot
During the year, Brothers Depot was launched in selected stores and received a favorable response. Brothers Depot is an accessories department offering cosmetic products, underwear and accessories specifically for men, primarily from external brands. It is modeled on a corresponding department at NK in Stockholm.
Reduced number of departments at Illum
RNB has decided to discontinue three of five departments at the Illum department store in Copenhagen in 2009, which will considerably reduce the company’s risk exposure while simultaneously freeing up resources for the departments that
Net sales per quarter and business area, 2007/2008
SeK Q1 Q2 Q3 Q4
polarn o. pyret 109,1 99,1 86,0 102,0
Department Stores 289,0 325,1 252,7 292,3
Store Concepts 527,8 430,7 441,0 482,1
other –2,2 –0,8 –2,8 –4,9
Total 923,7 854,1 776,9 871,5
Operating profit/loss per quarter and business area, 2007/2008
SeK Q1 Q2 Q3 Q4
polarn o. pyret 24,0 15,8 5,8 24,6
Department Stores 16,6 13,8 –6,1 –47,2
Store Concepts 46,2 –69,9 29,9 –26,3
other –5,3 –12,8 –5,8 –1,5
Total 81,5 –53,1 23,8 –50,4
Operating profit
RNB share
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
oms. rorres. aktie
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Earnings per share, SEK Dividend per share, SEK
are developing well, such as Polarn O. Pyret and Cosmetics. The primary reason for the discontinuation is a weak sales trend, due to generally declining consumption in the Danish market and the fact that Illum has not succeeded in attracting more visitors.
Decision regarding rights issue
In June of 2008, a decision was made to implement a rights issue designed to strengthen the company’s financial position and create the conditions for future actions. The rights issue was concluded successfully in September and contributed about SEK 330 M to RNB after issue expenses.
Polarn O. Pyret’s popular stripes now ecological
The foundation of the Polarn O. Pyret product range, the striped basic clothing for all ages that has been around since the brand’s establishment in 1976, is now entirely ecological and carries the Nordic Swan eco-label. The eco-initiative is a direct response to consumer demand.
Repositioning of JC with more distinct concept
In autumn 2008, JC launched an entirely new store concept as an initial phase in a repositioning of the chain that also includes the collections and market communications. The first JC units to launch the concept were the stores in central Helsinki and in Forum Nacka outside Stockholm.
Another phase in clarifying the JC concept involves expansion of the product range by adding smaller sizes, while simultaneously replacing the current J-Store product range, which is being phased out from stores.
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Ceo Comments
Let me begin with JC, which reported a weaker-than-expected sales trend in 2007. Although it became clear early on that our autumn collection did not meet the expectations of our custom- ers, we were confident at the time that the situation would be rectified in time for our spring 2008 collection. This turned out to be an error in judgment and the final result for the year was a charge of SEK 160 M against profit. In retrospect, it is easy to say that moving the office in Mölnlycke while simultaneously changing our concept was a mistake, but I still maintain that having the entire organization gathered in a single location is the right decision in the long term.
To rectify the situation at JC, a new concept for the com- pany’s product range, stores and market communications was developed internally. The first stores were converted in autumn 2008 and, while it is too early to draw any definite conclusions, these units are reporting stronger sales than the average store, which indicates that we are on the right track. Our goal is to convert an additional ten stores, primarily in major strategic cities, to the new concept in 2008/2009. To further clarify and reinforce the concept, J-Store will be replaced by a broader range within JC, including smaller sizes.
The Department Stores business area also reported signifi- cantly weaker profit during the year, mainly due to losses at the newly established departments at Illum in Copenhagen and Steen & Ström in Oslo. This drop in profit was caused by a general decline in consumption in these markets and particularly the failure of Illum to attract visitors. The newly established Sports Department at Steen & Ström has not lived up to our expectations. During the year, the Department Stores business area resulted in charges of SEK 34.2 M against profit before nonrecurring items and impairment losses totaling SEK 35.3 M, corresponding to a total negative earnings effect of SEK 69.5 M. We are now taking a step back and discontinuing three of the five departments at Illum. We have also renegotiated our agreement concerning the Sports Department at Steen & Ström, which will significantly reduce our risk exposure and enable us to free up resources for the departments that perform well.
Unlike JC, the decision to move the operations of Brothers and Sisters to Stockholm was a success and the concepts reported combined operating profit of SEK 48.9 M for the year.
