Outlook for 2011
The Group’s markets, which have seen gradual recovery since the end of 2010, are indicating a potential rise in consumer spending. As regards retail markets, the year started the best in Estonia but growth has also been notable in Latvia. Expectations for the Lithuanian market are mainly related to the fact that as the market entered the crisis six to eight months later than its Baltic neighbours it will probably recover with a similar lag. The Russian and Ukrainian markets are also in a growth phase although unfortunately not only on the revenue but also on the cost side. From the point of view of performance management, in 2011 the Group’s main goal is to achieve a situation where sales grow faster than costs.
A major challenge of 2011 is to find a solution to the pressure that the cost of goods is putting on the gross margin. A sudden increase in the prices of natural materials that began last year in combination with an inflationary rise in production costs across the international supply market (China and other countries of the region) will probably cause a re-division of supplies between several new and old markets and a partial transfer of the rise in the cost price to the retail price. In addition to applying internal measures for controlling the cost prices of its products, the Group is going to monitor closely the behaviour of the competition and will be ready to work flexibly with its product prices so as to maintain both competitiveness and margins.
With the assistance of the global consulting firm Roland Berger, in summer 2010 Baltika Group developed a new Group strategy for 2010-2014. To ensure achievement of long-term objectives, the main goal for 2011 is to create conditions for profitable growth. For this the following steps will be taken:
-the Group will work with the international consulting firm Dan Pearlman to renew the retail concepts of the Monton and Mosaic brands. The new concepts will be gradually implemented from the second half of 2011;
-Monton will launch the test version of its e-shop by the end of 2011;
-Mosaic will discontinue sales of children’s collection and will focus on developing the casual lines of menswear and ladieswear collections;
-Baltman, celebrating its 20th year of operation, will launch the personalised, special-order suit service and will continue developing its core collection with quality products;
-Ivo Nikkolo will continue developing its premium signature line and will make preparations for international growth;
-the Group will improve operation of all its brands across the retail system by creating additional tools for improving service quality at its brand stores.
The Group will continue monitoring the retail system and making changes to the store structure when necessary.
The decision on whether Baltika will continue operating in the Polish market will be made by summer 2011.
After a two-year decline in wholesale revenues a rise is expected for 2011, mainly thanks to growing international orders.
Additions and changes to the Group’s management structure (the brands as profit centres and creation of the position of director of retail operations) are aimed at increasing the accountability of the profit centres and improving management of the retail system.
During the downturn, the number of the Group’s employees has decreased to an optimal level. Upon exiting the crisis, the number of staff has remained stable or changed in line with changes in the size of the retail system.
After a two-year crisis in own production, in the current year orders for the Group’s self-produced products and the Group’s production capacities are in balance.
The Group’s real estate project Baltika Quarter is generating stable cash flow. Its creative industry enterprises are turning into quite an influential community. In addition, Baltika Quarter has been included on the Design Map of Tallinn – European Capital of Culture 2011.