Luhta, the oldest and best known brand of Finland’s L-Fashion Group, has secured the rights to act as official supplier of clothing to Santa Claus, who is supposed to live in Rovaniemi, a little Finnish town along the Arctic Circle where he has his own postal office to handle more than 300,000 postcards that he receives at this time each year.
Combined with a charity in favor of UNICEF, the deal with the Finnish Santa Claus Foundation will be one of the cornerstones of Luhta’s first major global marketing campaign, scheduled to be rolled out in the Fall of 2008 together with Finnair and the Finnish Tourist Board. It will celebrate Luhta’s 100th anniversary and showcase also two sister brands, Icepeak and Rukka, by involving retailers in 30 countries in decorating store windows and brand corners accordingly. A "Welcome to Finland" campaign will back up the initiative, associating Luhta with the beauties of Finland’s landscape and giving to the store personnel and to consumers the possibility to win trips to Finland.
Luhta already gave a foretaste of that to 261 buyers, distributors and journalists whom it invited to a unique experience in Lapland a few days ago. The event gave L-Fashion Group’s present young management a chance to discuss the company’s turnaround over the past few years. The Finnish group made a profit of €9 million on higher sales of €172 million in 2006, and the results should improve again this year. Sales had remained more or less stagnant for several years, but the group is now anticipating annual increases of between 5 and 15 percent for the next five years, thanks mainly to its diversification into retailing and to continued strong growth for Icepeak, the group’s 8-year-old line of value-priced sports clothing.
Geographically, the group sees its best chances in the large neighboring market of Russia, where it is prepared to acquire a brand or a retail chain to further strengthen its position. The group made a turnover of €20 million in Russia this year, selling its various product lines to some 500 stores, half of them in the sports segment.
The Sportmaster chain is its biggest Russian client, but the establishment of a fully-owned sales subsidiary in Moscow last Jan.1 is creating stronger demand from smaller retailers for its products, especially the most fashionable and expensive ones, because it relieves the buyers from the obligation to handle customs clearance. Many are interested in opening dedicated Luhta stores on a franchise basis – even just for its children’s line – and company officials feel that the country could easily support 100 Luhta stores sooner or later. The group has no specific plans in the USA.
Because of its typical clean, nature-inspired Finnish designs, it is performing best in Northern Europe, but it is doing very well with Icepeak in the Germanic markets, in France, Italy, Spain and the UK. It has been particularly successful with big retailers and buying groups such as the Finnish mass merchants, Intersport and Sport 2000 in Germany or Ochsner Sport and Migros in Switzerland, plus a large number of independents in these and in about 20 other countries.
First launched eight years ago in the UK, the brand offers an excellent price-quality ratio for outerwear and other technical products, offering good mark-ups and alternative designs to those of Columbia Sportswear, Five Seasons and the private brands of major sporting goods retailers like Décathlon and Intersport. It use sophisticated technologies such as nano-finishing, seamless fabric bonding and breathable membranes.
Targeting active and mobile young adults, the Icepeak collection is made entirely in China, where the company currently employs 120 persons. Its sales will reach €35 million this year and are expected to grow to €80 million. This compares with a wholesale turnover of €20 million for Luhta, which has suffered major declines in Germany and other markets, or €15 million for Rukka. Another outdoor brand for oversized women in the group’s portfolio, Skila, has seen its sales drop to €3.5 million and its future is uncertain.
The Finnish family-owned group has come a long way since it encountered serious financial problems in the early 1990s. These problems were mainly related to the recession in Finland that followed the end of the communist regime in Russia, as well as to the Luhtanen family’s previous insistence on manufacturing everything in Europe.
The company took advantage of the tough economic situation to acquire Rukka and other brands, and it began to re-engineer itself, cutting back the production in Europe and investing more on product development, marketing, merchandising and close relations with retailers. The company spends between 3.5 and 4 percent of sales on advertising and communication for Luhta, but nothing for Icepeak. Run by a new generation of managers led by the 46-year-old Vesa Luhtanen, L-Fashion Group has opened up the channels of communication among its different brands, eliminating internal competition and overlapping functions. It has dropped peripheral businesses and opened new markets such as Canada, Korea and Japan.
Vesa took over the reins of the group in May 1999 from his father Pekka, who was seriously ill. His uncle Jukka, who formerly acted as director of the trading division, is now running the Chinese subsidiary of the group, established at the beginning of 2006 in connection with the elimination of European apparel quotas, and about half of the company’s products come now from China, compared with 30 percent two years ago. His son Keni is running the Russian sales subsidiary. Vesa’s brother Juha is the sales director of the sports division of the group.
This year, retailing will represent around 33 percent of the group’s turnover of €190 million, up from 1 percent of sales of €160 million in 2000, and its share could well rise to 50 percent within the next three years. The group’s expansion into retailing began with the acquisition in 2000 of two Finnish chains of fashion stores belonging to the Kesko group, Aleksei 13 and Vaatehuone, and continued earlier this year with that of another one, Your Face. Today the company has 54 stores including the first Luhta shop. Opened six months ago in Helsinki’s international airport, it caters to nationals and foreigners with a 50-50 ratio, and it is doing well. The first Luhta store in Russia is opening just now in the Mega 3 shopping center near Moscow, and five others are set to follow next year.
There are no concrete plans yet to roll out the format in the more developed markets of Western Europe. On the other hand, the company’s new partner in China, China Dongxiang, has opened 30 Rukka test shops in the country, and it has an option on the Luhta brand. That company bought the Kappa brand name for China last year and now has 1,900 shops under that banner. It recently went public with a goal to reach an annual compound growth rate of 30 percent through these and other brands, and at 25.2 billion Hong Kong dollars (€2,212.4m-$3,232.5m), its market capitalization is now higher than that of Li Ning.