Brothers’ performance was particularly outstanding. Sisters has a more difficult competitive situation and we currently have too
few stores to achieve a full market penetration. Nonetheless, we are seeing considerable interest from franchisees who are keen to open both Brothers and Sisters stores and our assessment is that a certain amount of expansion of this concept can be expected in the current fiscal year.
Polarn O. Pyret performed extremely well during the year, reporting operating profit of SEK 70 M, which corresponds to an operating margin of 17.7%. A total of 11 stores were opened dur- ing the year, while six stores in the Baltic States were closed as a result of our decision to decommission the master franchisee for the region. In March, we took another major step in the expan- sion of Polarn O. Pyret, signing a master franchise agreement for the US. Launch in the US market is expected to occur in spring 2009 via e-trade.
We also believe the time is ripe for Polarn O. Pyret to intro- duce an e-trade initiative in the Swedish market, with the aim of further strengthening the brand and promoting sales in areas where we do not currently have stores. We also see e-trade as a means to reach new markets. Launch is planned for March 2009.
We are now continuing our efforts to strengthen our per- formance in all business areas and to tighten up every aspect of our operations to determine how we can further enhance our performance, efficiency and profitability. We will also continue to focus on ensuring that we meet customer expectations for RNB as a supplier and distributor. This work not only involves setting strict requirements for the quality and functionality of our products, but also guaranteeing world-class service. It also includes taking responsibility for how our manufacturing operations and transports impact the environment and the world around us. An important project in 2007/2008 was our work to prepare RNB’s sustainability report, “Sustainable Fashion 2007,” a document that will continue to be developed this year.
In summary, I can say that we have left a challenging year behind us. However, we have identified our problem areas and initiated an action program that will cut costs by approximately SEK 110 M and reduce tied-up capital by about SEK 145 M. After the end of the period, we also successfully implemented a rights issue, which provided RNB with a net amount of SEK 330 M.
Accordingly, we are entering the fiscal year with a strong financial position and a clear agenda – to lay the foundation for increased profitability.
Our performance during the past year was fragmented. For JC, moving the company’s operations from Mölnlycke and problems with our spring and summer collection resulted in a charge of SEK 160 M against profit. Earnings generated by the Department Stores business area deteriorated substantially as a result of the weak performance of our new departments at Illum in Copenhagen and Steen & Ström in Oslo. At the same time, Brothers, Sisters and Polarn O. Pyret exceeded our expectations, with Polarn O. Pyret reporting an operating margin of 17.7%, its highest margin to date. Overall, we are leaving a challenging year behind us and our agenda for the current year is clear – it is time to put on the brakes, consolidate and lay the foundation for profitability.
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Mikael Solberg President and CEO
Business area Stores
Store Concepts 304 (of which, 161 franchises)
JC 186 (of which, 98 franchises)
Sweden 122 (of which, 89 franchises)
Norway 44 (of which, 9 franchises)
Finland 20 (of which, 0 franchises)
Brothers 71 (of which, 40 franchises)
Sweden 63 (of which, 40 franchises)
Finland 8 (of which, 0 franchises)
Sisters 47 (of which, 23 franchises)
Sweden 43 (of which, 23 franchises)
Finland 4 (of which, 0 franchises)
Department Stores 80 23,481 square meters
NK Stockholm 32 6,842
Kosta Outlet 1 5,500
NK Gothenburg 22 5,4 21
Steen & Ström 20 3,413
Illum 5 2,305
Business area Stores
Polarn O. Pyret 91 (of which, 50 franchises) Sweden 55 (of which, 14 franchises)
Norway 17 (franchises)
UK 9 (franchises)
Finland 5 (franchises)
Russia 2 (franchises)
Ireland 1 (franchise)
Iceland 1 (franchise)
Scotland 1 (franchise)
Denmark 1 (franchise via
Department Store)
Information on August 31, 2008
RnB RetAIl AnD BRAnDS worldwide
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RnB RetAIl AnD BRAnDS worldwide
Store Concepts
The Store Concepts business area includes the well-known chains JC, Brothers and Sisters, with stores in Sweden, Norway and Finland. RNB RETAIL AND BRANDS’ ambition within the Store Concepts division is to use clear and target-group-oriented store concepts to reach out to cities and areas that are unable to support full-range department stores due to their limited populations and geographic size. Store Concepts offers an attractive mix of proprietary and external brands, with a clear profile in the volume segment.
