Good morning, everybody, and welcome to the Pandora Capital Markets Day. It's been a pleasure to see the big interest there's been to attend today, so we can say we certainly have a full room. We are excited to share our plans for the future with you today. Last week, we sent out three messages. I think two of them explained themselves. One of them was numbers without context, and today we'll put context to those numbers. Today, we're going to talk about how we're going to build the Pandora business for the future. Let me start by highlighting the key messages of today. I'll start by saying a few words about 2017. It will help put the plans for the future into a context. It will give us a starting point.
And then the focus of today will be how we're going to develop Pandora through to 2022. On product, we're going to develop the company into a full jewelry brand. Pandora is, as a starting point, a product brand, and product is key for our consumers. If you look at the development that we've had in the years from 2013 and to 2016, it has, to a large extent, been driven by the fact that we've supplied consumers with fantastic product. It is important to our success, so if we have a hiccup in product, we have a hiccup in Pandora. We're going to talk about that today. We're also going to talk about marketing and how we are developing from a more traditional marketing model and into a more digitalized model.
On commercial, we're talking about how we're going to continue the journey that we've already commenced, going from being a predominant wholesale business to a retail business. Then we're going to talk about manufacturing, very much the heart of Pandora. We have now two state-of-the-art crafting facilities in Thailand. At the last Capital Markets Day, we talked about that as we were in Thailand. This time, Thomas is going to share with us how we have developed since then. We have a value chain that we've glued strongly together, and we are going to talk about the financial impact of the plans and what we do to service the consumers, put in the center of everything we do, and develop our business. Let me just give a few words on the business model and what we deliver. Our competitive advantages or our starting point is strong.
We are a leader within affordable jewelry, and we are servicing women all around the world. We have 5 times the capacity of any other jewelry manufacturer in the world. We are the undisputed leader in manufacturing of jewelry. We're also now the number one jewelry brand in the world, actually something we say with big pride, because in 2017, we beat the competition and became the number one. Until then, we've been number two in the industry. Then we have 2,350 concept stores around the world, where we'll service the consumers, and we'll do that with our 19 eSTOREs as well, put the consumers in the center of attention and give them the service that they expect. With these things, we will deliver a growth of the business of between 7% and 10% over the next 5 years.
Watch the math, because if you put all the individual building blocks of our plans together, you might get a number which is slightly higher, but we also have to balance that in the future. We'll also secure a high margin in the future, 35%, and I will explain the bridge, and Peter will also explain the bridge later when he puts together the financial numbers. And then by the end of the day, this will mean that we will have quite a lot of cash to return to our shareholders. Let me start by introducing the team who is going to deliver on these plans. Stephen is going to secure great product across all our categories. Thomas is continuing to develop our manufacturing capabilities. Minna will help us transform from traditional marketing and into digital marketing.
David is the one who gives our consumers a wonderful experience, both in our stores and our, in our eSTORE. Peter, he will secure the financial development of the company and calculate the efforts of everybody. We're also happy that we today here have our chairman, Peder Tuborgh, with us. He will have the closing remarks of the day. And then, as you know, last week, we announced the fact that Peter Vekslund has decided to step down as CFO. Luckily, we had someone who could take over, and no later than 1st of August, Anders Boyer will take over as CFO, and he's actually also here today. The good thing about Anders Boyer being a member of our, our board is that he's also been involved in the development of our new strategy, so he supports it.
Let's have a look at the agenda we have for today. I'll start by talking a little bit about our 2017 performance, and then we're going to unfold our 2022 strategy, and all the activities which lies behind that. I'll give you the overall framework, and that will be a framework on product, on manufacturing, on the brand, on retail, and the overall financial numbers around that. Then after my presentation, there will be a short Q&A. There will also be a short Q&A after Thomas's presentation, Minna's, David's, and then by the end, we'll have a general Q&A. The Q&A we have between the presentations, we think it would be best if we try to keep them around the things that we've talked about, and then do the general update and also the general questions by the end of the presentation.
Let me start by talking a bit about 2017 performance. We did not hit our guidance in 2017. And that's, of course, not satisfactory for me, and it is not satisfactory for us. We came close, and you could even say very close, but we did not come all the way. In 2017, we had a growth of 15% in local currency and 12% in Danish currency. We've talked during the year about the strong headwind that we had in currency, which actually ended up being a little bit bigger and represented DKK 800 million during the year, compared to the time when we put out our guidance in the beginning of the year. I can assure you that we did everything we could in all different parts of the business, but still, we came a little bit short.
If we look at the performance reasons, there's not one market to call out. It was actually across markets, and we will be able to talk much more about this when we publish our 2017 numbers, and we do that in the beginning of February. But I think there are two important questions which arises on this, and one is: What has been the challenge in 2017? And maybe the more important question: What are we doing about it? There are three main causes for the development. As I mentioned before, Pandora is a product brand, and across the value chain, which is linked very strongly together, we work to service our consumers with great product. It has been our, the reason for the success over the years.
The fact that consumers can ascribe meaning about the past, the present, and the future is something which is highly valued. But we've had a hiccup in product in 2017. One of the things which, of course, is important for us, is to understand what is the reason and what has happened. What we saw was that across the world, at the same time, we saw that growth was declining a bit, and then we had to look at something that we had in all markets across the world, and that is product. But the important thing is we've addressed this, and you will see the plan for product going forward. Then, as we've also talked to many of you about during the year, we have, as everybody else who's been in retail in the U.S., been challenged in 2017. That's a prerequisite for us and everybody else.
But over and above the fact that the market is generally challenged, we also have things that we can do better, and I'll talk about that. Let me start by talking about product. We have talked about this during the year. The last innovation, big innovation in Pandora was introduced back in 2014. That's when we launched Pandora Rose and our Disney collection. Actually, we didn't have an organization in place to build new concepts, but today we have both a product development team and an organization who's working on innovations. Our refreshment of our assortment had become too repetitive, so the consumers could not see a very big difference.
We have earlier stated that around 50% of our sales comes from products which is launched within the last 12 months, and on the right-hand side of the slide, you can see that that number has declined over the past few years. So the share of new products has been declining. So what have we done about that? These challenges we saw back in 2016... and we acted on it, and we are ready now. The challenges were the lack of innovation. We also only have one technique in the way that we manufacture our jewelry. It is, and I have to say that, also the most important technique when you make jewelry. We had a lead time of 14 months.
That actually means that our design team, when they were looking at releasing the next collection, didn't know what the results of this year was, and that's been a challenge. So the solutions, where we started the work back in the mid of 2016, are that we've introduced a new design team, a broader team than we had before. We've also cut our product development process, so on the general replenishment of our product, it is now 11 months, but we also have a Fast Ttrack where we can introduce new products in four months. We've built an innovation center to support our product development efforts.
Be curious, and for me, this is a very important cornerstone in the future of Pandora, because we have our designers who gets their inspiration from a lot of different sources, but one source of inspiration is also to look at technical opportunities. Now we have a team in place who can support our design team with technical innovation, keep them curious, and challenge them to make sure that we make the right products for the future. What did we do back in 2017 when we realized we had some challenges on product? Yeah, first and foremost, we fast-tracked 25 products designed by the new team, and I've today brought a few examples of the results from EMEA.
So one of the products was actually one of the bracelets that we launched, became the bestseller in the UK, and the other one, the bestseller in the whole of EMEA. And the bangle we have with exchangeable locks was also one of the best-selling products in the US, to give you a bit of flavor. And then we launched Disney in EMEA, which was very well received. So we now are in a situation where all our existing concepts are available around the world. What we've seen historically is, that when we launched a concept in one country or in one region and not in the others, we've seen a very big consumer demand in the other regions. But now we have everything available across the world. So what should you expect in terms of new products for 2018?
With our new expanded team and a new product development process, we'll step change on innovation. So we'll actually launch two times as many products compared to 2014. But we also have a need to refresh our assortment. As you saw before, we've seen a declining trend in the products which has been launched within the last 12 months, and we need to update those products. We will, in 2018, launch two new concepts with a total of 100 new design variations. And then we will refresh our base assortment at a double rate compared to what we've done historically. Stephen will talk more about this later in the presentation. But now, consumers, they do not buy numbers, they buy beautiful jewelry. So let's just have a look at some of the product.
Here you see, on the right-hand side, some of the products on the top part from our Valentine's collection, and below that, from our Drop 1. You can compare that to the products we have launched previously. This is representing a significant shift in product newness compared to 2016 and 2017. But I don't think necessarily this picture does it right, so we've asked our design team to give their interpretation of our Drop 1. You'll see now a sneak peek into our Spring 2018 collection, which we call Pandora Nature.
Wow!
...And the consumers, they like it, a lot! So, the highest social media engagement on Instagram we've ever had was back in March of 2017, where we had 102,000 likes on one product. When we started doing the presentation, we had the key you see on the right-hand side, we'd actually surpassed that. Since then, another product has surpassed it, and this morning, I looked at Instagram, and we now have a dangling heart ring, which has 190,000 likes. So the consumers is responding. Of course, the interesting thing is going to be to see how this works out in terms of sales over the next weeks, and we've just launched our Valentine's collections in store. Let's have a look at the U.S. performance. The U.S. retail market is challenged, and we've talked about this.
But the U.S. market has also been the most challenged market in terms of new products. Last time they had any new big splash or concept launched in the U.S. was back in 2014. So it's been a bit of a dry scene since for our American friends. At that time, we introduced both Disney and Pandora Rose in one year. And the U.S. is by far the biggest market for jewelry in terms of e-commerce. Actually, as big as 21% of sales of jewelry in the U.S. market is e-commerce. Clearly, that is built on the back of an existing catalog business, and that has been the driver of this, but still, it's 21%, and we are trading behind on those numbers, as we only have, as you can see, 6%.
If you look at the number across the world, it is 6%, and now I know you can always, not always put all truth to the Euromonitor numbers, but it's the best we have. If you back out the U.S. of those numbers, the remaining part of the world has e-commerce at around 3%, so the U.S. is a lot bigger. Minna and David will talk more about this later in the presentation, but our focus in the U.S. market when we talk about e-commerce is about driving traffic. Driving traffic is not only for the e-commerce, but also for the physical stores, but in the U.S., driving traffic to e-commerce is very important. We're also merging our brand side and our e-commerce side, and we've previously told you that we're going to do that in March of this year.
We also need to get the channels to work together for the consumers or work as omni-channel, and we have plans to do that and are moving on that as well. And then we need to make sure that the communication we have to our consumers is relevant. Historically, we've sent one email to everybody, and I think everybody has done that. We've now moved, and, today we are more sophisticated than that, because it's not meaningful to send the same email to a gifter as to a self-purchaser. So we are refining that, and we've already done that during 2017, and we'll do much more of that in the future. Let's look at the store footprint in the U.S. market.
In total, when we look at the stores in the U.S., and for instance, compare it to a market like the U.K., we have around 360 stores in the U.S., and we have around 230 stores in the U.K., so it's not a massive overrepresentation. The good thing about the presence in the U.S. is that we are in the right malls, but at the same time, we are also very much a mall brand. We have our presence in the A and B malls predominantly, and as you can see, very, very little presence in the C and D malls in the U.S. It's a good starting point. We believe there's opportunities for us to expand our footprint in the U.S. over the next coming years.
We will also go to other retail locations than only the malls, service centers being one of them. But in some of the areas of the U.S., where we are still having a relatively smaller representation, like the western part of the country, the Greater New York area, and also Florida, we will also see opportunities to open stores, and some of those might be in malls. With the development we've seen over the past year in the U.S., it is very important to see how is our brand doing in the American market. The brand stands strong. Actually, also in 2017, with improvement across all parameters. The consumers still like Pandora, and they are staying with us. I believe that this is an important cornerstone in the future development of the American market. Now, this was a few words on history.
Let's now look at our plans towards 2022. The plan that we're going to share with you today is a plan that we have built together in our management board. Clearly, when you do a strategy plan over a period of five years with very clear objectives to it, you also look at all the areas that you could work with. So we've done a lot of choosing and a lot of things that we've chosen not to include. So there will be no watches in the plan for the next five years, there will be no men's jewelry in the plan for next years, and there will be no wedding rings in the plans for next years.
And we've had a lot of other things that we've looked at and said, "That's not for us in Pandora now." We've also had several sessions with our board of directors, where we discussed the plans, and where the plan, plans has been challenged by our board of directors. And then, I think most importantly, we've ended up doing a bottom-up plan, which means that we have challenged all the markets around the world, and all our different functions, to do their plan towards 2022, based on the overall strategic framework that we gave them. For me, it's always a very interesting moment when we do that, and find out how is the belief in the plan in the individual markets and functions compared to the plan we put together?
So when we do all the numbers and put them together, I was very happy to see that in the markets, they backed the plans and actually confirmed the numbers that we put together in the overall plan. Let's start by having a look at our platform for growth. We are the leader in affordable jewelry around the world, with an integrated value chain. We put quite a lot of emphasis and focus on strengthening chain over the past few years. We are born out of manufacturing, and we have five times the capacity of anybody else. And maybe a testament of how we are born out of manufacturing is whenever I go to Thailand, I normally have a dinner with our founder, Per Enevoldsen.
And, when I was there a few months ago, I sat down with Per, and we had a dinner. And after one and a half hours of discussion, I said to him, "Per, now we've talked very much about the production for one and a half hour, maybe you would like to know how the business is doing?" He said, "Oh, yes, Anders, that would be nice." So we talked about the business for about 15 minutes, then Per said to me, "Anders, can we just go back and talk about the production again?" So this is the way we started, and this is very much also the passion and the heart of the company. We now have the world's best-known jewelry brand, and got a number one position in 2017. And on distribution, we have the 2,450 stores all around the world.
So this is our starting point, and we see very good opportunities of growing from here. Let's look at an internal and external view on this. We have good market opportunities in some of the biggest markets in the world to continue our journey. On last Capital Markets Day, we talked about China, and we've seen a very, very strong growth in China since then, and we also see very good opportunities in China going forward. But there's a lot of markets. Actually, we see markets with opportunity for growth in all continents, maybe with the exception of Australia. We have three markets with more than 10% market share, the strongest being the U.K., Australia, and then a new one on the list, which is Italy, which has joined the two others this year.
Italy, we've built from scratch over actually a relatively short period of time, and when I visit with our team in Milan, I'm always very impressed with the way that they both started working on the brand, with the brand, with the consumers, and how they continuously focus on doing that. I think that is one of the reasons and a testament of how you can build a strong Pandora market, so very well done. We are the market leader in charms and bracelets, and charms and bracelets is actually the smallest category, or wristwear is the smallest category in jewelry in the world. So we see good opportunities of moving into other categories.
I think for some of you, we mentioned that when we talk to consumers, they talk about necklaces and pendants or neckwear as the closest category to charms and bracelets, and it is actually the second biggest category if you take the wedding rings and engagement rings out of the ring category. So we see a lot of opportunities in that category, and already now, we've built a very strong business in our rings. So we've just scratched the surface. Stephen will talk much more about this later in the presentation, how we are going to explore these opportunities. So the strategy is going to transform Pandora over the next five years. On product, we're going to go to a balanced offering. New categories will be around half of our business, and there will be a strong focus on innovation. Stephen is going to talk about that.
