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MARKET OUTLOOK
The pressure on Group companies to change has probably never
been higher than it is today. Geopolitical tensions and the
challenging cost situation, combined with a paradigm shift in
the perception of what is sustainable, are resulting in a cocktail of new
demands being made of companies and their management. According
to Sven Knutsson, Deputy CEO of Mellby Gård, this has meant that the
companies have had to review where they manufacture products and
make their purchases. He is the chairman of Klarahill, Oscar Jacobson
and Söderberg & Haak, among other companies, all of which have
managed to successfully navigate the new market situation.
“Klarahill along with Verahill has developed well in 2023 and made
great strides towards the goal of net sales of half a billion Swedish
kronor in 2026,” he says. “Cooperation and synergies between the
companies are working well. With a solid foundation, we’ve now been
able to expand the business geographically to northern Sweden and
now cover large parts of the country.”
“After a strong 2022, we had a more cautious view of Oscar Jacobson
for 2023,” says Sven Knutsson. “But sales held up very well for most
of the year. Sustainability is very high on the agenda in the textile
industry. An exciting step in the company’s sustainability efforts is
the store it has opened on Birger Jarlsgatan in Stockholm. Sustain by
Oscar Jacobson, where we sell second-hand clothes and samples, has
developed well, which is why we’re opening another Sustain store, this
time in Gothenburg.”
“Söderberg & Haak continues to face challenges,” he says. “The
company operates in two areas: construction and agriculture. The
construction part of the company is now becoming increasingly
important, while we still have a foot in the agricultural industry, as
we can see clear synergies in operating in both areas. We made a big
change in 2023 that will also make its mark on part of 2024. The goal
is to head into 2025 with more focused activities and an optimally
adapted organization.”
NEW RISKS TO CONSIDER
As a consequence of the pandemic and the turbulent geopolitical
situation, many companies are looking to move manufacturing
operations to Europe. This is primarily to reduce risk, but there is also a
clear sustainability aspect to bringing manufacturing closer to the local
market. It can reduce lead times and the amount of transportation
required, which is positive. This is particularly the case for the clothing
industry, where longer lead times mean more risk in terms of fashion
and volumes. Sven Knutsson explains:
“In clothing companies, we generally endeavour to reduce the
degree of fashion. At the same time, we have to remain relevant to our
customers. We aim to create garments that can be used many times
and then be repaired to be used again. To do this, we need to maintain
high quality at all stages, which means a slightly higher manufacturing
cost. But we’re willing to pay to meet our ambitious targets for the
sustainability of our garments and our environmental footprint.”
“Overall, we’re aiming to reduce our exposure by diversifying
our risks,” he says. “For example, at Kappahl we’ve allocated our
purchases by moving a fairly large proportion of manufacturing from
China to India and Bangladesh, with a small part of the company’s
manufacturing currently taking place in Europe. It’s worth mentioning
that Oscar Jacobson has returned some of its manufacturing to
Ukraine and will be happy to expand there as soon as the geopolitical
situation allows.”
“In recent years, it’s become clear that there are many unresolved
and hidden tensions in the world,” he says. “Also, democracy is under
pressure in several countries, which you couldn’t have foreseen a few
years ago. This is a new situation that affects the way Mellby Gård does
business and that the Group has to deal with.”
“The main conclusion for dealing with a turbulent environment is to
work even more on risk diversification, as you never know where, when
or how something will happen next,” he says.
GETTING THE PRICE RIGHT MORE IMPORTANT
THAN EVER
The geopolitical situation has strongly contributed to greater pressure
in terms of costs and higher inflation. Pricing is always high on the
agenda at Mellby Gård. It is important to have a logical and structured
pricing process, and to continuously monitor changes in costs so any
compensatory measures can be quickly implemented.
“During the year, we’ve made sure to adjust our prices and have
always done so to compensate for higher costs,” says Sven Knutsson.
“We want to maintain our margin, but not profit from inflation to
increase profitability.”
Another key strategy for Mellby Gård is for the companies to be
in the right part of the value chain. The optimum situation is many
suppliers, a lot of customers and a strong brand.
“In one of our companies, we had two suppliers for an extremely
important product, but one of them bought out the other and suddenly
we were left with only one supplier,” says Sven Knutsson. “The same
happened with a sector-specific IT system where there were three
operators, but they merged to become one company.”
“This type of consolidation at the supplier or customer level is
impossible to resist,” he says. “We quite simply have to be excellent
planners so we can navigate this.”
The assessment for 2024 is that private consumption in Sweden
will decline, mainly due to the broader impact of higher mortgage
rates. Although it is still uncertain how this will affect Mellby Gård’s
companies, Sven Knutsson is cautiously optimistic.
“The return of interest on capital is healthy,” he says. “Free capital
isn’t good for individuals or businesses, and it’s especially bad from a
sustainability perspective. With low – or no – interest, we’ve seen many
companies not paying enough attention to how much capital they have
tied up in stock. This is perhaps most evident today in a large number
of e-retailers who are left with large inventories, sometimes also of the
wrong kind. That didn’t matter so much when money was free, but now
that inventory costs five to seven percent, it’s important to reduce
inventory levels to free up capital and reduce the burden of debt.”
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