Department Stores
The Department Stores business area encompasses operations at the depart- ment stores NK Stockholm, NK Gothenburg, Steen & Ström in Oslo, Illum in Copenhagen and Kosta Outlet. A common feature of the department store concepts is a focus on interaction with customers and high-quality product ranges, store environments and customer care. The business area comprises a total of 80 departments that offer clothing for women, men and children, underwear, accessories, jewelry and cosmetics, and cater to customers who impose meticulous demands in terms of service, expertise and quality.
Polarn O. Pyret
Polarn O. Pyret is a fully integrated brand for baby, children’s and maternity wear, with products that are designed, produced and distributed through proprietary stores and franchise stores in Sweden and abroad. Since its incep- tion in 1976, Polarn O. Pyret has established itself as the leading brand and store concept for children’s clothing in the quality segment of the Swedish market and its clothing is famous for its high quality, functionality and design. Polarn O. Pyret is currently represented in ten markets, with another three countries in the start-up phase.
Sales 2007/2008 by business area, %
Store Concepts 55 % Department Stores 34 % Polarn O. Pyret 11 % 55 %
34 % 11 %
Sales 2007/2008 by geographic market, %
Sweden 81 %
Norway 12 %
Finland 5 %
Other 2 %
81 % 12 %
5 % 2 %
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Business areas
Store Concepts Department Stores polarn o. pyret
Performance in 2007/2008
Net sales within Store Concepts amounted to SEK 1,881.6 M (2,111.1). Sales in comparable units decreased by 9.6%.
An operating loss of SEK 20.1 M (profit: 143.5) was reported.
In the preceding year, the business area also included the Solo and Saks concepts, which contributed net sales of SEK 79.1 M and operating profit of SEK 3.3 M.
Problems with the collection and the weak sales trend reported by JC had a negative effect of approximately SEK 160 M on profit, compared with the preceding year.
Operations
The Store Concepts business area includes the well-known concept stores JC, Brothers and Sisters, with stores in Sweden, Norway and Finland. RNB RETAIL AND BRANDS’ ambition within the Store Concepts division is to use clear and target- group-oriented store concepts to reach out to cities and areas that are unable to support full-range department stores due to their limited populations and geographic size. Store Concepts offers an attractive mix of proprietary and external brands, with a clear profile in the volume segment.
By applying the knowledge of working with external brands gained from the Department Stores business area and utilizing economies of scale, RNB’s goal is to build a strong distribution platform of concept stores. At the end of the fiscal year, the business area comprised 304 stores, of which 161 were franchise stores.
Store Concepts business area
Operating profit, SEK M Net sales, SEK M
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Key figures Store Concepts
SeK M 07/08 06/07
net sales 1,881.6 2,111.1
Share of RnB’s sales, % 54.9 60.9
operating profit/loss –20.1 143.5
number of employees 580 565
number of stores 304 297
of which, franchises 161 169
of which, international 76 76
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Business concept
JC aims to be the leading fashion chain for girls and guys who enjoy jeans and related clothing and accessories. We are an inspiring store with pleasant personnel who know just about all there is to know about jeans and denim fashion.
Target group
JC’s primary target group comprises women and men in the 14-25-year age group.
Markets
Sweden, Norway and Finland.
Business trend in 2007/2008
JC reported a decline in sales during autumn 2007, since the collection failed to meet customer expectations. Moreover, sales of the spring 2008 collection did not move as anticipated, leading to extra inventory write-downs. The underlying factors included a troublesome relocation of operations from Gothenburg to Stockholm, resulting in high personnel turnover, in addition to operational restructuring and a focus on an exces- sively narrow product line. A rise in prices was accompanied by a reduced focus on jeans, at the same time as market communi- cations failed to attract customers to stores.
A program was launched in late autumn 2007 to create new content and concept expression for JC. A cornerstone of the repositioning efforts was to revert to JC’s roots in the form of a sharp focus on jeans and denim fashion. JC will be a volume- based concept with high personal service for its targets groups, as well as for all age groups wishing to purchase in a store that offers the market’s best jeans range.
Lea Rytz-Goldman, President of JC
“We lost a key element of our heritage at JC, which we have now regained and turned into something new and exciting. In-house, we have created a more distinct profile of what JC represents and what we aim to achieve. On the customer side, our new concept distinguishes our offering – namely, that JC is the best in jeans and everything related to jeans.”