We'll digitalize our brand experience and be aware of the fact that digitalization doesn't necessarily mean that all consumers will be driven to our eSTORE. Digitalization is also very much about driving traffic to our brick-and-mortar stores. But we'll digitalize our brand experience, and we'll put our consumers in the center of everything we do. Minna will talk more about this. We will then go from being primarily a wholesale brand, we've already started that journey, and being primarily a retail brand. We'll integrate e-commerce so that the consumers will get a full experience between the physical stores and the e-commerce platform. David will talk more about that. And then we will stay curious and use that to broaden our capabilities in terms of manufacturing, and drive efficiency in our manufacturing or crafting facilities in Thailand.
So in short, what we're going to do is that we are going to innovate affordable jewelry. We're going to digitalize our brand experience. We are going to, what will Pandora look like when we get to 2022? On products, 50% of our revenue, it is, in general, 2 drops a year, but we've seen some of our competitors catching up in terms of the number of drops. So we find it's a good idea to go to the brand. We aim to be the leader of digital marketing in jewelry. We've spent 8% of our revenue on stores around the world. Two-thirds of those stores will be owned and operated. And we expect the eSTORE to weeks. It came from 8, we are now moving downwards, and in the future, we will have 4 weeks of time and replenishment. The innovation.
The concept development team are looking at the longer term and the bigger innovations. We reduced time to market to be able to do this, and we are still in the process, but we've already done quite a lot. So on CIM, on point, are now there and stand ready. It will give us a much better flow in our manufacturing. And then we've established an innovation center. This is the traditional Pandora bracelet. So we need to continuously develop new products, which will challenge the consumers in that area of retention. It is on trend, and we even see celebrities going into it. Personally, one of the things that I've seen. 25% of our revenue. That's quite limited, but we've still seen very strong growth. Our category awareness. Now, I'll go to the next pillar of our strategy.
As I said, manufacturing is a cornerstone in Pandora, and techniques that we are experimenting on. And I know that both Stephen and Thomas, they would love us to come up with the next great innovation in. Out of that, across the 25 biggest markets of Pandora, we have an awareness of 83%. But in 2017, only about the money, but also how we spend that money. And we believe that we can get more impact for the same money. It's a focus that we have in. It's also important for us to be where the consumers are, so therefore, moving to 60% spend in digital is important. But it's not all. We also need to be in some of the traditional areas when that's meaningful.
We will increase the awareness of our new categories to 50%, and at the same time, maintain our number one position in the industry. Always, also in our communication, strive to inspire our consumers. Minna will talk more about this later. Next, let me touch upon retail. We are in a process, and we will transform Pandora from predominantly wholesale into predominantly retail. In 2022, we expect two-thirds of our stores to be owned and operated, and we'll build our online presence to 10%-15% of revenue. Service our consumers where they are. E-commerce is low, 6%. In general, consumers, they love to shop jewelry in store. If we take a couple of our markets, like Italy, we see e-commerce, commerce being extremely low. In that market, people also tend to enjoy paying in cash.
We also want to have only branded retail space in the future. Historically, we've had shop-in-shops , and shop-in-shops have been a place where you've often just seen a couple of trays of Pandora products without any branding, and not a representation of our full assortment. We want all of it to be branded. Franchise will still in 2022 be an important part of our business. So it is important for us that we continue having a good relationship to our franchisees around the world, and work together with them to service the consumers in the way they expect to be serviced. So how are we going to do this? We still see good opportunities for opening stores around the world. We expect to do that with 200 stores per year.
China, Latin America, EMEA, but across all the regions, we believe that we have good opportunities of opening more stores. We will also take over between 75 and 150 franchise stores per year, and continue to develop our eSTORE platform.... Buying Pandora is an inclusive experience, and when we talk to our consumers, they talk to us about the experience of going into a Pandora store. There might be a few of you who have heard this before, but for me, the most powerful way of talking about an inclusive experience is actually talking about the opposite.
So when I go into a very, very exclusive store, when I get closer to the store, I can see they are standing in the store and saying, "Anders, you do not belong in our universe, and you probably do not have the money to buy our products." When I get into the store and stand there with the store staff, they are absolutely sure I do not have the money to buy the product. An inclusive experience is that people feel welcomed in our stores. Our store staff, in general, love our product, so they give our consumers a wonderful experience. And when we talk to consumers, they love the atmosphere of our stores. They actually love the fact that when they leave the stores, they do that with an experience of having made an important purchase, but the experience being in the store is really good.
And we need to make sure that that experience is also as good in our eSTORE. So also there, we need to put the consumers in the center and find out how we service them the best possible way. And let me just have a few words on our eSTORE. We expect the eSTORE market to grow, and you can see here the market is 6%. We are 6%, so you could say we have a good representation of eSTORE. That is not a hundred percent true, because the one, six percent is of a retail sales, and for us, it is actually a combination of retail and wholesale. So we are still trading a little bit behind, but we've done quite a lot of catching up over the past couple of years.
We will have and believe that our share of e-commerce would be between 10% and 15%. Clearly, we have, as you also have, had a lot of discussions on how far will this go? How big will e-commerce be? And that's why we've ended up with the number between 10% and 15%. We believe that is a good number. It might grow faster, but we have to remember that when we talk about jewelry, we actually come from a lower level than in other categories. The good thing about this is that we don't really care where the consumers want to meet us. They should have a great experience in both our eSTORE and our physical stores. But if they buy in the eSTORE, we have the same profitability as if they buy in our physical stores.
One of the reasons for this is that we actually have a very low level of returns, which is about mid-single digit. So profitability of the two channels are the same for Pandora. And when we need to make sure that the two channels work together to give the consumers the omni-channel experience that they want, and we are already moving on that. We also believe that we can continue to expand our footprint. So when we get to 2022, we expect to have 3,500 stores around the world, mostly our own stores. And here, also, the financial rationale is very strong. By moving from a franchise to an owned and operated stores, we can multiply our revenue by 2, and we can actually multiply our EBITDA by 1.8.
So it's a little bit a small drag on our EBITDA percentage, but in absolute EBITDA cash, if you can use a word like that, it is a strong support. David and Peter is both going to talk more about this later. So let's have a look at the retail building blocks. We will transform to only branded retail space, and we will close the unbranded accounts. So the way you should think of the unbranded account is either they'll be closed or move them in to shop-in-shops. We've already done that in a lot of cases and in a number of markets. And that development, if you put it all together, will have a small negative impact on our EBITDA of -2% through the period to 2022. So let me put it all together.
In 2022, we'll service our consumers with innovative, affordable jewelry. We will digitalize our brand experience. We will expand our omni-channel capabilities, retail, e-commerce, and let them work together. Then we'll develop and continue to develop our manufacturing capabilities. So let me just talk a little bit about what is the impact that you should expect already in 2018 on this. As I said, 2018 is the first year of our new strategy, so you will see the strategy in action already now. We will launch 2 new concepts. The first you'll see today, Pandora Shine. I said Stephen is going to present that. We will refresh our base and have an ability to fast-track products in 4 months from today. Our digital capabilities and efficiency is increasing… and we will strengthen the consumer experience.
We'll open stores, and we will acquire stores, and merge our branded sites and our eSTORE in March. Our lead time will improve, and we have, on top of all of this, launched a procurement program which will help us support financing our strategic ambition, which we expect to deliver DKK 300 million in 2018. So 2018 is the first year in our new strategy, and let me just share the financial ambition for 2018 with you. We expect, compared to 2017, to see a growth in 18 between 7%-10% local currency growth, and an EBITDA margin of 35%. And I know there's a couple of questions on the EBITDA margin. Why is that 35% already in 2018? And there's actually a number of things.
We are launching two new concepts, and as I explained, there will be a drag of 1% on the contribution margin, because we are moving into other materials. In terms of retail, we already have around 1,000 owned and operated stores, but we also acquired quite a number of franchise stores, and we will also, in 2018, acquire franchise stores. When we acquire franchise stores, we take over the inventory, and we work through the inventory, and we do that at wholesale prices, which means that in the beginning, we'll have a lower contribution margin. So those two things together will also mean an impact of -1%. If we go forward and say, later in our strategy period, we've said that those two things will impact our margin with -2%.
We also expect to have leverage in that period of time, and Peter will talk more about that in his presentation. If you look at 2018, you'll get the full guidance. These numbers will be part of our guidance for 2018, 7%-10% growth in local currency and around 35% margin. As I said, we'll talk more about this when we publish our 2018 numbers later or in the beginning of February. Let me finish my section by the investment case. Based on our integrated business model, we will deliver growth, strong margins, and continue to generate cash that we can distribute as dividend and share buyback to our shareholders.
So before we take a break, we will now have a small Q&A session, primarily to the presentation I've had so far. We'll get back to details later on a lot of things,
and I've asked Magnus Jensen, who's head of IR, to head that off and lead us through the Q&A. So, Magnus?
Thank you, Anders. Anders, as mentioned earlier, there will be a number of sessions during the day, and I will try to moderate this. I will start with Anders. Please limit yourself to one question at a time due to the number of participants. When you answer, ask the question, please state your name as well as the company you represent today.
This is Lars Topholm from Carnegie. Good presentation, and we, of course, welcome your forward integration. Just a question on that. Your 5% CapEx on this slide, does that include the spend to acquire franchise stores? And I also think in the past, you have taught us when you acquire franchise stores, the revenue boost is 2.3-2.4 times. Now it's 2 times, so I just wondered what has changed? Thanks.
Yeah, let me start with maybe your last question. CapEx does not, make that clear, CapEx does not include the acquisitions. CapEx is CapEx and actually for investments. So that would include our owned and operated development. When we look at this, at the revenue, what we've done in this process is that we have run the numbers in big detail across all our different regions and markets across the world. When we look at some of the first stores that we acquired, actually in some of our more, you can say, developed markets, we actually saw a pickup of 2.4-2.5. When we run this across all our different markets, we see the pickup being 2 on average, and that, of course, represents some of the markets where it's just smaller.
It's a question of us having done the plan across the full Pandora universe.
Yeah, Kristian Godiksen from SEB. I was just wondering, on your guidance for your like-for-like, that includes the e-commerce growth. Could you talk a bit about, and it's also on the, on the retail business, maybe if you could elaborate a bit on what is your, assumptions for your like-for-like in the physical store network, and maybe also for the wholesale part of the business, where you have a bigger exposure to some of your more mature markets? Thank you.
Yeah. Thank you. My suggestion would be that we get back to this, because we're going to talk much more about this later today. So how do we see like-for-like development? Is part of David's presentation, but also Peter's presentation. Is that okay? Super.
Frans Hoyer, Jyske Bank. Question about the multi-brand outlets that you are now, it sounds like you are accelerating the effort to either close them or convert them to shop-in-shops. From memory, I think we're talking 5,000 outlets or something like that. How will that play out over the next five years? Are you halving that number? Are you taking it down even further? Or, I mean, given our experience from Q4 last year, when you closed quite a few.
We've done a lot already. So actually, it's going to be smaller in the years to come. I think we expect to close around 300 per year. So that would be more the number. It might be in slightly bigger chunks, but what we did last year when we closed 700 stores in one go, that was a big one. It'll be smaller. We don't have that many left. And actually, we do believe it is an important part of our total retail footprint. In some of the areas where there's not space for a concept store, it would be nice to have a shop-in-shop. We just want it to be branded and have a good representation of our product, so it will be part of our business also in the future.
Mikkel Kousgaard Rasmussen , ABG Sundal Collier . Anders, you talked a lot about this cash flow generating ability that Pandora has also in the future. And reading a little bit ahead in the presentation, I also see that you also expect to keep working capital flat as a percentage of sales. Can you put a little bit more words on, first of all, how do you as a management team feel versus between dividends and and share buybacks? And just elaborate a bit more on those expectations, please.
Thank you for your question. It is, I can say already now, we'll get back to it later, but it's something we'll get back to and talk about in connection to our presentation of the 2017 accounts. So right now, we have heard a lot of input from investors, and there are a lot of views on what we should do. We're evaluating that. We're also doing that with the board, try to stay at an open mind at this time, and we'll get back to it. I think Peter has a few comments on it later in the presentation.
Thank you.
Good morning, Caroline Schweitzer at Colony Advisors. How is management incentivized to deliver on those targets? I think historically, it was more on absolute EBITDA. Do you plan on changing that to link it a little bit more with share price?
I think that's a good question, and we actually have a discussion right now, because we haven't finalized that yet. But, I don't think we'll link it to share price necessarily, but it is a discussion we have with the board. But we are looking at saying, with this new plan, actually, for the first time, we have a five-year plan for how we're going to develop Pandora. What does that mean in terms of incentivizing the organization around the world to make sure that we do the right efforts? I think that when we have concluded that, we will probably, or we will be able to say a bit more about what are the different measurements which is used for management. I hope that's okay, but we haven't decided yet.
Good morning, Gosia Eggimann, Banque Lombard Odier . You mentioned there are still opportunities for the US market in terms of store openings. But overall, what countries will be focused on new store openings? Where do you see the biggest opportunities?
Well, clearly, the obvious candidate on the list is China, where we still see very good opportunities in continuing our journey, and we've been very encouraged by the development we've seen in China so far, fast ramp up of the stores. So that's one. But we actually see that across a lot of different markets. We are still opening stores in Europe. Market like France, we see opportunities to open more, but across Europe, we see opportunities there. If you want a big market, India, where we've just started, we have two stores in India now. We see good opportunities continuing that. We've established an office in Panama, in Latin America now, and we've done that to be able to capture the Latin American area, and we see fantastic opportunities there to also open stores.
Last year, we acquired our distributor in South Africa, and that is, of course, also to look at the African continent. Now, Africa is not going to be the biggest part of Pandora, but there are still good opportunities there. So actually, if we look at our different regions, we see opportunities around the world.
It's Kristian Godiksen from SEB, just one follow-up. Just a question on your omni-channel approach. You know, the U.S. market, where you're lacking the most, that is primarily wholesale-based, and you have a lot of different contracts with the different franchisees. So how far should we expect you to be able to deliver a premium omni-channel approach?
I think you should expect us to be able to go far, because we have to. It is needed. We believe that the discussions we've had with our franchisees, they also understand that. We need to make sure that the channels work together, whether it's retail or franchise. When it comes to franchise, of course, it needs to be in agreement with our franchisees, and, we are discussing that with them now.
Hi there. Laura Habianitch from Barings. Hi there.
Mm.
Just on the newness lead time down to four months, what percentage of products in 2022 you think will be launched within four months? And basically, why four months? Why is that the optimal amount? Will that change?
