We - KappAhl

The financial risks and their management are described in more
detail in Note 22. Risk management is also described in the
corporate governance report, page 72, under the heading
”Report on internal controls”.
A brief description is given below of the most important
identified areas of risk and uncertainty and how KappAhl works
with each area of risk.
Competition
The fashion industry is characterised by intense competition, in
terms of both product range and markets. The main competitors
are other chains, department stores, mail order companies and
internet shopping, for the sale of clothes to women, men and
children and of accessories. There is also competition for good
store locations and favourable rental terms. Both Nordic and
international competitors can have greater financial, marketing
or other resources. Consequently they may be better equipped
to adapt to customer demand, to devote more resources to marketing
and design of products and stores or achieve better brand
awareness. Strong competition can lead to price pressure and
falling market share. KappAhl focuses on clear concepts and
market positioning through a well-defined target group, combined
with a clear message. This is considered to be a significant
competitive advantage.
Fashion
KappAhl’s success is due to its ability to identify and adapt to
constantly shifting fashion trends and customer requirements
and its timely introduction of new and attractive products. The
products must also attract a broad range of customers, whose
perception of fashion cannot be predicted with certainty. If consumer
trends and collections are misread it can lead to a surplus
of certain stock, price cuts and lost sales opportunities. The
brand could be damaged if customers believe that KappAhl is
unable to offer them products they perceive as fashionable.
These risks are offset by recruiting talented designers and buyers
who work constantly to spot and predict trends. Moreover the
company has a customer-oriented business model where customer
purchase patterns and behaviour are constantly analysed.
Trade restrictions
Just over two thirds of KappAhl’s products are bought in Asia
and the rest are from Europe. Trade restrictions, including
customs tariffs, protective measures or quotas for clothes and
accessories may have an impact on the cost or availability of
products and mean that purchasing routines must be changed. It
is impossible to predict if any of the countries in which clothes
and accessories are manufactured, currently or in the future, will
be subject to further trade restrictions and, if so, what the effects
will be.
Expansion
KappAhl is in an intensive phase with extensive expansion of the
store network in all five geographical markets. At the same time,
existing stores are continually being upgraded and extended,
which requires considerable investment and management
resources. There is never any guarantee that investments will
generate sufficient return. Long-term and focused work is
taking place continuously on expanding and reviewing stores to
ensure that expansion targets are realistic and achievable. As at
31 August 2009 there were contracts for 52 new stores.
Trademarks
It is KappAhl’s policy to register and protect its brand and name.
There are, however, no guarantees that these measures are sufficient
to protect the brand and property. Moreover, unauthorised
use of the brand on pirate copies or imitation of KappAhl’s
stores damage the company’s image and reputation.
Information systems and information security
KappAhl relies on information systems to manage the supply
chain from purchase to in store sales as well as to compile operative
and statistical information. The risks include appropriateness of
existing systems and safeguarding business-sensitive information.
Every long stoppage or lack of functionality in the information
systems can mean the loss of important information or delays,
especially if problems occur in the peak season, for example
during the Christmas trade.
Existing systems structures are therefore evaluated on a
continuous basis to ensure that the information systems meet
business requirements. There is also a sharp focus on information
security assurance in all important parts of the Group.
The economy
The industry in which KappAhl operates is affected by changes
in the economy that impact total demand and consequently the
level of consumption. Consumer patterns are affected by a
number of general factors beyond the control of the company,
including general business conditions, interest rates, exchange
rates, inflation and deflation levels, taxes, access to credit, stock
market trends, unemployment levels, uncertainty about the
economic outlook for the future and shifts in consumer patterns
from durables to other goods and services. Recent unrest on
financial markets has had a dampening effect on consumption.
For KappAhl, however, this may be a business opportunity, as
our customer offer gives a lot of value for money.
2008/2009 Kappahl financial information 37