During winter and spring 2008, new guidelines were set for collections, store design and market communications, which store customers started to encounter in early September. After the summer, the new JC organization was fully staffed, with a keener focus on retail and sales skills. JC’s new concept will be fully implemented in spring 2009.
JC reported an operating loss of SEK 69.0 M for the year.
Operations and market trends
JC’s goal is to be the market leader in jeans and denim fashion wear. At JC, women and men will always find the right denim fashion and a wide-ranging selection of leading jeans brands. JC does not aim to create trends but instead offers trendy products hallmarked by excellent value for money and extra good fit, thus generating volume. On the one hand, the product range includes strong proprietary brands, such as Crocker and Marwin, and, on the other, about an equal share of attractive external brands, such as Levi’s, Lee, Acne, Nudie, G-star and Diesel. The objec- tive is to raise the share of JC’s proprietary brands in a bid to enhance profitability. Crocker accounts for a third of JC’s overall jeans volume, amounting to sales of well over 1.6 million pairs in 2007/2008.
At year-end, there were 186 JC stores in Sweden, Norway and Finland, of which 98 were franchise outlets, with the remainder owned by RNB.
JC’s store network is mainly concentrated in mid-size cities in which brand stores and major department stores do not have a presence and in which JC’s range of proprietary and external product lines are the natural fashion choice for the target group.
JC also seeks a presence in attractive locations in major cities.
JC’s new store concept – launched in Finland in September and followed by Sweden in October 2008 – will be gradually introduced throughout the store network. The concept is based on exciting but timeless interior décors in black and white tones – adding high visibility to garments – that encourage visitors to linger a little longer in the store, take a break, sit down, listen to music and meet others, for the purpose of satisfying the target group’s interests.
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Lea Rytz Goldman
“We aim to be at the top of the list for young people looking for jeans and fashion wear that works well with jeans, along with modern stores and attractive products that match the target group. We are also focusing intently on our person- nel, who already know just about all there is to know about jeans and fashion. This is the founda- tion for the new JC concept launched in autumn 2008. Although it’s new, it builds considerably on JC’s lengthy tradition of offering girls and guys what they want.”
JC’s market communications have been shaped to meet the key interests of the young target group. In line with this, JC sponsors selected music festivals and other activities. During the year, JC’s children’s concept – J-Store – also cooperated with Friends, an organization that works against bullying in schools. JC’s cus- tomer club is a key channel for communication with the target group and for linking them closer to the chain. The customer club increased its membership by more than 23,000 during the year and currently has a total of 275,000 members.
Business model
JC is run using a successful combination of proprietary stores, notably in the major cities, along with franchise-driven stores in small and mid-size cities. The franchise system has a lengthy tradition at JC and has always been a strong feature for the chain.
Ambitious and skilled traders with a strong base in the local market represent a key component in sales efforts and also for the JC organization.
Lea Rytz Goldman
“JC’s franchisees are a strength for us. And not only because they are good at driving fashion sales in their home market where they are familiar with customers and know what they want. Their experi- ence and insight also play a major role in developing the chain and its collections. Cooperation and knowledge exchange at JC are crucial features that we plan to develop further.”
JC cooperates closely with a number of the non-proprietary brands included in the product line. Close cooperation has been developed with some of these, entailing a division of respon- sibility for store sales, including product returns and exchange rights. The aim is to gradually extend this type of collaboration.
Outlook
An initial number of stores were converted to the new concept expression in autumn 2008. In 2008/2009, the new concept will be launched in additional stores, notably in strategic cities, as part of the main mission during the current fiscal year – to boost sales in the existing store network and improve earnings
Lea Rytz-Goldman
“The economy remains under pressure, resulting in a sluggish market, and this is impacting us, of course. However, youth fashion and jeans will continue to sell, even in tough times. So our chal- lenge is to find our way back to our customers and to a more stable earnings trend. Attaining this goal requires long-term, hard work and it will take time. But we have an excellent base from which to proceed.”
As part of efforts to profile the JC concept clearly, a decision was made in November 2008 to broaden the JC line in the form of small sizes, thereby integrating J-Store into JC.
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JC store concept
In autumn 2008, JC launched an entirely new store concept as part of its repositioning of the chain, which also covers collections and market communications. The passion for jeans and JC’s history as the Mecca of denim fashion form the platform for the new colorful concept.