I hope it will change, because our focus would be always to make it shorter. The shorter, the better. And I think when we talk about fast-tracking, it is also about reacting. I think that the plan we have for 2018, we feel very good about. There's a lot of new products which will come in. So the Fast Track is really also, if we see something is not working perfectly, then we can do something about it in the year. We don't have to do what we've been doing historically, wait one and a half year before we are ready with something new. So the Fast Track is more an opportunity for us to bring in products. And I think what we did back in 2017 is a good example of that.
We brought in 25 products, products, and that was the maximum of what we could do. I was very happy to see Stephen and Thomas work very well together to get that into the markets fast. We will be able to do more of that in the future, but it will be more a reaction if we see. Because, yes, we are of course looking at how to challenge the consumers with, as we say, the products they didn't know they wanted, but sometimes we do not get that right, and then we have the ability to act.
Hi, Nick Hartley from Legal & General. Can you just clarify your aspiration in terms of e-commerce? I'm a little bit confused by some of the data you've put up there. So, if I remember correctly, the US market, you said, was 21% e-commerce, and you guys, I think, were 8%. And then global, the market is 6%, and you guys are 6%. And then if we roll forward to 2022, you're basically saying you're gonna be in line with the market, 10%-15%. Does that imply that you continue to underperform in terms of e-commerce in the US? Because the alternative is that you lose market share in terms of online penetration elsewhere. I can't quite figure that out.
Okay, I'll try to clarify it. We are, of course, not having an objective to trail behind in the U.S. We need to catch up. Now, there's part of this market, which is a catalog market for wedding rings, and maybe that's not relevant. But we want to be, if you look at it across the world, relevant, so that it's actually up to the consumer where they wanna trade. As I said, for us, whether you do one channel or the other is not important for our profitability. But we need to make sure that we put the consumers in the center of that. So if that means that the market is at 10%, we would want to be at 10%.
But if they want to trade a little bit more e-commerce with us, that's fine. So I think it's difficult to give an exact figure and say, "This is where we wanna be." The thing is, the offer for our consumers has to be the best in the industry, so that's the focus.
But if you close the gap in the U.S. and everything else remains constant, then you should be ahead of the market, right?
We probably would be, but it's again, up to the consumers where they wanna shop. So it, what I wanna say is that there's no individual purpose in us trying to drive the consumers to e-commerce because we don't have better profitability there. So I think what we need to do is drive our offer to make sure that it corresponds to the best in the industry, in the best in the market and in front of the industry. Does that make sense? Super.
Sebastien Floch from Temasek. If we look at the building blocks between retail like-for-like, store expansion and online, that means your wholesale is declining. For sure, it's declining because you're closing stores and buying back franchisee. But should we also assume negative like-for-like for the wholesale and the third party?
Now you put two in. I don't think you should expect any negative like-for-like in Pandora stores. If you look at the development we're going to have in our other points of sales, we're going to transfer them from unbranded and into shop-in-shops. I would expect that to give a positive like-for-like development. So you can say across the different channels, you should expect positive like-for-like. I think we'll do a little bit more on that, both in David's presentation and Peter, and then maybe we can get back to this later if there's still questions that you want to ask.
Hi, Sindre Sørbye from Arctic Fund Management. Just two questions on e-commerce. First, I think your assumptions may sound overly conservative, given, I mean, seeing historical e-commerce growth and what you see from the, let's say, most penetrated countries. You have ballpark like 15% annual e-commerce growth. And is there also a reason if that kind of, if it surpasses that level now in your investing more and more in your shop network? I mean, if you risk negative like-for-like there. And secondly, it also sounds puzzling that you have the same level of profitability in e-commerce, especially given that return levels are, you said it was only like single digit, and you should have huge leverage there. So can you comment on these profitability assumptions?
And I think the first question was about the size of where it goes, and I think it's a good guess. As I said, we've of course had long discussions, and the problem is nobody knows, but we have different assumptions. You can say jewelry comes from a lower level of e-commerce than apparel, for instance, does. So the question is: How much catching up will there be? And will we see in some of the markets, which is less penetrated from a consumer perspective, a big increase, and maybe there will. We'll see. That's why we've ended up saying 10%-15%, because we don't know. Can it be 20 or 25?
Clearly, we've had a long discussion also in our management board and with our board on what happens, and what would that mean for our physical store footprint if the numbers end up in the higher level or maybe even surpasses it? I think what I look at and think is important is that we have normally small stores, 50-60 square meters in Pandora, with a typical rental agreement of 3-5 year. So if things, it's not going to explode in a quarter or two or in a year, but if we see that at some point, the balance between retail space and e-commerce space should be shifted a little bit, we can do that relatively fast. So, and we've looked at that, and we feel comfortable with it. So I don't think we should be overly worried about that.
If we look at the profitability, it is the fact. You can say, if we look at how we expect, we have that outsourced today, so we might be able to get a little bit of a gain by insourcing it, but that's the profitability we see, the same across the two channels.
We have time for one last question.
George Kounelakis from ENA Investment Capital. One quick question on the previous slide. You mentioned that in 2018, you will be introducing two new concepts with lower margin, with such sales and such profitability, to bring the profitability of the whole group from 37.3%, 1% lower. Could you give us a little bit more color for these two new concepts that will, what kind of sales or margins you attribute to those so that will bring the margin down by 1%?
I think the fact is that when we have a combination of metals, as we have in Pandora Rose, and also the first of the concept, which is Pandora Shine. When we look at a composition of metal, the margin will be a little bit lower, but the absolute EBITDA cash will be higher. So that's the way you should think of it.
What kind of revenue you attribute?
I don't think we give any guidance on the new products, and honestly, we are launching it, so we will see.
But you are saying that these two new concepts will be enough to bring the profitability of the whole group. So, you know, what kind of percentage of revenues you attribute to those new concepts?
I think we-
If the profitability is just marginally lower.
I think what we can say is that what we expect, give you a little bit of flavor, and I don't know whether it's helpful. We believe, as we've said for our Pandora Rose collection, that that's given us a meaningful contribution to our total sales. We expect the Pandora Shine collection to be able to do the same, and that means that it is, of course, something with an impact. We'll talk a bit more about this. Stephen is going to introduce the Pandora Shine products, and we'll also talk a little bit more about the profitability by the end, where Peter will bring it all together. Otherwise, we can get back to the questions.
Thank you for the questions. Anders will be available for questions again in the final Q&A, so for those who didn't get to ask him, you can ask there. We'll now have a short coffee break over in the other side of the yard, and please be back in your seats in 17 minutes, so 5 minutes past 12. Thank you.
Please take your seats.
Yeah, they didn't hear.
Yeah, they didn't. I may be a little longer, but that's fine. That's fine.
Ladies and gentlemen, please start taking your seats. I hope you all got to get a smoothie and a cup of coffee. Now, Peter will take the stage, and he will talk us through how we plan to innovate... Stephen will talk about how we innovate affordable jewelry. Please, Stephen.
Thank you. Good morning, and welcome to Copenhagen. It was quite stormy last night, so I don't know if people were coming outside from London, but obviously, they got in. More than ever, welcome to Pandora. Now, I am Stephen. I am a little different. I normally have a hoodie and sunglasses on. I love to surf. I am not a PowerPoint expert, so I'm just gonna ask you to bear with me. But what is important is I'm very passionate about products, and I'm gonna try to hold back a little bit today, but I am very, very passionate, and I could talk about Pandora product all day. So maybe this evening, some of you who are at dinner, I would love to talk to you about our fantastic product.
I think Anders gave a very clear overview of where we were in 2017. But I think he also gave a very good overview of where we're going in 2018 and further towards 2022. But product, to me, is all about a story. So before I go into my presentation, I would just like to sort of reflect on some things about Pandora. First of all, I have really been looking forward to this day. Why? Because, you know, when you present product to people like yourself, it is something that I want you to also come on the journey with us, and that's what I'm gonna try to attempt today with you. First of all, I always say, no matter what company I've been in, and especially Pandora, product is king.
Product is everything, and actually, product can make a huge change. All of you today have a smartphone. That was a huge change. So I think something that we don't discuss enough at Pandora is when we launched the moments concept of charms and bracelets. If you think about the power that that had with women across the world, it's extraordinary. And I truly believe that that concept changed the jewelry industry, and I still think we will continue to do that at Pandora. So today, Anders touched a little bit on it, but I think what's so important is about having a surprise. And so today, we will, and I always say we, not I, we will show a new, innovative, affordable jewelry concept, and that is called Pandora Shine.
Pandora Shine will bring affordable, plated gold products with the highest quality, incredible craftsmanship, and more than anything, incredible design. So I'm standing here today, but after Thomas finishes the presentation, during your lunch, we would like to show it to you where you just had your smoothie. And then please, product is not about a PowerPoint. Product is about an emotional connection. Product is about touch and feel. Product is about changing how a consumer looks at a product, how it changes a brand, and also, more importantly, how it changes the company. And I wanna go back to the Moments platform. We achieved that, and we will continue to achieve that every day. So to bring all of you on the product journey, I will spend the next 30 minutes on a PowerPoint...
PowerPoint presentation to show you sort of where the changes of the product are coming and how we're gonna plan it all the way up to 2022. So innovative, affordable jewelry. There's some key takeaways, and there are four. Unique edge in product, and that's DNA. I believe that Pandora has a unique edge on product, and we have a very clear design brand DNA. We also have the utmost quality in the jewelry industry. And thirdly, the craftsmanship that we have in our product makes our product have that unique edge. Point number two, innovation. That is a big word, and newness, that is a big word. But all of us love newness. Whenever there's a new app or something, everyone gets on it. It's no different with product, but our responsibility at Pandora is to drive constant innovation.
As Anders sort of touched on, we have all the right ingredients to be able to do that as we go forward. Again, when I present Pandora Shine, I think that's the first step. Charms. I've really wanted to say this to this group. It is a sustainable business, and we will make it a sustainable business, and we will constantly innovate on it. As Anders mentioned, we will launch two new concepts in 2018, and one of them is on a new charms and bracelets platform. And the last point, expand in other jewelry categories, 'cause everyone says that Pandora is about charms. Actually, we are about other jewelry, and I think if you look at our ring category to present day, we have proven that. The opportunity is still immense in the ring category, but it's also immense in all the other categories.
So affordable jewelry. If you look at our competitors, we are more affordable, and if you look at the unique product we have from quality and craftsmanship, we are standout. We are best in class. Timely design. I think we look at trends, we look at consumer behaviors, and I think we have introduced in the past, the 7 drops, and moving to the 10 drops will make us even stronger of being at the right place at the right time with the right product. And self-expression.... allowing women to express the many sides of themselves. Now, there are few women in this room, but if you look at the Golden Globes, the empowerment of women today is breathtaking. So I want to just talk to some of the women in this room where Pandora is different as a brand.
If 15 women walked in the room wearing the same dress, they would not talk to each other. In fact, they're gonna go out and say, "I can't do this again." However, if those 15 women walked in the room and saw them all wearing a Pandora charm and bracelet, guess what? They would all go talk to each other. Why would they talk to each other? Because actually, each piece of jewelry that they have, or each charm, they have a story, and they want to share those stories with each other. That is where we are unique, and that's the power of Pandora and our product today. Anders touched a little bit on this slide. I would like to repeat on it a little bit. Our recipe for growth. Lead and innovate in the charm category.
We, of course, will constantly refresh the moments and then the charms, but as I said, we will develop new charms and bracelets concepts. I will drive my team crazy on this because, as I said, product is king. Our heritage comes from the from the charms and the bracelets. We own it, and we will own it. Number two, fastly, timely, wide design newness. Anders touched on this. We actually did start with 7 drops. Now we will start with 10 drops, and the 10 drops is also to provide introducing new concepts, because in drops, you have gifting drops, usually like Valentine's, Mother's Day, et cetera, et cetera, but we also have to drive newness. So this gives us an opportunity to open, making sure we're focused on clear merchandising, how consumers consume in the jewelry industry.
Also, we will introduce a lot of new products, which I think is very, very interesting because it actually puts a lot of us, my team, to think about what she needs before she even knows that she needs it, and I love challenging my team on that. Also, as Anders touched on, we will reduce, you know, we will go to market faster with 11 months. I think somebody asked the question about 4 months. Yes, because unfortunately, you sometimes have misses, and we have to make sure that we are constantly updating those misses and constantly having newness. We will win in the other categories, and I said at the rings, we have one in that category. I think the big opportunity is necklaces, or as we call it, neck wear.
There's a huge opportunity because actually, through our research, we've found out that there's a lot of similarities, how I described of wearing the same dress versus, versus wearing the charms and bracelets from Pandora. It has the same sort of meaning and connotation to the end consumer. So for all of you, you have a present, a locket. Actually, in history, if you don't know, people would cherish what was very important to them within the locket next to their heart. So in that aspect, the necklace and pendants has the same opportunity for us, so we will grow that category immensely. Also, in the new categories, we will offer a lot of new DVs, because it's necessary to have a well-merchandised collection within those categories. And lastly, but not leastly, the concept innovation.
It's such an important thing to look at the future, and sometimes looking at the future can be very scary. Starting with a white piece of paper, taking all the trends, consumer insights and behavior, and understanding what they want is what makes me get up every day in the morning, because that's what fascinates us, and it's what fascinates Pandora, and it's what fascinates my team in design. I think Pandora is a charm original. I think I touched on that. I think we need to have a balanced portfolio. I think this slide shows you where we were in 2012 and where we will go into 2022. So it will be a clear 50/50 split. This is one of my favorite slides, and I would like you to look at this and reflect on this.
We sold 200,000 charms per day in 2017. Tell me a lot of companies that do that today. That's a lot of charms. That means they love our charms. We sold 400,000 bracelets in 2017. There's not a lot of jewelry companies that do that. So if I take the Moments platform, I take we're striving in innovation, we're striving in other categories, imagine the opportunity that we have at Pandora. Please reflect on that slide. You guys are numbers people. Those are pretty impressive numbers. I think this is a really interesting slide, and as I said, I don't like PowerPoint, but if you look at the two axes, if you look at the material, and then you look on the...
On your right, the design and style, if you go where our core is, our core is in the sterling silver in the moments. So when we introduced the pavé charm, which is the little charm up there, which I will say, there's 99 set stones in that pavé charm... That was a breakthrough for Pandora in our charm business. Now, if you go up and you look at the little charm above there, that's in Pandora Rose. So from a material perspective, we have huge opportunities. And if you go on the right-hand side on the design, that's Bella Bot, our favorite new sort of franchise character, which we will launch in Drop 1. It's such a story behind Bella Bot.
I'm not gonna tell the story now because it will come out in the beginning of March, but she is an amazing woman, and wait till you see where she travels around the world. So when you look at this graph, for me, what I love, it gives the opportunity in the crafting facility, in the innovation center, with the designers, we have a lot of room to play, not just in the Moments platform, but in all categories. So we will continue to refresh the Moments platform, but more importantly, we will launch new Embracelets platforms. We will protect our business, and this is an example of how we will protect it in charms. We will continuously refresh and extend our Moments platform. We will innovate in the existing platform. So on the right-hand side is an encased charm. Within that encased charm, there is a stone.
