Return to expected sales levels possible in 2021. LPP summarises the impact of the COVID-19 epidemic on the company’s operations15.04.2020
• Nearly 100% of closed shops and the lack of revenue from sales in brick and mortar stores as a result of the shutdown of retail outlets has significantly affected the situation of the company.
• Currently, the company sells its goods only via the online channel, recording sales growth of 150 percent y/y.
• Support for sales in the e-commerce channel, reduction of capital expenditure this year by over PLN 600 million and optimisation of logistic processes are the key assumptions of the plan for recovery from the crisis.
• The main goal of the company is to maintain financial liquidity, as well as all business processes and go through a difficult period of quarantine.
As a result of the restrictions introduced almost a month ago as regards the functioning of retail outlets currently in force on 21 out of 25 markets where LPP operates, 95% of its stores are still closed. Nearly 100% decrease in proceeds from sales in brick and mortar stores has significantly affected the current situation of the company. It also determines further decisions of the Management Board of the Gdańsk-based company, which are aimed at securing financial liquidity and preserving as many jobs as possible.
As a result of the development of the epidemic and its impact on the further functioning of the sector, the Management Board of LPP decided to implement the scenario of recovering from the crisis. It takes into account three basic assumptions: strengthening the e-commerce channel, strict cost discipline, as well as improvements in logistics and effective stock management, i.e. optimisation of areas supporting the company’s operations during the epidemic and during the period of recovery from the recession. At the same time, the company confirms that it does not plan to issue shares and bonds.
– We are currently operating under conditions of high market uncertainty. Never before in the history of the company have we been in a situation in which the reality would change practically overnight. And although we estimate that the solutions we have adopted in the company, assuming additional assistance from the government and financial institutions, will allow us to recover from this crisis, we are preparing for the most difficult scenario. Today we assume that returning to situation that was our reality prior to the epidemic is not even a matter of months, but of several quarters. It is beyond doubt that it will not be the reality we know and in which we had been operating over the last years – comments Przemysław Lutkiewicz.
In the opinion of the Management Board of the company from Gdańsk, consistent cost-reduction policy is one of the key solutions aimed at maintaining the company’s financial liquidity. The reduction of LPP’s capital expenditure planned as of now will amount to PLN 620 million. Savings will concern both the development of the brick and mortar stores network and postponing to the following year new openings, expansion of the company’s headquarters in Gdańsk, as well as postponing plans to build a new distribution centre in Brześć Kujawski. The introduced reductions also concern restrictions on personnel costs in the sales network and head office. In the opinion of the Management Board, this is the only possibility to avoid drastic decisions on group lay-offs, which the company hopes to avoid at this moment. The reduction of rent costs will also prove important in terms of increasing the company’s cash basis. This is an effect of both the solutions developed by the government in the area of rent abolition and the strategy planned by the company to increase the share of turnover rent as a standard form of settlement in all countries.
– In the long run, traditional brick and mortar stores will remain the main source of sales, and the current situation is an important lesson for us and the reason why cost optimisation in this area is so vital. We consider it also a key element of developing a multi-channel strategy, which remains our priority. At this point in time, e-commerce is obviously the only sales channel, so we are pleased with the three-digit growth rate currently recorded. We also assume that after the end of the epidemic, customers will be very cautious, and the preference for online shopping will continue long after the stores reopen. Therefore, we are currently focusing on improvements in this area. However, this does not change our conviction that in the long term, only thanks to the effective integration of brick and mortar stores and online stores we are able to fully tap into the potential of both sales channels – concludes Przemysław Lutkiewicz.
According to the Polish clothing manufacturer, a long-term change in the balance of power between the sales channels is a very likely effect of the restrictions currently in force. What is more, we can assume changes in customers’ shopping behaviour already today. Weakening of purchasing power as a result of wage reductions or lay-offs may result in two types of shopping behaviour models: customers buying more expensive, better quality clothing, but less frequently, and customers mostly looking for the cheapest offer. Another challenge for the clothing industry is to forecast customer preferences and design orders for the next seasons and the growing demand for universal-type collections. That is why the company from Gdańsk is already verifying orders for the coming seasons.
– How the customers’ approach to shopping will change is today one of the key questions that the whole clothing industry has to answer. We are convinced that the offer of brands in the LPP portfolio is the right response to this. It is a proposal both for those who will look for affordable products and high quality pieces that are more universal and environmentally friendly. We believe that this variety of products and price flexibility, in changing market conditions, will allow us to reach different groups of customers with our offer – adds Przemysław Lutkiewicz.
Right now, being prepared for various scenarios and the ability to react flexibly to the changing environment underlie all activities undertaken by the company. The goal remains to maintain financial liquidity and a safe balance sheet structure, allowing for a return to development plans after the crisis.
LPP SA is a Polish family business and one of the fastest growing clothing companies in the region of Central and Eastern Europe. For over 25 years it has been successfully operating in Poland and abroad, offering its collection already on 25 markets, including in such prestigious capitals as London, Berlin, Tel Aviv or Moscow. LPP SA manages five fashion brands: Reserved, Cropp, House, Mohito, and Sinsay. The company has a chain of over 1700 stores with the total area of over 1 million sq.m. The online offer of the brands collections is available on 30 markets. LPP plays an important role as it employs over 25 thousand people in its offices and sales structures in Poland, Europe, Asia, and Africa. The company is listed on the Warsaw Stock Exchange in the WIG20 index and belongs to the prestigious MSCI Poland index.