JC is a lifestyle concept based on denim fashion. Essentially, we are building further on JC’s history and on what the chain represented when it started in 1963 – a love of jeans and a passion for fashion and people.
The new store design is based on modern styles and materials that will only become better and more attractive over the years.
Here, we play with neon and wood, black, white and bold tones, as well as with versatile fixtures and a more unconventional way of selling jeans. The sewing machine in the store is an icon – a place where you can have your jeans “customized”. The revamped JC store will reflect our relationship to jeans and denim fashion wear. We all know how pleasant it is put on our favorite, well- worn jeans – and that’s pretty much how we want our new stores to be experienced. The first to launch the new concept was the JC store in central Helsinki, Finland, which in September opened a new international denim store of 500 square meters on a single spacious floor. The first store to use the concept in Sweden was JC Forum in Nacka, near Stockholm, which opened in October.
Business concept Brothers
• is a volume-oriented holistic concept offering clothes with an excellent fit, plus accessories.
• is a fashion chain for men set in an exclusively male environment.
• offers the customer a unique shopping experience, thanks to exceptional personal service.
Sisters
• is a volume-oriented comprehensive concept featuring modern clothes with an excellent fit, plus accessories.
• is a fashion chain with a boutique atmosphere.
• offer customers a unique shopping experience, thanks to exceptional personal service.
Target group Brothers’
Fashion-interested, socially active and ambitious men in their 30s who wish to dress stylishly – and preferably in a manner than lends a younger appearance than that revealed by their passports.
Sisters
Inspiring, fashion-conscious women in their thirties – modern, zestful and committed women who know what they want and wish to dress stylishly.
Markets
Sweden and Finland.
Trend in 2007/2008
Both Brothers and Sisters progressed very positively during the year, reporting favorable growth and higher earnings. Combined operating profit for the two concepts totaled SEK 48.9 M.
Like JC, Brothers and Sisters completed a relocation of opera- tions from Gothenburg to Stockholm in June 2007. A large share of the smoothly functioning workforce at Brothers also relo- cated, permitting continued concept development in line with set goals and strategies. In the case of Sisters, the move led to several new recruitments, providing innovative creativity. The joint organization during the past year also progressed toward a more distinct divergence of the concepts in terms of design and purchasing in a bid to streamline each product line.
The key venture during the year was the launch at selected Brothers’ stores of Brothers Depot, a special accessories depart- ment offering an attractive line of men’s cosmetic products, underwear and external brand accessories. The model for this is the corresponding department at the NK store in Stockholm.
Three pilot departments opened in August 2007, prompting a highly positive response from customers. By the close of the fiscal year, Brothers Depot departments were active in twelve stores, each with floor space of 15–70 square meters, depending on the total size of the store. The aim is to provide more stores with similar departments.
David Thörewik, President of Brothers/Sisters
“Whether they live in rural or urban areas, many men are looking for an inspiring store with a high service level, where they can buy high-class suits, shirts and sweaters. Thanks to the Depot departments, Brothers has further strengthened its overall offering, which was wholeheartedly confirmed by customers in the form of an excellent sales trend during the year.”
Sisters conducted an extensive marketing program during the year, aimed at raising market awareness and creating an accurate image of the concept. TV commercials, featuring such celebrities as Victoria Silvstedt, had a wide-ranging impact and gained considerable media attention. The aim is to continue with even bigger campaigns to highlight the chain’s customer offering. The customer club is a key communications channel to customer and a sales-driving tool. During the past year, work commenced on restructuring the customer club and raising its activities level. Membership of the Brothers and Sisters customer clubs rose by 21,000 during the year and now totals about 88,000 members.
David Thörewik
“The campaigns featuring Victoria Silvstedt attracted considerable attention and boosted market awareness of Sisters, while also raising sales. In the past, Sisters has worked a little in the shadow but the campaigns gave us the opportunity to highlight the strong offering that we actually have. Also, we’re very satisfied with the status enjoyed by Brothers among its target group.”
Operations and market trends
Brothers is a volume-oriented fashion chain offering well- tailored garments and casual wear, as well as complementary products. Sisters has a similar focus for women but with greater attention to fashion. Some 70% of the product line consists of strong proprietary brands such as EastWest and Riley for both concepts. These are supplemented with attractive external
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brands in the upper mid-price segment, such as G-Star, Boomerang, In Wear, Lyle & Scott, Replay and J Lindeberg. A common feature for the chains is the aim of offering customers a unique shopping experience with exceptional personal service.