That is innovation. That is not an easy feat for the crafting facilities in Bangkok or in Chiang Mai to do that. And that actually was one of the 25 products that we basically brought in 2017, and it performed exceptionally well. Expand the design universe. I think what's very important, I'll talk a little bit further in the next slide, is the regionalization. Pandora is a large company. We trade in a lot of different countries, and there are a lot of different needs from different regions. So this is a charm specifically that was designed for China. So if you take EMEA, APAC and the Americas, there's a lot of differences. There's cultural differences, there's local differences. So this is an example to show you how regionalization will be very important. Drive product scarcity, and everyone will go.
What that means to me is, why should every single product we put in the assortment always be in the assortment? We introduced Mickey and Minnie as a limited edition with Disney, full pavé, and it sold out in one day. So this is something that we're looking at a lot about, looking at limited editions and also at the same time, looking at seasonal in and out. Why should a product, every season, when we drop it, stay in the collection? We believe that scarcity also drives desire and demand. And lastly, but not least, the launch of the new charms and bracelets platform. Today, I'm very excited, and you will see a video on it on Pandora Shine. But in simple innovation could be just a sliding bracelet.
I would like you to please look at the sliding snake chain bracelet when you go over next door, because we have our classic snake chain, and if you look at functionality, a lot of women, they break their nails. So we decided to think, how are there ways of innovating the bracelet to easily put it on? So please look at that in Pandora Shine when you go to the next room. As I touched on prior, we will be looking at more targeted offerings. So of course, we will be looking at local occasions. Of course, we will be looking at regional needs. This is important for driving desire and cultural relevance in different regions in the world. This is another slide that I love.
So we showed significant historical growth in other categories, and as I discussed, the pavé charm that we set 99 stones, we ventured out on the ring category. And when we introduced the feather set ring, it was a breakthrough for us on the ring category. We believe that also within all the other categories, we will have these breakthroughs. To date, the rings are still performing exceptionally well, but we're just entering into the earrings, and as I said, the necklaces and pendants. I think what's interesting, though, if you look at our competition versus the amount of product that they have within those categories, ours is relatively slim compared to the other competitors. But I can tell you the productivity is phenomenal. So again, huge opportunity to to win in the 50/50 split.
This shows how we've evolved in the rings, the earrings and the necklaces and pendants, but what I want to talk more about is the crafting facility. We have opened a state-of-the-art new facility in Chiang Mai. This will give us incredible opportunity as it's focused on the other categories, on rings and earrings and necklaces and pendants. So we have now the capabilities of innovating, and little stories are simple, but to actually make an open ring, since we're primarily 925 sterling silver, you have to harden it. So the designs in these categories are, as Thomas doesn't like, a little bit more complex. But now we have all the craftsmen and women to help us, but also the crafting facilities. And Thomas will touch more on this in his presentation, on agile manufacturing. But I am very proud to stand up here.
Everybody that touches our product, this is not just design, it's all the crafting people that put their love and tending care into our product and make the difference. I think we will increase automatically the assortment on new design variations, that is a given. If we wanna own the other categories, of course, we're gonna have to introduce more rings in the assortment, more earrings in the assortment, and of course, necklaces and pendants. So hence why we have to drive these other categories, we will have to have a larger assortment. When I started here, I guess it was in 2012, we did introduce the seven drops.
I think it's been incredibly effective and efficient, and the best way I can describe this to you is, if you go to a grocery store or a fruit stand, I think all of us are always looking for the newest and freshest fruit. If it stays there for almost a week, you're not gonna want it. This is no different than the way consumers consume jewelry today. They need newness, they need freshness, and it drives demand and brand desire. So here is just an example of how we will introduce the 10 drops, and within those 10 drops, we will be launching, as Anders and I have said, a new concept every year, and potentially two. I think also what this demonstrates is we live in a very fast world, so fastness to market is kind of a very important attribute in today's world.
So if you take the idea of fast, newness, innovation within the jewelry, I like to say that, to me, is a winning formula. I think that's where Pandora has the capability and the scalability to do this over our competitors. I'm not gonna spend a lot of time on this slide, but I think it just shows you how I call building a house. You have to have the foundation before you put the first, the second, and the third floor. Of course, we refresh the base. Of course, we will look at new design functionalities and features, and as I said, we will be driving new concepts. But I think it shows you the balance of the assortment, that it's moving and shifting as we move into 2022. Now, that's kind of the PowerPoint presentation part.
Now I wanna show you a film. Why I like to show the film? Because you emotionally connect, you visually see it, and this gives me great opportunity to actually give you the biggest surprise in front of you, which I've been waiting for this day to show you Pandora Shine. After the video, I'll go into a little more depth on what Pandora Shine is exactly. Please enjoy.
New shine knocking my door. I never ever met someone like you before. New shine straight to my eyes. My head starts spinning and I just can't lie. You got a hold on to something deep inside of me, and definitely, nothing is quite like it used to be. Just because you've got that new shine, new shine, whoa. New shine, new shine, whoa. Ooh, yeah.
So did you emotionally connect? Yeah, good. All right. So I think what's really important about this for, I don't know if everyone knows, but actually, the gold segment in the jewelry industry is the largest segment. So think about that. Now, we're introducing Pandora Shine. It's an innovative design, which you will see later today. It has the best quality, and more importantly, it has an incredible, affordable price. So we have a strong platform, like we did with Pandora Rose, and actually with Disney. It will broaden our jewelry offering, as I said, because gold is the largest segment in the jewelry industry. It provides incredible newness, and you'll see it. It's called Bee My Love, and you'll see part of that later today. And also, it's, as I said, the largest part of the jewelry industry.
But I think your right-hand side, what I love about this, we will have, and Minna, who's part of all of this, and she'll have a presentation later, we will have a global rollout of this in the beginning of March. It'll be in our concept stores and eSTOREs. So it launches, as I said, March 2018. It consists of about 36 design variations, or maybe to you, SKUs, we call it design variations, and it has an affordable price and the highest quality. And I want to talk a little bit about the price and the quality now. So it's hand-finished, and I mean that literally, with an average of 30 skilled craftsman people in our crafting facilities. It has the highest quality plating solution with several layers.
It has incredible durability, which is very, very important... and it is made of all fine jewelry with precious metals. So on your right-hand side, basically shows you the composition of Pandora Shine. So this, to me, is a big launch for Pandora, and it goes back to what Anders says, this is our first new launch of a concept in 2018. Now, I wanna touch on a real important point, is the design team. Anders did mention it a little bit. We are building a robust, strong design team. Yes, we have designers here in Copenhagen, but at the same time, we have designers in Milan. Now, for all of you, I don't know if you know, but Italy, per capita, has more jewelry stores in the world.
Normally, and Italy is made up of tiny little towns, so yes, you have Milan and Rome, but they're made of little, tiny towns. In those towns, you most likely have a post office, a coffee shop, and a jewelry store. So that just shows you the love of jewelry. Why they have the love for jewelry is because Italy is one of the most innovative, first of all, on manufacturing tooling, so they're the first people who actually created automation in manufacturing and jewelry. And number two, from innovation in Vicenza, they're on the forefront. So it's very important that we're part of that. As we move forward, and Anders and I have discussed this, we may expand the design team within the regions, as I said, because there are different needs, but we're also looking at having a very international group of designers.
I think the other thing that's important, we're going towards the 50/50 split, so it's very important that we are best in class and create desire in all categories. So this gives us the opportunity to focus design in categories. Thirdly, we work a lot on the consumer insights, and consumer insights are very, very important to designing. I think everyone thinks designing is, as some people call, fluffy white stuff, but actually, we have a lot of art and a lot of science. The science is understanding what the consumer needs, but it's also dividing and making sure we have a balanced portfolio between metal, price points, et cetera, et cetera. But insights and behaviors are fundamental. And then last but not least, I'm gonna show you another video of... They're called, I call them F&F. They're actually, their name is Francesco and Filippo. They're two Italians.
This video will just give you sort of an insight of how we looked into Pandora Shine. Please enjoy this video also.
We know each other very well from a long time, and we used to work like a creative duo from the beginning. We are very complementary. Sometimes one is more structured, and the other one is free to create. We support each other to take some risk, and in any case, when we take a decision, it's because both agree.
We call this collection the Nature of Pandora for one reason, because we want to talk about the nature, the codes, the DNA of Pandora as a brand, but also as the nature in itself. That in a certain case, it has a legacy of Pandora. Pandora Shine is our 18-karat gold-plated sterling silver material.
When we design, our idea to create more option for our consumer in order that they can create their own style. And for sure, Shine is a fantastic starting point. So first, we want to inspire women. We really work a lot on styling, how to put together different things for different women with different ages and, cultures. And, we really love the idea to work for a brand that is loved by different women with different personality, and the styling is super important, is our starting point.
Our creation for Pandora take into consideration the whole panorama of Pandora history. It is a real process because we believe in involving people. We have a very specific way of think, we of viewing things, and what really interesting are our codes, and we found many codes in Pandora DNA. We are also very organized. Everything becomes for from a mood board that bring together codes, ideas, color, material, attitudes, and we communicate a lot.
My favorite two items are Bee Dangle and the Honeycomb Choker. For the Bee Dangle, the inspiration was direct, but it's also true that the bee is one of the codes of Pandora. It is delicate and strong at the same time. Another favorite piece on Shine collection is the Honeycomb Choker. I really like because it's minimalistic and geometrical, but at the same time, very feminine. So from my point of view, gold is always a trend.
Yes. I mean, gold look and gold color has been, I mean, loved throughout history and it's kind of timeless.
Yes, definitely. Have Pandora Shine in our assortment is a big opportunity, in particular because mixing the three metals is something super nice and give to our consumer the opportunity to create their own style.
So that's F&F. So, to conclude, as I said, I'm not a big PowerPoint buff, but I want to just conclude on these four sort of key points for 2022. Continuously refresh our moments offering, develop new charms and bracelet platforms, have the 50/50 product revenue split, you know, bring new products to launch and within the 10 drops, and launch at least one new concept annually a year. So from that perspective, I am done. I would like to pass over to Thomas.... Thomas is my brother in par, in the sense that he works with, he will present the agile, you know, manufacturing, but that team over there is as much as an influential in helping us make these great products and bring them to the end consumer. Thank you very much.
Thank you, Stephen. And, just for the record, I do love all your designs, also the more complicated stuff that gives me a few gray hair from time to time. I guess, a natural question to raise at this point in time of the presentations would be: how do we transfer all the great ideas, the concepts, the design that Stephen talked on? How do we transfer that into physical products, fast and efficient, and available for our consumers around the world? The answer to that question is the Pandora agile manufacturing recipe, and I'll be spending the next 30 minutes or so on giving you some insights on that.
The key takeaways from the presentation will be that we have made a step change in the way we do product development, and we will show that that is unparalleled in the industry. We are adding manufacturing capabilities to our facilities in Thailand that will support the product strategy that Stephen talked on. We are going to drive efficiency improvements through the operational part of Pandora to partly support the strategy initiatives that Anders talked on earlier today. Talking about efficiency and operations, let's start out with watching a short movie, video from the new crafting facility in Bangkok that we just opened two weeks ago.
Have a look at the size of the floors that drives efficiency, and have a look on the timeline that we spent to set up this monster of a production facility for jewelry. I will come back to the crafting facilities and some more details on that later in this presentation. Now, the agile manufacturing recipe is, as I said, the muscle that will bring the designs and the new concept into real physical products available for our consumers. And the four pillars of the agile manufacturing recipe is the next level product innovation and the new innovation center in Bangkok. It is that we are adding capabilities to the manufacturing sites that will support the product strategy and bring that forward.
It is the operational efficiency that we will bring via the new facilities and via a procurement excellence program that we are running. And then the last, and maybe most important part of this, is the industry-leading crafting facilities, where we have established two new crafting facilities, one in Bangkok and one in Chiang Mai or Lamphun, in the northern part of Thailand, that is taking down the lead time of the production, and that is bringing our capacity up to a potential 200 million pieces of jewelry a year. And talking about the crafting facilities and the journey we have been on with capacity, it all started our own owned and operated manufacturing sites or crafting facilities.
We started out with them in 2005, where the founding father of Pandora, Per Enevoldsen, established the first building in Bangkok that was owned by Pandora and operated by Pandora ourselves. Five floors, one building, transferring the 400 people that he already occupied at that point in time in rented buildings into this new one, one new building. Ten years later, in 2014, the number of employees has grown to 8,000, operating in 15 buildings and in more than 60 production floors. That rapid scaling, of course, created some challenges on being efficient in the production....
So in 2015, Pandora decided to make a step change on the way we do crafting, manufacturing, and announced on the Capital Markets Day in Bangkok in 2016, that we were going to set up 2 state-of-the-art crafting facilities that would take Pandora a big step forward. Today, we're ready to share the status on that and the 2 new facilities, and we're ready to share with you the next leap in the growth journey of the manufacturing within Pandora, and what we're going to do with manufacturing the next 5 years. And I'll get back to each of these areas that is stated on the right-hand side on this slide, and give you some more details to that.
Before we move into kind of the more technical part of manufacturing, being lead time, flow lines, ERP systems, optimization of different processes, let me start out by stressing to you that the heart of the Pandora Agile Manufacturing System, the very heart, is the craftsmen, the skilled craftsmen that we have in our facilities. They have been a key success of the Pandora journey, and they will be a key success factor for the future. Pandora's ability to attract, train, develop, and retain these skilled craftsmen is a crucial part of the, of the muscle, the agile manufacturing recipe. And let me just share a small story on how that works for Pandora. So important, as you can see on the numbers, to attract a lot of people and retain them.
In 2016, over the summer, we were going to hire approximately 1,000 people for the or 1,000 craftsmen for the crafting facilities. The only advertising we did at that point in time was that we put up a small poster at the front gate of the facility in Bangkok saying, "This weekend, we will accept applications from new employees if you come and visit us during the weekend." People started to line up 3:00 A.M. More than 12,500 people came through the production facility that weekend asking to work for Pandora. The traffic broke down in the area. We did read regional news that kind of warned people about that it was a difficult time in getting around in that area of Bangkok that weekend, due to Pandora hiring people.
If you want to see it for yourself, have a look at YouTube. Look into Recruitment Day Pandora 2016, and you will see how it looks when 12,500 people would like to work for you. Yeah? On the training and development part, this is important for Pandora, that we're able to do this, in an efficient way. If you look at the slide here on the development, on the product evolution, in 2012, 3% of the craftsmen in our facilities worked with wax setting stones. In 2017, that was 15% wax setting stones.
Because the product moved, we, of course, had to train and develop our people to do the task that was needed for the new product that we offered. And on that note, the 2.6 billion gemstone wax setting in 2017 in our crafting facility, that's a lot of stones. It's the same as setting 300,000 stones, 24 hours a day, 7 days a week, 365 days a year. That's how you get to 2.6 billion gemstones, and obviously making Pandora a very big consumer of these specific gemstones. Being dedicated to our craftsmen is also, for us, natural to be dedicated around the employees in general, the local community, and the environment. And we are doing a lot of initiatives and work on this area.
