Baltika Group`s radical plan unites brands and closes production units in Estonia
“Undoubtedly, the operating and financing plan for the next years is the most radical one in Baltika Group’s history. The plan is a result of the last years’ financial losses. Instead of international growth, we will continue focusing on sales in the Baltic markets, simplifying business processes, and reducing operating costs. Cost savings come from dissolving production in the Estonian production units, reducing the number of brands, and ending several loss-making activities, which also means ending cooperation with our Russian franchise partner,” said Meelis Milder, Chairman of the Management Board of AS Baltika.
“Today’s Baltika’s business model is expensive and the share of fixed costs is high, which makes it difficult to respond to external factors and demand. In the end of last year we started to plan for strategic change. The strong and courageous operating and financing plan for the coming years will hopefully give our employees, customers, partners, and shareholders the necessary signal that Baltika is changing. I think it’s the best plan for earning profit,” he added.
According to Milder, for the implementation of the 2019–2020 operational plan and for meeting the net asset requirement set out in the Commercial Code, the company, with the support of the major shareholders, plans to raise capital by five million euros, of which three million euros are needed to cover the losses of 2018 and 2019 and two million euros to restructure the company. “We will raise the capital via public offering and all shareholders can participate,” mentioned Milder.
The CEO explained that by changing the brand portfolio, Baltika will operate in two customer segments: mainstream and premium. “With the current sales volume, it is not reasonable to keep a portfolio of five brands,” added Milder. In the mainstream segment, the company unites the existing Monton, Mosaic, and Bastion brands under one brand: Monton, which is also the most successful one. This does not mean that Mosaic`s or Bastion`s customers will no longer find their favorite products. Our production and selection in the shops will continue to be based on our loyal customers’ preferences,” said the CEO. Ivo Nikkolo and Baltman will remain to be Baltika´s premium brands.
Milder emphasized that the focus in Baltika’s new operational plan will remain on the customer and customer experience development. At the same time, the transition to the need-based product development and customer experience management process is also being prepared.
According to Milder, the adjustments in the store portfolio will be made based on the changes made in the brand portfolio: “We will evaluate the number of stores, focusing on the best locations in the best shopping centers and the needs of our new value proposition for the wider target group. Our strength, investments and power will be addressed to Baltic retail markets to grow sales, competitiveness and profitability.”
At the same time, Baltika Group’s Estonian production units will be dissolved during 2019, in which Baltika produces approximately 33% of its collections. The dissolving of Baltika´s Estonian production units in Lasnamäe and Ahtme will influence ca 340 employees. “Depending on the production process, the work will partly continue until late autumn and partly until the end of the year,” said Milder.
“The decision to end production didn´t come lightly, as production in Estonia and our fine employees are very important to our company. The long advance notice will give people the opportunity for a smooth relocation to a new job. We will closely cooperate with Töötukassa in order to provide everybody best advice and counselling for changing their position. In Estonia, there has been shortage of workforce for years, so I sincerely hope that our people will find new opportunities in other companies,” Milder added. According to him, the analysis of fixed costs and processes doesn´t allow to continue with the Estonian production unit. “In order to assure the viability of the company, we need to follow our competitors and produce in locations in which the price-quality ratio is most suitable. This allows to offer products with competitive pricing and specialized production that is needed by several product groups. We will definitely not make any compromises in quality.”
Dissolving the Estonian production units will change Baltika´s sourcing process, which is in preparation according to Milder. “The sewing service will be bought in mainly from partners in the European region. Product development, design, and quality control are still carried out by Baltika,” said Milder.
With the transition to an optimized brand portfolio, significant simplification of business processes and closure of Estonian production units, Baltika Group’s operating costs will be reduced by two million euros over the next 12 months. “I believe that we have evaluated the situation critically and created a vigorous plan that we are ready to implement. 2019, in my view, is the year of necessary changes; in 2020 we have hopefully reached a balance between costs and income, and as of 2021, we are ready for profitable growth,” announced Baltika´s CEO.