Clothing expertise is important, especially in connection with the purchase of suits and other more tailored garments, and is a decisive competitive advantage in the chain’s segment. Finding employees with the right attitude to service and thus sales talent is a key feature in which RNB invests resources.
At year-end, there were 63 Brothers stores in Sweden and eight in Finland, of which a total of 40 are franchise stores and the remaining 31 are owned by RNB. Of the total of 47 Sisters stores, four are located in Finland and a total of 23 are run by franchisees.
Although both the Brothers and Sisters store networks are concentrated in mid-size cities, the aim is to also have a presence in attractive central locations in major cities and malls.
With a wide range of fashion wear and accessories – as well as grooming products in the case of Brothers – from proprietary and external brands, the stores act as small department stores.
This is a major strength, especially in small towns with a limited range of brand outlets and fashion department stores, and is attractive for many men looking for a one-stop shop. Men’s consumption patterns are otherwise tending increasingly to resemble those of women. Men currently display a greater interest in buying clothes more often and with a greater fashion content than before. In recent years, the market for men’s cosmetics, skin, hair-care products and so on has increased significantly, prompting new brands and a broad product range.
Thanks to its Depot departments, Brothers can meet the rising demand in this segment – and is almost alone in offering these products in a completely male environment.
David Thörewik
“Since Brothers is a concept aimed exclusively at men, we can be uncompromising in our market communications, our store environments and prod- uct offering. We view this as a strength. But with Sisters wall-to-wall, we can also attract women to Brothers, which is crucial for us, since they buy a large share of clothes for the men in their lives.”
For women who like to shop in a number of stores, Sisters will always represent an exciting alternative to other chains in the same segment, with alluring fashions in both classic and trendy styles.
Increased quality and environmental awareness in the target group strengthens the positions of Brothers and Sisters, and considerable resources are devoted to working on these aspects in both chains.
Demand for prompt deliveries and efficient store distribu- tion is increasing, with the consumer continually expecting a renewal of store offerings. Brothers and Sisters have managed to cut their lead times for the proprietary output and currently buy with shorter delivery times in an effort to get things right in terms of fashion and inventory levels. The chains have also designed a system for demand-driven inventory replenishment, leading to superior customer service and higher sales.
Business model
The business model for Brothers and Sisters is based on a com- bination of proprietary stores, especially in the major cities, and franchise-operated stores, primarily in small and mid-size locations. Some 40% of the Brothers’ stores are proprietary, with the remaining 60% franchise owned, while almost half of the Sisters stores are proprietary. The franchise system has
been deployed since the establishment of the chains in 1992 (Brothers) and 2000 (Sisters), respectively, and is a key suc- cess factor. Keen, skilled traders with a strong local base are a powerful factor underlying sales, as well as for the development of the chains. In addition to a close dialog between the stores and the central organization, a franchise board and sales council also act as key contact interfaces.
David Thörewik
“We’re expanding the store network via pro- prietary stores as well as franchise-run stores.
We know that franchise-operated stores are preferable in small and mid-size locations, where a local base and proximity to customers – combined with considerable personal commitment – make a positive contribution to sales.”
Close cooperation between Brothers and Sisters and their external brands has been gradually developed in the direction of the partner model that RNB deploys in its department store concept. This entails joint responsibility for the in-store sale of products, with a system for goods return and exchange rights, thus permitting greater adjustment of the product line on the basis of demand and thereby also boosting sales and margins.
The aim is to continue to develop partner-based cooperation and efforts to create the conditions for this in the form of IT systems and logistics are in progress.
Outlook
Following a robust performance during the year, with a number of key steps taken in the development of the chains, the focus for the current year will be on raising sales per square meter as well as earnings per store. At present, about 1.4 out of ten customers complete a purchase – the target now is to raise this share to two out of ten customers. Distinct, heavy-impact campaigns, continual development of the collections and even better service are key components in attaining this target, especially in an ever-tougher market climate.
David Thörewik
“Our starting point for 2009 is strong, despite a tough market. We’ve got it right in terms of store concept and product line and we have an ideal organization in place. We must now make sure that more customers find their way to our stores and that more of them make a purchase when they’re there. The concepts that improve and hone offer- ings in the years ahead will be the winners when the market turns.”