I'll just pull forward one example here, and that being the green crafting facilities that we are establishing. The new facility in Lamphun, Chiang Mai, we have pictures of the facility on the wall here. This facility was the first facility, the first jewelry crafting facility in Southeast Asia, China area, to earn a LEED Gold certification, the first crafting facility in that area. And for Pandora specifically, that means that approximately 18% of the energy that we consume is generated from our own solar panels, and that we have reduced the water consumption by approximately a little bit less than 50% by reusing water in an intelligent way. Put together, it's good business, and it's good for the environment and for our craftsmen.
Talking about the crafting facilities, Pandora has got the leading crafting facilities in the jewelry industry. With the two new facilities we have established, our capacity is now potentially up to 200 million pieces of jewelry. The two new buildings was, as I mentioned, announced on the Capital Markets Day in Bangkok in January 2016. We said at that point in time that we were going to establish state-of-the-art buildings, crafting facilities, built on cross-industry experience with how do you do large scale production of products? And just two weeks ago, the second of these two crafting facilities went into operation. Both of them came in operation within the timeline we had planned, within the budget that we had put together, and they are both ramping up according or better than the plan that we put together at that point in time.
Both facilities are based on lean flow production. It's a production philosophy that's also known as the Toyota Production System, and it has proven itself to be superior to any production philosophy or method that is out there, and that's cross-industry. And that's why we have bought into this and believe that that's right for us, and so far we have proven to be right on moving in this direction. But what does flow, lean, what does that mean, and why is it important? So if you look into the legacy buildings in Bangkok, the ones that kind of was established within 10 years in a rapid move from 400 people to 8,000.
Per Enevoldsen and Pandora extended the way production was done in one building into doing the same, kind of just scaling it up in a massive and very impressive way, all based on what's called functional layout, and we'll get a little bit back to that later. Now, the disadvantage of scaling that way is that you create a lot of transport between the different floors where you do your production, between the different buildings. You have lower visibility on what's where the orders and how is the progress, and it leads to being less efficient. This is what we call spaghetti flow. Yeah? The two new facilities has been designed with an intent to create flow, visibility, and efficiency in the crafting facilities. And they have been built for this purpose.
I think that if you saw the buildings, the old production system and the new production system, it is quite obvious for anybody the difference between having these larger production floors, where you have the visibility and flow, and how you can follow the production, that that's just more efficient, versus the old way of doing the production that we have done until now. Let's see a short video on how the new facility looks inside, and pay attention to kind of the large floor space and the openness that is in those in those buildings, and also the the optimization that has been put into into these facilities. ...Now moving into a more technical area within manufacturing and showing how the industry-leading crafting facilities also made in the Pandora facilities.
What I hold here, and what you see on the picture on the right-hand side, this is a mold where you cast silver jewelry into this, into this mold. And after casting, you cross the white investment powder, and you end up with a tree containing the jewelry that we sell. In a traditional jewelry or crafting facility in the industry, due to the volume, you have to combine different pieces of jewelry on this tree. Because you don't have the volume and because you need, or it's still an advantage to fill up the flask or the mold to utilize your machine and the energy that is consumed during the process. When you combine different products into one casting, you combine maybe a delicate earpiece with a chunky charm, and with a ring with a big stone.
These three different product types require different production, setting different parameters, for instance, on the casting temperature or on the curing time. But you have to make that compromise to stay efficient, to stay cost-efficient. And it does jeopardize your quality because there's only one temperature to cast from. Pandora, on the other hand, we've got the volume, meaning we are able to fill up our molds, our crafting molds, with only one type of jewelry, allowing us to have the exact right temperature, curing time, and other production, variables for that specific casting. And if something go wrong or something can be done better, we have the chance to learn because we have the same casting set up every time, versus the traditional industry. This gives us an opportunity to be more efficient and to drive efficiency over time and to have better quality.
The next element in the agile manufacturing recipe, that speaks to lead time, and that the reduced lead time is fueling the commercial success and the cash conversion in the business. During the Capital Markets Day in 2016, we promised to reduce the lead time from end of 2014 of being 8 weeks into 4 weeks by 2019. We're already getting really good traction on this, and today we are below 6 weeks. The reason why this is important is that the reduced lead time obviously gives an opportunity to reduce your inventory. I think most of you are aware of that, but also gives you an opportunity to replenish faster when you have a demand spike that is unforeseen, and then driving the top line.
Even more important, when we're launching new drops, back to Stephen's presentation on 10 drops, we are able to replenish products that's outperforming the expectations faster. And let's just have an example on this. So the Christmas launch, that is done first week of November. With 8 weeks lead time, when you discover that second week of November or third week of November, that some products are outperforming the expectations, if you have 8 weeks lead time, then you're not able to do anything about it before Christmas is over, and you leave the money with the consumer to spend them somewhere else. With 4 weeks lead time, we are synchronized into being able to replenish within the drop periods and fill up inventory at the retail level to pick up on that money that's still there.
And that's why going to 10 drops and having 4 weeks lead time is a synchronized way of seeing the business, where the lead time support the drop structure that Stephen talked on earlier. Furthermore, on lead time. Briefly, the way we do this is that traditionally, there is 2 ways of setting up your layout in manufacturing. Either you have a functional layout, where you put all the machines and all the operators to a specific production step into 1 floor or 1 room, and then you bring the product there, have the production stepped executed, and then you move the product somewhere else, a different building, a different floor. Gives a lot of waiting time, a lot of planning, a lot of transport.
The way we take out lead time is by setting up flow lines instead of where we dedicate specific line to specific product families that have the same need for, for machinery and operators, and it's allowing to kind of take a lot of processes within the same room, the same building. That is reducing our lead time in the finishing area with up to 80% versus traditional jewelry manufacturing. Another area that's important for an efficient manufacturing is the data transparency.
We have fueled our data transparency by replacing our old home-brewed IT production system with a new ERP standard system, and then on top of that, placing a data capturing system that allows us to have real-time data available for decision makers at different levels in the production area, driving efficiency again, and ensuring that we have speed in our production. I think that the combination of the new ERP system and the data capturing system put us in a very good position for taking our efficiency forward over the next five years. Talking about efficiency, we have a solid roadmap in place for increasing the productivity and the efficiency within our manufacturing area.
We talked on a number of these levers already, and on top of that, stronger shop floor management and planning, and more optimization is also something that's going to drive our productivity. This increase in productivity will, over the next five years, offset the expected salary inflation over the years, and the more detailed and refined products that we expect to come through from product innovation and design. So we will have the same conversion cost in 2022 as we had in 2017. Furthermore, on efficiency, operational efficiency, we have launched a procurement excellence program that will help funding or support funding the strategic initiatives that Anders talked on earlier.
We are addressing the largest spend categories within Pandora, and one of them being direct materials, and an example of this is the gemstone we talked about earlier, the 2.6 million gemstones that we used last year. That makes Pandora the biggest consumer of what's called cubic zirconia gemstones in the world, and obviously give us quite an opportunity to improve on our cost within this area. The next part of the manufacturing, the agile manufacturing recipe is us expanding the manufacturing capabilities, as we talked on earlier. We are going to expand our in-house jewelry capabilities over the next five years, and any expansion of the capabilities is done in cooperation between mainly Stephen and me on where to put our effort and where to spend the money.
Often before we decide finally to put in new technology into in-house, we often test out the product by having it produced, outsourced to see if the product have longevity before we decide to spend the money on the in-house side. In the coming five years, we will build a number of new capabilities in-house, and we are already well on our way to establish plating in-house, and we will see the first plating, plated products come out of Pandora in-house production in 2018. Another area where we are putting in quite some effort is around 3D printing and the opportunities that this offers us. Let me just share a couple of facts with you on 3D printing. Number one being, 3D printing is most relevant when you're doing smaller volume.
When you go to bigger volume, normally using a mold somehow is more efficient. Secondly, 3D printing is not available in silver in the quality that Pandora can use currently. The technology is not there. So on some areas of 3D printing, it's not that relevant for Pandora at this point in time, no silver, no volume. But on other areas, it's definitely something that we're utilizing, and we are having quite a lot of people working on and bringing to life in-house, for instance, within our product development area. On the silver side, rest assured that Pandora is the company that's trying to drive this development forward to be the owner of 3D printing in silver when that becomes available one day. Now, after capabilities, let's have a look at, yet again, a short video.
This time we will see from the inside of the new innovation center in Bangkok that we have put together, and that Stephen and Anders already spoke on. Please note how the building, the innovation center is put together in a way that makes it easy to cooperate, open rooms where people meet together and can work on their ideas, and also the vast technologies that has been put in there that is all kind of jewelry technologies, both technologies that we're utilizing today, but also technologies that we're just playing with at this point in time. The new innovation center will be central for Pandora's delivery of new product innovation and new product development, meeting our product strategy in the coming years.
We are absolutely certain that with this initiative and with the investment we have made here, we'll be able to drive innovation within finished good jewelry to the next level and to a level that the industry haven't seen before. We will be able to deliver new materials for the design team to work on new products, new functionality, and new techniques that will make us more efficient. We have put 400 people, all skilled jewelry people from around the world, under one roof, giving them a clear product strategy, and giving them clear leadership and guidance on where to go. And doing this, we are absolute certain that the product strategy will come to life.
With the technology we have put in there, and with our suppliers, that is the leading suppliers in the industry, and I can guarantee you that they are, the suppliers are hungry to work with Pandora because it's big, big business for them. They're invited into this innovation center, and together, and together with internal Pandora people from design, from marketing, with consumer insights, from manufacturing, that group of people together can really grow fantastic innovation. I was there just last week, spending a bit of time in the innovation center, and you can feel when you're there, the energy and the excitement around what they're doing, and some really, really great things are coming through, and you haven't heard the last about this, I can, I can guarantee you on, on that. So to summarize, again, a lot of information for you guys.
However, the key elements in this is that Pandora will have the largest research and development facility for finished good jewelry in the world. We will add capabilities to our manufacturing area that will support the product strategy that we heard on earlier. We'll drive efficiency in the operational area that will offset the increase on salary and the more refined products that we're going to produce the next year, and that we will build, and that we have a capacity of potential up to 200 million pieces of jewelry yearly, and we can deliver with a maximum of four weeks replenishment lead time. We will now have a Q&A session with Thomas and Stephen. So, please, any questions?
Frans Hoyer, Jyske Bank. A question on the slide on page 82, you were talking about four different factors driving manufacturing cost unit unit cost down about over the next five years. And how has that— is that an acceleration, or is that kind of on trend, looking back in time, same thing as before?
There's no doubt that the new facilities that we have built in Thailand gives us new opportunities to do better than what we have done before. And that is what this is reflecting. That is, that we have brought on new opportunities with those facilities.
Good morning. Thomas Chauvet from Citi, I'm here. Question maybe for Stephen on the charms and charms bracelet category. A series of questions. One, one of the slide you're talking about the long-term sustainable growth in that category. What gives you confidence that this category will grow within the broader jewelry market? Secondly, could you give us your best estimate of what the charms and charms bracelet market grew at last year in value, ideally? And in your five-year plan, your 2022 plan, what do you expect the overall charms and charm bracelet category to grow at?
Thirdly, on charms and charm bracelet, if we were imagining a scenario where that market was shrinking significantly in the next few years, how would you say would Pandora behave relative to your peers? In other words, I'm sure you're going to say you're going to be more resilient, but what is the differentiating factor in a relatively commoditized category that makes you think perhaps that category crashes, but you're going to be resilient and still growing a little bit, and much faster in the other jewelry category? Thank you.
Okay, those are a lot of questions. I think I'll focus more on the design. I think when it comes to value of the category, et cetera, I think I'll let Anders take that in the larger Q&A. So on the innovation of charms, of refreshing it, we will be resilient. As Thomas, I think, displayed on innovation, innovation in manufacturing also is going to help us immensely on also staying resilient and innovating in the charms and bracelets category. So if it can go from material, it can be from a manufacturing technique, but it, of course, can be from a design attribute DNA. And we are working on that constantly. So from a sort of a charm category on our competitors, I think I showed when I said that we sell 200,000 charms on a day, I think we own the category.
It's our heritage. We need to focus on it, and we will focus on it every day. As I said, building up a stronger design organization, we have people focused specifically on that category, actually, a larger and broader team. So on the value, I will let Anders take that in a later Q&A.
As mentioned earlier, please keep yourselves to one question at a time, please.
This is Lars Topholm from Carnegie. Stephen, always an inspiration to hear you talk. Can you maybe put some words on which changes have been done in the design department over the past couple of years? And maybe reflecting on this lack of newness that you're now addressing, I mean, how could it happen? Why would it not happen again? And were you different today compared to, say, 24 months ago? Thanks.
Yes. So on the design organization, I think we were slim. I think that we had, you know, rapid growth in design, and I think today we need to protect that. And I think it's protecting it not just from a Copenhagen perspective, but I think, I hope you understood from a regional perspective. The needs culturally are different in different markets around the world. So I think we definitely have a stronger, robust team. I think also, I touched base, that we have a team that's focused specifically on categories, but of course, we need to bring the whole theme to the market. So I think today, I feel very confident with the design organization we have in place, and I think we constantly evolve it.
I think design also is not just fixed design, it's having outside help, looking from trend agencies, looking from consumer insights, which is very important from behaviors, and we're looking that on a global perspective.
Yeah. Maybe you should evaluate a little bit over what has happened with the team.
Yeah.
I think numbers matters here, so maybe you could-
Yeah. Yeah, I think that we were a very slim team, and I think it was basically, you know, when I started, it comprised of 4 people. Today we are about, I think, about 18 people that work in design. I think I'm a believer that in design that you have to be clear and focused. I think as the business has evolved, we need to evolve on our structure. I think it's very important, though, also, that it's not just design. I want to reiterate, it's the value chain. So Thomas's attributes that he has made in the innovation center is key to making us design better. So design is not just drawing, it's taking techniques from manufacturing, it's taking techniques from materials and designing into that. But we were slim, and now we're robust. Yeah.
Yeah, Kristian Godiksen from SEB. Just, a question on the, on the margin side. So it seems to me like the, the efficiency gains that will offset the salary increase. So, so I guess the margin where, you know, the 2 percentage point we're talking about, that you should, offset from some of the deteriorations and the other investments you're doing, that's from the procurement side. Can you give a bit more insight to, you know, the size of the product categories and, and how will that roll out over the next, 5 years?
On the offsetting of the cost, what we said is, we will, by productivity increase, we'll offset the salary inflation and the increased richness and the, and details that we have on the products. So an example on that is exactly the more stones, for instance. That is still one piece, just with more stones, require more people. That kind of richness in the products is offset by other productivity increases or improvements that we make, and that's what is reflected here, that we expect to have the same conversion cost in manufacturing in 2017 and in 2022. The procurement area, the savings we're making on the procurement area is used for funding the strategic initiatives we do on other areas.
