A triple whammy of warm weather, economic uncertainties and Russian tensions badly affected sporting goods sales in Finland last year, leading to a sales decline of about 7 percent for Intersport stores to €254 million excluding VAT. This includes sales at Intersport as well as Budget Sport and the smaller K Sport stores.
Jussi Mikkola, in charge of Intersport Finland at Kesko, the large Finnish retail group that owns the Intersport license in Finland and Russia, said that the weather conditions in Finland last year had been the most unfavorable in fifty years, with virtually no winter at the start of the year and just as little snow in December. The absence of snow in the bigger southern cities has been particularly unfavorable for the cross-country ski sales that drive the equipment turnover of Intersport Finland in the winter.
The situation has improved since the start of this year, as the snow encouraged Finnish consumers to buy skis and helped to clear inventories. Then again, the snow that returned this year was accompanied by relatively warm weather, which depressed sales of down jackets and other winter garments.
The retailer's Finnish sales are further affected by the decline in Russian tourism, which generates sales of branded products. Another factor is economic uncertainty, as a rise in unemployment and tax increases have added to Finnish consumers' reluctance to part with their earnings. This has played in favor of Budget Sport stores, which had roughly flat sales last year. For the entire winter season until now, Budget Sport's sales have actually been on the rise.
While Intersport remains by far the Finnish sports retail market leader, it has come under some more pressure last year with the opening of four stores by XXL Sport, the Norwegian sports retailer. Stadium, the Swedish-based sports retailer, increased its store count in Finland as well.
The marketing tactics used by XXL to gain market share in Finland have led to an intervention by the Finnish Competition and Consumer Authority (KKV) – around the claim that XXL is offering the cheapest prices and will reimburse the difference if consumers find the same products at cheaper prices in other stores. A few days ago the Consumer Ombudsman called for the Finnish Market Court to prohibit XXL from using this price promise without having made sure in a reliable manner that its prices are in fact cheaper than competing offers.
The Ombudsman also called for the Market Court to prohibit the company from advertising its prices as reduced if the discount has been calculated on the basis of a price that has not been previously charged at the same store. KKV alleges that this practice contravenes the Finnish Consumer Protection Act.
Furthermore, it required that XXL be prohibited from claiming in its marketing that discounted products are available at a certain price only for a short, limited time, if the company sells the same products after the offer period at the same price. The Consumer Ombudsman filed a petition with the Market Court on Feb. 27 and further called for the injunction to be made more effective by imposing a penalty payment of €200,000.
XXL Finland is adamant that it does in fact carry out sufficient price checks to support its price guarantee. Toni Stigzelius, managing director for XXL in Finland, said that the company makes weekly price checks in other stores and daily checks online. On the second point, he countered that discounts were applied on the basis of recommended retail prices. He acknowledged that they were not always applied in the first place, but claimed that other Finnish sports retailers have been doing the same for years. Stigzelius has collected hundreds of pages of product advertising by his rivals since XXL started studying the Finnish market more than two years ago. When it comes to the duration of bargains, he said they usually lasted for just one week. XXL is waiting to hear from the Market Court.
The Finnish Intersport owns all of the Budget Sport and K Sport stores in the country but only two of its Intersport stores. There were 62 Intersport and 12 Budget Sport stores in Finland at the end of the year, which was one more for Budget Sport and one less for Intersport than at the end of the previous year. Since then, one of the Intersport stores in Helsinki has closed, while one of the Budget Sport stores in Lahti has been converted to Intersport. The retailer is not planning any store openings this year.
Meanwhile, the turnover of Intersport stores in Russia sagged by 17.6 percent to €15 million excluding VAT last year. However, the figure was impacted by two store closures and the collapse of the ruble against the euro. The company indicated that comparable store sales in Russia actually increased by 4.3 percent in constant currencies.
Intersport Russia has yet to become profitable but the situation has improved after Kesko moved to close down unprofitable stores. When it acquired the license in 2011 the agreement covered 36 directly owned stores and Kesko intended to double the number. Instead, it has steadily shrunk to 19 stores after the two closures last year. The company said that the closures have come to an end, that it remains upbeat about the Russian market's prospects and could start to expand again from a more profitable basis.
Since the start of this year Intersport Russia has also signed agreements to open ten franchised stores. This should enable it to explore the market in secondary cities. For the time being twelve of the stores are in Saint Petersburg, four in Moscow and the remaining three in Novosibirsk.
Intersport Russia has been managed since the start of this year by Mikhail Landyshev, the general manager based in Moscow. After the departure of the previous general manager, the operation was managed directly from Helsinki last year by Christoffer Jansén, who continues to supervise the Russian operation. Landyshev has a track record in the Russian sports and fashion markets with assignments at companies such as the TMHF group, a leading Russian footwear distributor; Jamilco, which sells brands from New Balance and Berghaus to Burberry and Escada; and the S.F. Group, which has Gant and Le Coq Sportif among its partners.
Kesko reported that its Intersport sales declined by 10.0 percent to €171 million in Finland last year, after a rough last quarter that saw sales decline by 14.7 percent to €46 million. The entire Kesko group, which operates hundreds of supermarkets, department stores and specialty stores, saw its sales decline by 2.6 percent to €9,071 million. The same decline applied to the group's operating profit before non-recurring items, which reached €232.6 million. Kesko said that its sales should be roughly flat for this year, while the operating profit before non-recurring items should be stable or slightly down.