The Brothers and Sisters chains will continue to grow in the form of more stores – 10 to 15 new stores are planned for 2008/2009.
The Brothers Depot concept offers considerable potential and additional stores will be provided with these units during the year ahead.
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Brothers/Sisters store concepts
Brothers aims to be the first choice for men looking for stylish clothes. We see the typical Brothers’ customer as an active, social man between the ages of 20 and 45 years, who would like to dress a little younger than what his passport reveals.
At Brothers, he will be appropriately clothed and also enjoy an experience beyond the ordinary.
The shopping experience is a feature that Brothers further amplified during the past year. Among other developments, stores in Lund, Karlstad and at the Hansa Mall in Malmö were renovated and refurbished with exclusive fittings in sober tones. There was also a program to equip these stores and nine others with departments for male grooming and accessories, with NK’s Male Depot as the model. We aim to offer a comprehensive concept for male style, which will permit customers to find everything they need to ensure an attractive image – from socks to suits and scents.
Just as Brothers aims to offer everything a man needs in the form of clothes, accessories and grooming, Sisters seeks to be an obvious stop on the fashion-conscious woman’s shopping trip.
Sisters aims to attract the modern, aware and committed woman – a zestful woman in the 20–45-year age group with dreams and ambitions. During the year, we focused on adding an even more inviting setting to Sisters stores by highlighting the female style.
Business concept
To offer a unique distribution platform for national and interna- tional brands in robust marketplaces.
Target group
The offering ranges from children’s wear to jewelry and is aimed at customers with meticulous requirements in terms of service, expertise and quality.
Markets
Sweden, Norway and Denmark.
Trend in 2007/2008
Net sales for the Department Stores business area totaled SEK 1,159.1 M (973.9). Sales for comparable units rose 5.3%. An operating loss of SEK 22.9 M (profit: 42.8) was reported. New units opened in August 2007 at the Illum department stores in Copenhagen and Steen & Ström in Oslo reported a loss of SEK 69.5 M for the period, including impairments and provisions of SEK 35.3 M.
For comparable units, operating profit was SEK 42.6 M (47.1).
Operations and market trend
The Department Stores business area comprises operations involv- ing the sale of clothing, underwear, cosmetics, accessories and jewelry at the leading Nordic department stores – NK Stockholm, NK Gothenburg, Steen & Ström in Oslo and, to a limited extent, at Illum in Copenhagen. The business area also includes an outlet store in Kosta in southern Sweden. Overall, the Department Stores business area manages about 23,500 (23,000) square meters of retail space distributed among 80 (76) store units.
Ann-Christin Edling Jönsson, President of Department Stores
“RNB holds a key position in the market for ladies’, men’s, and children’s fashion, cosmetics, jewelry, clocks and watches and accessories at NK Stockholm and NK Gothenburg and in ladies’ and men’s wear at Steen & Ström. At the end of September, we decided to vacate the Sports Department at Steen &
Ström and limit our activities at Illum in Copenhagen to cosmetics and Polarn O. Pyret. We have not succeeded in fully exploiting our efforts outside Sweden and we’re now taking a step back to concen- trate our resources on the established stores as part of our focus on profitability”.
Department Stores business area
Operating profit/loss, SEK M Net sales, SEK M
0 10 20 30 40 50 60 70 80
P.O.P
-30 -20 -10 0 10 20 30 40 50
Varuhus
-30 0 30 60 90 120 150
Butikskoncept
Rör. res.
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0 200 400 600 800 1,000 1,200
0 500 1,000 1,500 2,000 2,500
Oms.
SEK M SEK M SEK M
SEK M SEK M SEK M
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07 08 0
10 20 30 40 50 60 70 80
P.O.P
-30 -20 -10 0 10 20 30 40 50
Varuhus
-30 0 30 60 90 120 150
Butikskoncept
Rör. res.
0 50 100 150 200 250 300 350 400
0 200 400 600 800 1,000 1,200
0 500 1,000 1,500 2,000 2,500
Oms.
SEK M SEK M SEK M
SEK M SEK M SEK M
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Key data, Department Stores
SeK M 07/08 06/07
net sales 1,159.1 973.9
percentage of RnB’s sales,% 33.8 28.1
operating profit/loss -22.9 42.8
number of employees 592 320
number of stores 80 76
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