So that would be, for instance, the initiatives we do on digitizing our marketing and the omni-channel effort on where we need IT solutions and so on. That is used for funding that.
But-
You asked about the different categories and where that was going, and I think that we are not giving any specific numbers, but if you want to think a little bit about where it would probably go, it would be so that the closest category to charms and bracelets is the neckwear. So expect that to be the biggest part of the category, and then earrings and rings, more or less the same. So that'll give you an idea.
Thank you. It's Mikkel Kousgaard Rasmussen from ABG Sundal Collier . Another question for you, Stephen. A bit more on the team, because I think this is really, really key.
Yeah.
So I think maybe can you explain to us numbers people, how do you actually work, and what's the background of, of your team, and how do you seek inspiration? And, you know, are you kind of the innovator now because you're so big, versus maybe five years ago, maybe you were picking up trends from other producers? And so, so how do you come up with all these 500 SKUs or whatever?
Okay. All right, so those are three questions. I'll try it. So I think there's art and there's science. I'm gonna start with the science. So there's a part of the team that's called product management, and in with that, we're evaluating, of course, performance, but also we're looking at how to build our collection assortment. That's based on a lot of information that's coming in from the regions, which, of course, is then fed from the markets. And then from that, we build an annual sort of year rollout. And we kick that off not just with design, but it's done with the whole value chain. So it's done with marketing, it's done with Thomas, it's done with myself. So that's what I call more the science, and that's where we build collection structures.
We look at metal split, price points, how many rings, how many earrings, et cetera, et cetera. So based on the strategy that was presented, that, of course, will evolve up to 2022, where it will be a 50/50 split. So that's what I call the science part of my team. Then we have what I call sort of the art, and that is design. And design is not just sitting there. We have a lot of, again, from Minna's team, consumer insights. It's very, very important what we see, what is trending from the brand tracker, but also Minna and her team provide us a lot of very quant information that helps us really understand what is going on.
At the same time, though, it's our importance from our perspective on behavioral changes on how consumers are buying product and what type of product that they're buying today. So for instance, you'll see rings today where they're not just stacking, actually, they're wearing different rings on different fingers. So we have to have a lot of those insights. For your second question on inspiration, inspiration comes from everywhere. We look from blue sky, then down to sort of the science part, but it can come... We look at museums, we look at what's going on in the automobile industry, we look at what's going on in contemporary art. So I would say the keyword, we're looking at cultural things that are a phenomena that are taking place today.
So, for instance, Frieze in London, which is a contemporary art fair, actually, you're seeing more and more sort of designers affiliate themselves with sort of contemporary art. So the inspiration comes from a lot of different buckets, but what we need to do is take the, what I call the science, the art, run it, what I said was the unique brand DNA of Pandora, and we have our point of view on an outcome. Now, on trends, I think that was a very good question because I believe we are leading in trends today. I think it's important to follow trends and be aware of trends, and we need to decide where we don't want to play. We need to play where Pandora is about playing in a trend perspective.
...And if I could add that on top of that, Stephen's team and the innovation center team in Bangkok is working closely together, and often the designers go to the innovation centers there, seeing what has happened since last time, what kind of stuff they're working on. And even though it might be developed for something else or the idea was something else, the designers will pick up on this and see this can be used for some ideas we have further down the line. And that's why we're always very happy when they're visiting the Bangkok facility.
It's a collaborative effort in the value chain, and it's of course driving very clear insights on consumer insights and behaviors. I think that's where it's important that we are showing what consumers don't know what they want yet. That's our responsibility.
Hi there, Piral Dadhania from RBC. I'm just curious, as you present the Pandora Shine collection, should we expect the proportion of raw materials in the COGS mix to increase, from around 50%, is where I believe it is today? Will gold increase as a proportion of your cost of goods sold?
Yeah.
Thank you.
Might need to have, Peter to help out on that one.
Yeah.
Well, I guess this is, at this point in time, getting a little, little too detailed-
Yeah
-into the COGS section. Let's see whether when I put the whole thing together in the financial part, can put some light to it.
Yeah.
Klaus Kehl from Nykredit Markets . You showed up this, Pandora Shine.
Oh, there you are. Sorry.
Over here. But could you tell us a little bit about the price points for Pandora Shine? Because, yeah, it's gold, so I'm figuring, is it then-
Gold-plated.
Yeah, but is it then much more expensive or, yeah, just some thoughts about that.
I think in my presentation, it was affordable jewelry. That's the core of Pandora. I think we launched Pandora Rose, and I think we increased the price there. So again, it's affordable jewelry.
Hello, it's Chiara Battistini from J.P. Morgan. If I may follow up on slide 62?
Okay.
You talk about the you're aiming for a split between the new concepts and the refresh the base and existing designs as 80/20. Can I just ask you what that was in 2014, 2015, when you were actually launching new concepts, please?
I don't have those exact numbers. Yeah.
You asked about the pricing, just to make that clear.
Yeah, Pandora Shine.
The Pandora Shine products are priced one price level above Pandora Rose. So it's comparable to Pandora Rose.
Thank you, Anders.
Thank you for the great questions. Again, you will have the opportunity to ask more to, to both Thomas and Stephen at the, at the end of today. Before we leave for lunch, I think Stephen would like to introduce a little bit more on, on Pandora Shine, which we'll-
Yeah
Be showing on the other side of the yard.
Yeah. So what is so important, lunch is served over where I think you had your coffee and your tea before. When you enter, on the right-hand side, there's a small little setup of Pandora Shine. What we did show today was the TVC that will be looped, and also at the same time, there'll be a loop of the products that we'll also have in Shine, because we cannot show every physical product. So please enjoy. I just would like to give you a little bit of enthusiasm. Product is an emotional connection. You know, look at it, and that is what product is. It's an emotional connection. Thank you very much, and have a good lunch.
And, yeah. Please be back at 2:30, and I think Stephen forgot to mention, no pictures, as it is products that will be launched in two months' time. So, please, no pictures of the Pandora Shine.
... Minna, are you ready? Yeah, I'll just sort this. I think we are ready to continue with the schedule for the day. We will now have Minna Philipson, who is Chief of our Marketing, who will show how we will digitalize the brand experience. Please, Minna.
Thank you. So, based on your questions this morning, I can tell that this is the section you've all been waiting for. I'm standing between you, lunch, retail, and then finance. So, I'm sorry about that, but I'll try and make it as interesting as possible. So I will talk to you today about the future and how Pandora marketing is gonna support the growth of Pandora over the next five years. And that's where I'll spend majority of the next half hour, is about how we're gonna digitalize our marketing model. But before I get there, I wanted to spend just a little bit of time talking about the Pandora value proposition and what lies behind. What are the drivers behind demand?
And I know, I know that this is probably not what you normally hear, but before you worry about selling 200 million pieces of jewelry, you have to worry about selling one. And for me, the key to the success of Pandora really lies behind what drives demand for jewelry and how the Pandora value proposition delivers against that. So I just wanted to spend a couple of slides on that, then do a quick health check of our brand, and then we will move into the future. But first things first. So jewelry is a very emotional category, and demand for jewelry is not something that is rational, it's not something that is logical, it's not a needs-based or something that you physiologically need. It is something that women use to self-express.
When we talk about self-expression as something, you know, on the surface is: What do I look like? What's my personal style? But it goes a lot deeper than that, and the drivers are a lot deeper than that. And I wanted to give you an example and a bit of a story that stuck with me. We did a research, a big research project a little while back, and we did a lot of interviews with women, and we talked about jewelry and how they react to jewelry and why they buy jewelry. And there was this one woman who was young, and she just became a mother. And it was very unexpected, and she was sort of struggling to find her role of motherhood.
She told us that she bought this necklace, actually, it's the necklace that you were all given today, the locket necklace. She bought a little Petite of a little angel inside it. She told us that whenever she's tired, or she feels like she's a bad mother, or she feels like she's struggling with her role, she would hold her necklace, she would look down on it, and she would remind herself that she could do this, and she would pick herself up again. That's the kind of demand that we're looking at. Women also use jewelry to remind themselves of the relationships that they have and how important those relationships are.
I actually read an article the other day, and I was telling someone in a break before that, women put a direct correlation between the jewelry that their partners buy for them and how much their partners love them. Just a note for the men in the room. I have to say, I did a little sort of poll around my friends and around the office coming out of Christmas, and I can directly confirm that that is very true. But the interesting thing about these drivers is they're very deeply rooted. They're fundamental to the female psyche. They're something that all women carry with them, and something that is true for most women.
Going back to why Pandora has been so successful, and, and for me, a little bit of the secret sauce to Pandora. First and foremost, these emotions are so deep, and they're, they cannot be carried by anything. I don't know if any of the men in the room has tried to celebrate an anniversary with a sweater, but that is something that we see wouldn't work. It can't be plastic. It can't be mass-produced. It can't be something that doesn't feel emotional. And the Pandora brand, first and foremost, is qualitative enough to carry these emotions. It goes back to the materials used. It goes back to what Stephen talked about, about the design. It goes back to the craftsmanship that goes into the product. But it is bigger than that for Pandora. It is about the full experience.
I don't know how many of you have been into a Pandora store, but the experience that you get in a Pandora store is very high quality. The stores look fantastic. All the materials used in the store are incredibly premium. The service that you get is best in class. But it's also down to the smaller things of how the product is delivered to you. You might be paying EUR 19 for a charm, but when you walk out of there, there is... The packaging, the way it's wrapped, the way it's delivered to you, makes you feel like you walked out with something very special, and something that can carry these very deeply rooted emotions. But on the flip side, Pandora is also accessible.
So before, a woman used to maybe get jewelry, you know, at when she got engaged, when she got married, you know, a very important birthday. But Pandora is affordable enough and accessible enough that you can celebrate all kinds of things. So all of a sudden, you can celebrate your love for photography or a special holiday or, you know, a promotion with a piece of jewelry for yourself. And this really, for me, the unique combination of the quality and the affordability, combined with the go-to-market cadence of fashion and the fact that there is always newness, this is completely unique in the jewelry industry, and for me, one of the biggest reasons for the success that we've enjoyed with Pandora. And you can really see this when we look at our target consumer.
We often get asked: "Who's your target consumer?" And the honest answer is, it's difficult to answer because we are so widely spread. We have an appeal across demographics, across age groups, and even across income groups, that is very, very wide. So the ability that we've had to commercialize on this proposition has been fantastic. And you can also see this really in how people react to the Pandora brand. Anders stole my thunder a little bit. We are the most well-known jewelry company in the world. And our funnel is developing across very, very well. But we always... Measuring brand momentum or measuring brand heat is a challenging metric, and in 2017, we introduced a new metric, that's called Share of Heart.
It's a metric that's recommended to us by our independent research partner, but it's also used across the industry. L'Oréal, BMW, Google, are some of the companies that use this metric. And it basically measures how relevant a brand is and how close a person feels to this brand. So the logic behind it is to say, if you're in the market for a piece of jewelry, then you are most likely to turn to a brand that you feel close to and that you feel is relevant to you. And this, what I like about this measurement the most, and what I'm hoping that you will like about it, is that it gives us a very good intention of purchase intent.
And we overlay Share of Heart with share of wallet, and we see a really strong correlation between the two, so it gives us an indication of how we can commercialize on our proposition. And as you, as you can see, when we look competitively, across both women and men, for all of our biggest competitors, Pandora outperforms them all. So the brand is in a really good place. But that's what I wanted to talk about, our value proposition, what drives demand, and also about the brand. And I wanted to spend the majority of the time talking about the future.
I will talk about particularly four areas: our marketing spend, which I'm sure you'll be interested in, our brand proposition and how we are gonna address that in the future, and also then how we're going to digitalize our marketing model, as well as acquiring new consumers. But let's start with the money. Let me see. As Anders told you before, we are going to keep our spend at the level that it is today. We are one of the biggest players in the industry, and that gives us a very strong share of voice and a very competitive spend in this industry. There aren't that many big jewelry players, so our voice we can make ourselves heard. There is, however, a piece around efficiency and how we can improve our efficiency moving forward.
We spend significantly, but how can we make sure that that spend counts better towards the future? There are a few things that we're doing right now, and that we will also see the impact of in 2018. We spend the majority of our marketing money on media, and we've had a fragmented media setup with about, well, over 15 media agencies globally. In Q2, we will consolidate that setup, and we will have two global holding companies from a media perspective to service all of Pandora. This will give us stronger buying power and give us a chance to leverage our size in a much better way. If anyone's wondering, we're going with two because we think that one, we have a lot of regional differences, so it gives us a chance to keep local relevance.
But also it gives us a good opportunity to keep our media partners on their toes and make sure that we can always compare the two for best-in-class rates and compensation. The second thing that we're doing is we're looking at our spend patterns. I'm gonna try not to get too technical, but we're running an exercise at the end of last year on econometric modeling, which is basically looking at how much we're spending, when, and what return that's giving, to make sure that we spend the right amount at the right time to drive the right results. And that will impact our spend in 2018, but also moving forward. And the last thing that we're doing is we're moving into digital marketing in a greater scale than we have before, and especially digital media.
And digital marketing just gives you an immediate view of if what you're doing is working, or if it's not, it gives you the agility to adapt mid-campaign. So that's the third thing that we're doing to make sure that our spend gets leveraged in the best possible way. Looking at the brand position and the brand proposition of Pandora, we see that the brand position is very strong. It is unique in the market. We have proven success, and we would like to continue with this moving forward. The one thing that we will be focusing on from a marketing perspective is we still have a job to do when it comes to awareness of the other categories.
As Anders quoted before, we see that a lot of the people that are not Pandora consumers today don't know about the other products that we have. So it will be a key focus for marketing over the next few years to make sure that all the new products and all the new categories gets the exposure and gets the mass awareness that we need. As we look into how Pandora marketing is gonna evolve over the next five years, we will talk about digitalizing our marketing model, and I will talk to you about things like data and how we use one-to-one marketing. And I'm sure that you will hear this from a lot of presentations that you go to. This is really what all marketers are looking at in 2018.
But Pandora is particularly well set up to deliver against this, and this presents a unique opportunity to a company like Pandora for a couple of reasons. One is the control of the full value chain. So we can really leverage our product and our consumer data all the way from production down to point of sale, and there's very few companies that can do that. Secondly is that we have a great product assortment that is built on consumer insight. So as most of you will probably be asked to sign up to newsletters, and at some point, you will be asked, "When is your birthday?" And most companies can do very little with this information.
They'll find out how old you are, and maybe a week before your birthday, you will get a 10% off voucher, congratulating you and asking you to buy yourself a birthday present. For Pandora, with a tiny little piece of information, like knowing when you're born, we have a range of birthstones. We can present you with a range, a collection for your zodiac sign. We can give you an opportunity to send a hint to a loved one of what's on your wish list. So our assortment is really built for us to be able to use consumer insights and then drive commercial return on those insights almost immediately. We also have, you know, an extensive online...
We have a very big club, we have great followers on social media, so across the board, we have a very strong position in terms of followers. And lastly, we have our own distribution network. This is, of course, interesting from a fulfillment standpoint, from an omni-channel standpoint, but it is also very interesting when you start bridging the gap between online marketing and offline sales. And this is something that I'd like to come back to a little bit later and talk to you about how we're doing that at the moment, and some exciting pilots that we have. So when we talk about digitalizing our marketing model, what does that mean? What is that?
And it's really, today, we have quite a traditional marketing model, and the first thing that that starts with, it starts with Pandora. So it starts with our big launches, what we wanna say, and what we wanna launch at any given time. It's broad-based, so it relies a lot on mass marketing, on television, on more traditional media. We do this really well, and this has been something that's been a fundamental part of the success that we see today. But we believe that in the future, we can also complement this with a digital marketing model. And the difference here is that the ads that you will see will be triggered by you, your preferences, and your behaviors. In the simplest form, it is coming up to Valentine's Day.
If you didn't know this, I'm dropping you a hint right now. It's coming up to Valentine's Day, and last year, you bought your wife a pair of earrings from Pandora. And last week, you went online, and you searched for silver rings. That means that we know these things about you. We can serve you an ad that is specific to you as a man, featuring a silver ring that goes with the earrings that you bought last year, and with a call to action about our fulfillment options ahead of Valentine's Day. All data-driven, all created within a moment, and all personal to you. I'll talk a little bit more about this in the future. But basically, the setup from a planning perspective is pretty straightforward.
You collect as much data as you possibly can from all touchpoints that are available to us, and that's our stores, it's our eSTORE, it's search data, it's social data, whatever we have. Then we push all of this data into an engine where we find segments, and we find insights. And we use those segments and those insights to trigger campaigns. You'll test the campaign, and then you will take the learnings and feed that back into the engine. It sounds simple. It's obviously a little bit more complicated in the execution, but we are well on our way. The biggest challenge to this is really a systems landscape, and we spent the last few years really building that up, and we have a best-in-class systems landscape across most marketing technologies.
Moving into a more consolidated media setup will also give us the opportunity sort of to address the missing parts. The focus of 2018 is really to take the data, mine the data, find the insights, and start driving these forward. We then leverage the data primarily in digital media, and it's primarily across three different areas. It's about paid display and paid search to make sure that we're top of mind for whatever searches are out there. But also to say, as I said, when you're reading your favorite sports magazine, that's also when you are served things based on the insights that we've given you.
But it also means that as you're coming into the website, what you see on the website is tailored to you and based on your preferences. And last but not least, email marketing is really a great opportunity for us, and a more targeted email approach is something that we're starting to leverage across the year, and we've done a few pilots at the end of last year, and I wanted to share one of the last ones, which is just. It's a small example, but it's got staggering results for you to really see the opportunity that this presents to us.
Basically, we looked into our data, and we found that there were women who had created wish lists on the Pandora site, and then they'd left the wish list and not come back to them for over 12 months. So you'd imagine that would be a lapsed consumer and a lapsed segment. But we sent these women an email saying, based on the products that they put in their wish list, those are the products we featured in the email, and we gave them an offer to buy those products that they wished for, for over a year ago, for them to buy that at a discount. And, well, first and foremost, the open rate that we saw were twice the industry benchmark, really exceptional. And the conversion is one of the best I've ever seen.
Even we had in conversion, it's actually right, 6,300%. But if you look at it competitively, normally anyone would be quite happy with a conversion of an email of about 2%, and with this small sample of just the relevant product at the right time to the relevant consumer, we saw 6.5% conversion. So incredible results. But the fact that sort of online marketing drives online sales is nothing new. What I think is really exciting is how we can use online marketing to drive offline results, and especially for a company with a store network like Pandora. I also know Anders tells me that some of you have been very skeptical in terms of our digital marketing capabilities.
So I just wanted to share that, you know, we sat down a couple of months ago with Google, and we asked them: "Who in the industry are you doing across the board the most progressive and the most groundbreaking projects with?" And they said, "You guys," referring particularly to this project. And then basically, we've installed beacons, which is a physical device that emits a Bluetooth signal, and this is in all of our stores in the U.K. And we started by matching Google search data and Google location data with our traffic patterns and our purchasing data. So started by matching them to look at the correlation of where a consumer is, if they search for something, and then they appear in a store.
Then on top of that, we've added also the Facebook login and Facebook location data to really be able to say, "You searched for a silver ring, and now you are in the vicinity of a Pandora store, and you're on Facebook. And we can serve you an ad that shows that silver ring, that shows the address of the closest Pandora store and gives you a call to action to come into store." This is still in the pilot phases, but I think that this is really everyone in the marketing industry knows that digital media is growing, but how you really connect the dots between the online and the offline environment is a little bit of the Holy Grail, and we are at the very forefront of this development.
Lastly, the thing I wanted to talk to you about is really about acquiring new consumers and what we're doing to acquire new consumers. We obviously know that social media is a key part of this, and some recent research that we did showed that in the vast majority of consumer journeys actually starts on social media. So a woman, whenever she will look for inspiration for something, she will start on Instagram, will start on Facebook, or ads on social media is what triggers the initial journey.
We have a dual approach to social media, so our own channels will be focused on the people that are following us, and that will very much be about showing them product newness, showing them all the things that are coming, but also acting as a customer service forum. But then we will also leverage paid social media in the context that I just talked about, and using data into paid social media. And we will also use social influencers as a key part to acquire, to bring new women into the Pandora universe.
If you especially think about women that might think that Pandora is only charms and bracelets, if you see someone that you trust and that you follow, wear Pandora, but wear a multitude of the different products, that's a really good way into the Pandora brand. One little point on influencers. Influencer marketing is growing exceptionally, and it is for really good reason. We do see that influencer marketing deliver a higher commercial return, higher engagement than traditional PR and even branded channels. But of course, we are not alone in this area, and there is also inflation in these partnerships. Well, if you follow an influencer, and they're sponsored by 20 different brands, and you can see that the consumers are savvy, they see that they're paid for posts.
But we have a formula that we really believe in. First and foremost, we target long-term relationships, so really for it to be credible, it is about longevity. We also go local first, and we go with quality to achieve quantity. So we would rather go with long-term partnerships with a lot of smaller influencers than we would go to pay for the bigger ones, because we think that that gives us better longevity and better credibility. Lastly, the Pandora product is also exceptionally made for influence partnership.
We have such a wide range that it really is less about us saying, "This is something that you have to wear," and much more about actually leveraging the influencers and what they like, their personal taste, and giving them the opportunity to style and wear the products in a way that's credible to them. That is the overview and the few things. Before I hand you over, the spend continues to be about 8%. We will see a lot of efficiency gains over the next few years. We are focusing on driving awareness of the other categories and continue to build our strong proposition. Moving more into digital spend and a more digitalized marketing model, and leveraging social media and influencers to continue to recruit new consumers into the Pandora brand.
Now, I look forward to the questions.
Before we start, I must repeat that it's only one question at a time, please.
Michael Friis, Alm. Brand Markets. I was wondering, all your new strategy is based on a lot of data, and we are getting a Data and Privacy Protection Act, I think, the EU here in around May. How is that going on? You said you had a lot of sources where you would collect those points, you know, even the example with someone searching and then going into one of your stores. Isn't that data harder to get after the May first? What are your thoughts about whether you will be able to do this strategy after this new rules coming up?
I think. Well, first and foremost, we always legislation and privacy is crucially important, and in anything that we do, we should never invade privacy. It is about servicing consumers better and about asking for the right permissions. So it's also about how we use the data, but of course, we have to work with legislation, but this is also the way the industry is going. So, I think it's of course, we will always stay within legislation, but we also. I think that there, this will still be a very big opportunity.
Skjersno Dear. If I take one of your examples, you connected the dots from a location, Facebook, a wish list, where you probably send a message where I could click on and or order it directly, so you'll ship it. You have my payment data as well. If you look at this as one example, and then you have the old traditional one, where you go online and order stuff and you select it yourself. If we go five years down the road, how do you think the distribution will be, let's say, old-fashioned shopping on the net and the new modern methods? Thank you.
You mean from a behavior perspective? I think that shopping, you know, for women, when we see we still see a large preference, the vast majority of our consumers prefer to convert in store, much more so than in any other industry. There's something about buying jewelry, you wanna feel it on you, you wanna put it on your finger, you wanna look at it on your face, and it's also a higher value proposition. So there hasn't been a big change in that in jewelry. If that is gonna move in the future, very possible, very possible. And I think that it's also got to do with the comfort levels that you have. If you've had a good experience with the brand, then you're likely to have with the brand's online communication, then you're probably very likely to go back.
Actually, just one question, but kind of with two parts. So first of all, on other product categories, so you've mentioned that you plan to slightly maybe change your marketing now, realizing that you may have not emphasized enough the other product categories before. So what would you say, I mean, what needs to be done differently, or perhaps what hasn't been done the right way previously, that these categories don't have enough awareness right now? And secondly, is there any significant change in the way that the especially younger consumer, younger women approach jewelry? I mean, is there anything you have to specifically change in the way you market your products to capture the younger consumer, not to see your consumer aging?
So the first question in regards to the jewelry categories, I think it's about what channels we leverage. So leveraging the more broad-based mass awareness channels to push other jewelry is certainly the way forward, and then we can stay relevant to our core on a more personal one-to-one base. When it comes to new consumers or the change in behavior, I think that is why we're going into digital media. Newer generations are much more digitally savvy, and they are also more, you know, they're checking their Instagram more often than they might be sitting at home and watching TV. So this is, of course, a way for us to react to the change in behavior.
Thank you. It's, Mikkel Kousgaard Rasmussen from, ABG. Now, when we go out and speak to some of your large, franchisees, they actually tell us that the typical Pandora customer, she doesn't follow influencers, she likes to see the products on, on outdoor ads and, on the buses in, in London, and so on. But what's... I mean, what's-- I think basically some of the things we've heard is they say, this is basic people. These aren't the first movers living in, in the cities and so on.
So, well, I don't know if I would call our consumers basic people, that I definitely wouldn't do. But I think it's a mix. It's a mix. There's always... I mean, we see great return on spend for our TV, and it's not about deserting that model at all. It's perhaps about just picking our moments. Today, we do, you know, 5 TV campaigns a year. That's a lot. Very few brands do that many. So for us, it's probably more about picking our occasions and making sure that they work as hard as possible for us. There's no plan to scrap all traditional marketing at all, it's just to say that we wanna, we want a balance between the two.
I think maybe adding to this is that we, with a lot of our franchisees, we have an agreement that we'll also do some advertisement in the area where they are available, and they, of course, love that. So for them to say that they love that over other things is maybe not a big surprise. I think that what we are looking for and what Minna is working with is really what it takes for Pandora to get the message across in a broader sense. So I think that that's always the case, so.
Hi, Shane Aresty from Evercore ISI. With 10 million Pandora Club members, I was wondering if you could discuss more about how you see your loyalty program evolving and how you're planning to engage that customer more, 'cause I assume it's less the gifting customer, more your target customer?
Yes. So loyalty is a very big part of our CRM strategy. Where we started is more of the broad-based data. So we started a lot with the systems foundation and how we commercialize the wider part. But the loyalty program is actually, I think we have a full day on loyalty tomorrow. So it's something that we're targeting and we're building right now, and that we're hoping to start rolling out by the second half of 2018.
Lars Topholm from Carnegie. A question on the evolution in the way you do marketing, because, as Michael, we speak to dealers, and one of the messages we get is that your marketing is maybe more international and less national than it used to be. And at the same time, regarding value proposition and brand position, how is your job affected by the fact that Pandora has become more promotional? I mean, that's well-flagged for Q4, that you intended to be more promotional. How does that affect the value proposition? What do you have to do from a marketing perspective to protect brand equity in that situation?
Okay, so first question?
There was only one question. I was only allowed to ask one.
The first part of your one question was just in terms of the regionalization versus the globalization?
Exactly.
So one of the beauties of digital one-to-one marketing is that it's to you, so it's based on you. So if you are in a certain region with a certain preference, then we can target that message to you. And in the simplest form, we see that messaging in the U.S., they have an appetite for a lot more clarity, and you can get away with simpler things like bigger copy. Whereas in Italy, as an example, they are a little bit more sensitive to that. And what we can simply do is we program our engine to... You get delivered a certain message in a certain tone if you come from the U.S., and in a different way if you're in Europe. So it actually gives us an opportunity to be relevant on an individual level.
Then in terms of the value proposition of Pandora, we have not, you know, we've been successful in any market that we've gone into, so we really believe that this is something that works, and we have a proven track record across the world, across cultures. So, and we don't actually see any difference in those drivers when it comes to demographics. When it comes to sort of the promotional, promotional landscape, you know, David will talk a little bit more about that, but we see no real reaction to any promotional activity, whether that would be an issue in any of our brand trackers. We continue, you know, we are a qualitative brand. We continue to communicate as being a qualitative brand, both in terms of product, but also in terms of the experience.
So that's what we've always done and what we'll continue to do.
Sindre Sørbye Arctic. But just on continuing on promotional activities, can you explain whether that will be running more with a centralized approach, or is it up to regional management discretion whether to run promotions, or do they have to be approved by you?
So I will
Can I just go near the microphone, which is better? Actually, David will talk about promotions in a moment, and he'll come in just, just after Minna. Just to say, how we talk about the framework for promotions, we actually do that in our management board, and we agree on what is the framework in which we are doing promotions, and then we keep within that framework, and that is a framework that we've all agreed on. But David is going to talk a little bit more on promotions just in a moment, so maybe we can take the discussion about that after his presentation.
Well, thank you for all the great questions.
Thank you so much.
Thank you, Minna.
Thank you. Oh, and then before I go, I need to introduce my favorite Aussie and our in-house retail guru, David Allen.
Where's the clicker? You got the... Ah.
Afternoon, everybody. Am I on the right slide? So I'm the commercial guy, and what I'm gonna talk about this afternoon is. And I suppose I'm, I'm representing the commercial part of the business. And the two main things that we talk the most about is, how we look after our consumer, giving them the best experience that we can, and of course, also how we sell our product. What I'm gonna do is, is take all of the subjectivity that, that, that Stephen talked about, that Thomas talked about, that Minna talked about, and then talk about how all of that comes together in our retail distribution, which is obviously represented by our, our bricks and mortar, our stores, and also our, our online stores. And what that is likely to look like as we head towards 2022.
The first thing I want to talk about is to just touch on what are the key takeaways from what I'm gonna talk about this afternoon. And these three are very, very important, and I'm going to allude to them as I talk through the different subjects this afternoon. The first one is that we are on track to transform our store network to owned and operated. The second point is that today we are a good retailer, but we have plans to become an even better, in fact, a great retailer. Point number three is we're going to grow our e-commerce business, but we are also going to improve the journey that our consumer goes on when they make a purchase, by improving and introducing stronger omni-channel functionality.
So they're the three main takeaways from the discussion that we're gonna have this afternoon. But before I dive more into the recipe, if you like, for what is going to give us that success, we'll just sort of reflect on what the business looks like today. So in 2017, we've got around 2,450 concept stores. 1,000 of those are owned and operated, and that represents around 40% of the concept store network. We do have around 5,400 multi-branded and shop-in-shop distribution. And as has been talked about today, that is going to change significantly as we move forward over the next number of years. And today, we have 19 online stores or eSTOREs in our distribution.
One of the things that we've been able to do over time is we've been able to build a very strong, profitable concept store. The stores are extremely productive, they are highly profitable, they drive a lot of sales per square meter, and Minna alluded to it and talked about it. Our consumers find them open and inclusive. It's a place where they come to get a fantastic experience, and where they are able to work with our people to share in their journey on buying our product. And we also, it's a place where they can come in and touch and feel the product in real life to understand what it is that they want to purchase. So we have today a very good concept store that has positioned us well to evolve that as we move forward in the future.
As I said, we've got 19 eSTOREs today. Back in 2013, we had 3 that represented 1% of our consolidated revenue. In 2017, we had 19 that represented around 6% of our consolidated revenue. Our eSTORE, as has been already talked about, and Peter will talk about a little bit more, is its profitability in line with our concept stores, and obviously, we are going to focus on driving this part of our business as we move forward over the years. There was a lot of conversation about this and different questions around it, but there's no doubt that e-commerce is growing, and there's no doubt that there's a lot more talk about it and a lot more focus on it.
There is no doubt we are going to drive and grow our part of it to represent around 10%-15% of the revenue as well. But it's also very, very important to understand that our concept stores continue to be a very, very important part of that. And if you, if you take all the buzzwords out of what it is that we do, and you talk to your consumers, our consumers talk about shopping. They don't talk about omni-channel or all of these words that we like to use. They talk about shopping. And what it is, is it's our job to make it as easy as possible for them in all of the distribution touch points that we've got and on all of the devices and ways that they can purchase our product.
That, that is what our focus needs to be, and that's where we're gonna put our attention. Only 30% of consumers consider, and I use the word consider because it's not buying, only 30% of consumers consider buying jewelry online. Our stores, as I've talked about, are very strong. They are also a very strong marketing tool for us, not just in the ways that we represent the stores and the way that we represent the product in the stores, but also the way that our people interact with the consumer. And in the eyes of our consumer, our people, and the experience that they give is such, is just as big and important part of the brand experience as the product is that they purchase. So they're strong marketing tools, our concept stores, and 70% of our consumers actually prefer...
or 70% of consumers, sorry, prefer online shops with brands that have physical stores. And as I talked about, there is a strong synergy between the two channels. So it's our job to make sure that our consumers can purchase and get inspiration from all of our channels, whether it be a store or whether it be online. So strong focus on driving e-commerce, no doubt about that, but our concept stores will continue to play a big role in driving our business forward. So between now and where we're going now, and heading towards 2022, there are four main pillars that we're going to focus on. And, I mean, we're doing work around these now, but we're gonna continue to put our energy into them as we move forward.
We're going to expand and balance our O&O footprint. We're going to focus a lot more around e-retail excellence, and as I said, we are a good retailer. We will become a much better retailer and head towards becoming a great retailer. The more stores that we own, the more important it is that we are very good at retailing. We're gonna focus on e-commerce growth, and we're also going to improve our omni-channel, fulfillment and experience. So we'll talk about expanding and balancing our O&O footprint. As we know right now, today, in 2017, 60% of our revenue comes from our concept stores, 34% of it comes from other points of sale, and around 6% comes from online.
In 2022, we're expecting 10%-15% of our revenue to be through e-commerce, 80% of our revenue to come from our concept stores, and 10% to come from the other points of sale, which by that time will only be branded. So that's the shop-in-shop concept, and that will represent around 10% of what our revenue will be. The other thing that we talked about, and Anders highlighted it in the section that he talked about in the beginning, is that today, 65% of our share comes from franchise, 35% from O&O. That will change significantly towards 2022, with two-thirds coming from O&O and around one-third coming from franchise.
Again, expanding and balancing our O&O footprint, there is very strong commercial and financial rationale for becoming more owned and operated. If I talk about the commercial part of it... we're able to get more control of the in-store consumer experience, and what I mean by that is that more of the people we own. So that means we can channel their energy, we can direct their focus, we can have them working with us on the things that we believe are important and the things that we want them to focus on. Of course, that's very important when it comes to help understanding what, how you wanna drive and improve the consumer experience in a business, and also, if you wanna focus energy to achieve sales and profit.
With omni-channel integration, it enables us; it removes some of the resistance that we do get from that, and we do work with our franchise partners on gaining more omni-channel functionality. Obviously, there is commercial opportunity for us with that. And then the last part is the commercial flexibility. And we have then operational control of our business, which means we are much faster, we are much more agile, and we are able to react a lot faster in market conditions, whether that's focusing our energy around a product, a concept, or a way that we wanna direct our business. And then from a financial perspective, you know, Peter will talk in more detail, obviously, around the financial components.
But one of the things that we do know is that if you take the financial or the retail KPIs, which are the levers that are used to react in a business, our O&O business is stronger when it comes to conversion and basket size than what we have in our franchise network. So I talked a little bit about the unbranded points of sale and then the branded point of sale. Stephen talked about us expanding our offering to our consumers. We wanna focus more on the other categories. It's very difficult to do that in a small area. And our unbranded points of sale makes it difficult for us to be able to identify and showcase our full universe of jewelry.
And quite often, we find in those stores that there's no dedicated team, which means the experience that they get can quite often be very different to what it is in a branded point of sale. So over time, we wanna move as many of those as we can to a branded point of sale, which we call a shop-in-shop, which is bigger than around 10 square meters. You normally have dedicated team that work with the consumer, who are more trained in around selling and particularly around product knowledge, et cetera, to give the experience to our consumers that we want them to have. And then retail excellence, you know, we talked about that, and this is, you know, the... This is really, really important to helping us continue our growth and continuing more sustainable growth.
There are three key areas that we look at with this. In-store execution is really important. When our consumers visit us in our stores, we are, and they are, the face of the brand to our consumers. Our consumer, as I said earlier, they buy the experience that they get just as much as they buy the product. So it's really important that we execute well, that we give them the experience that they want, that we can sell effectively, and that we support the commercial drivers within the business. The operating model is really giving and focusing on the tools that we need to drive the mechanics in the business.
When I talk about the operating model, it's really how, where you take the three commercial parts of the retail business, being marketing, inventory, merchandising, and sales, and how those three functions work very, very closely together to make sure that when we do everything we do, when it ends up in a store, that it makes sense to our consumer, that it's aligned, and that it delivers the results that we want it to. So there's a lot of focus around, around how we, how we do that. And then, of course, the store concept and format. Today, we have a good concept that works really, really well. That concept will evolve as we move forward so that we are able to showcase, present, and sell our new concepts, our expanded categories, a lot better.
How we can design our store and set our store up to become more operational and, of course, how the store can facilitate a better experience for our consumer. So the in-store execution, I talked a little bit earlier about this. There are four main areas. Store operations, now, that's where we give our sales team the tools and the information that they need to drive sales and profit and look after our consumer. Visual merchandising, and, you know, we... In our business, we talk more about visual merchandising being the commercial way that we present product to sell, not just making it look good in a store.
It's how do we utilize the real estate in a 60-square-meter business to position categories, concepts, product, so that the consumer can easily identify it, so that our teams can sell it effectively when they come into the business. Merchandising and inventory, this is, this is gonna grow in importance. It, it is very, very important, but it will grow more and more in, in importance.
The more stores that we own, the more inventory that we own, and it is really, really important that we have the right amount of inventory to facilitate the growth in the business that we want, to support the category growth that we're looking for, and to maximize the performance of our stores and our business, and also to make sure that our consumers get that experience that they want by having the product available for them when they want it. And then the other area, which is the most important, is the people side of it. And you know, our people are the brand when it comes to the consumer. When our consumers talk about our business, they talk about our people as much as they do the product.
And that is a very, very important thing that we need to continue to focus on, and we talk a lot about empowering our store managers to look after their consumer. Now, that's really important. They, we have to teach our people how to sell. With empowerment comes responsibility. So we need to teach our people. We need to give them selling skills. We need to teach them how to sell better. We need to make sure they have product knowledge, to be armed with all of the information in an environment that enables them to give our consumer the best possible experience that they can. And then I'll talk, you know, we talk about labor management. I mean, what a dull and boring topic to talk about, but it is going to be one of the more important ones as we move forward. Labor management will...
Our labor as a cost will become much bigger on our P&L. So our ability to optimize the hours that we use in our stores is really, really important. There is a strong connection between the experience that a person gets, the sales that you make in a retail store, and how you spend your labor money and how you roster your people. And the example that I have them showing there on the right-hand side is actually a real example from a retail store in the UK, where we found that on a Saturday, the percentage of sales we were getting on the day, there was a big gap between that and the amount of people that we had on the shop floor. So we didn't put more hours on the roster. We put more hours on the Saturday.
We took, we took some hours out of Monday, and what happened was, is that the sales went up, of course. Our conversion increased from 29%-35% because we had more people to look after our consumers. They got a better experience, and we actually put more dollars on the transaction from around £60 to £63.20. So there is a lot of opportunity for us to be able to enhance the experience and also improve our performance. And people, as I talked about, you know, they are, of course, integral to our success, and our store managers are very, very influential people in our business. And they are, obviously, because when we talk about the experience that a consumer gets, it is very much related to how our people feel about where they work.
So our store managers and our teams are a very, very important part of how we run and how we operate our business. We hire people that love the brand, and the way we like to think about it is that it's our consumer selling to our consumer. We develop and train our people. We focus a lot on educating them to become better at what they do, to become the best version of themselves. They understand how important they are to us. They are a big part of the success of our business as we move forward, and we treat them really, really well.
Now, in a lot of cases, as we move forward, and if you take our evolution in Germany, most of our regional sales managers that look after clusters of stores in Germany have been store managers themselves. So they've been able to grow up within our business. They understand the soul of our business and what it is that our consumer is looking for, and now they look after groups of stores, which helps us continue to foster that experience that our customer wants. The way that we look after our consumers in our stores is directly linked to the way that our consumer feels about the product that they buy, and those two things go hand in hand. Hence, the reason why the consumer experience is such an important part of what we offer. So when we talk about retail excellence, we talk about commercial execution.
We center it around three core activities. Now, these are campaigns and collections, promotions, and activations. All three of these activities are very important to us driving the commercial performance of our business. All three of these, commercial activities are owned by the commercial parts of the business, so they're collectively owned by marketing, merchandising, and sales within the, the retail markets. And they're all very carefully planned. So we don't. When we look at these three commercial areas, we plan them collectively across the year. So we don't plan campaigns and collections independently of promotions. We don't plan promotions independently of activations. We plan them all together in order to understand how it is that we're gonna position the commercial performance or the commercial focus in our business. So campaigns are primarily the drops, and Stephen talked about these. You know, at the moment, we launched Valentine's.
Our our Valentine's collection launched last Thursday. So that is a, that is a campaign. Stephen showed you all the beautiful new Pandora Shine product. That is part of the Spring/Summer campaign. That is also a campaign. So campaigns are the drop launches. And I just, you know, when you... You can see on the right-hand side, they're marketing product and stores. In the commercial side of the business, these three areas have to work together. So marketing is the assets that we use to communicate the product and what we've got to offer to our consumer. The product, from a merchandising perspective, is not just the beautiful product that Stephen has designed, but how much are we, how much have we got?
Do we have the right amounts of it to satisfy our consumers' needs? Do we have the right quantities? You know, do we have enough to meet our expectations? And then, when it comes to stores, our teams need to be armed with product knowledge... so that they can communicate to the consumer what it is that they're buying and why they should buy it. Whether we need to have an incentive to drive a focus in a certain area with our teams. So those three or these three commercial areas are completely integrated, and they need to work together. They can't work in isolation, otherwise, our consumer doesn't get a unified experience when they come into the stores. We talk about promotions. We're more organized now when it comes to planning promotions.
We plan them 12 months ahead in our commercial calendar around campaigns and around activations. So we do promotions to drive sales, to drive profit, and obviously to drive traffic to stores, and we also focus on the importance of them being relevant to our consumers. The other thing that we do around promotions is that we conduct very, very detailed postmortems after we execute a promotion, and that's really important because we evolve and learn by doing. So you run a promotion, you do a postmortem on the promotion, you reflect on the promotion to understand, did it work? Didn't it work? Where do we need to improve? Where can we be better? What are the things that we need to do to make sure that we get a better result?
This example that I've got here is actually a real example of a promotion that we ran during Black Friday last year in the U.K. The mechanic of the promotion was spend more than 99 GBP, and you receive a limited edition bangle as a gift. Now, the mechanic that we think about is a really, really important part of it. You know, spend more than 99 GBP. You know, 99 GBP isn't just a number we thought about. It's understanding what is the current basket size, what is the current amount that our consumers spend on average? We want them to spend more when they come in to get the item as a gift. If the threshold is too high, then we're focusing on less consumers. We also want to be relevant to as many consumers as we can.
So GBP 99 became the sweet spot where we knew we could communicate to most consumers. The bangle is a beautiful product. So to get that as a gift, when you spend GBP 99, was very desirable to our consumers, and they told us so. The other thing that we did with it is we made it limited edition. So you couldn't buy that bangle from the store unless you got it as part of the promotion. So there again, it added an amount of desirability to the purchase for the consumer as well. We ran it for 10 days over the Black Friday period. The like-for-like results were 102%. In concept stores, the basket grew by 20% on what it did from its normal level. The units per transaction were up 47%.
Obviously, our consumers were buying more in order to get the item as a gift. Traffic was up 19%, and 47% of the purchases that our consumers made during that period were done with the limited edition bangle as part of it. So very, very successful promotion. The other thing that we do as well is that we listen very carefully to what our consumers say to us through our social touchpoints. And last year, we ran a promotion during Black Friday in the UK, and our customers were very upset with us. They didn't like it, they weren't happy about it, and they told us so, and our results weren't very strong.
Two years ago.
Sorry, Anders. Yes, two years ago. Yes, yes, yes. The promotion that we ran during Black Friday in 2017, these were just some of the comments that we got, and we got them almost immediately. Started with our eSTORE, and then it trickled through our stores, and the feedback that we got from our customers was very positive. So it was a very strong performing promotion, but it was also one that was very relevant for our consumers. And then the last point is activations, and I think, you know, this is also really important. Activations is about where you take one of Stephen's amazing products, and you call it out in the store, and you drive strong performance from it.
Now, you can do that with products, individual products, or you can do it with concepts. And a great example of this was the mesh bracelet that we activated last year. I mean, the mesh bracelet, if everyone's seen it, is a beautiful product. The cooperation between marketing, the inventory, and the sales part meant that we created an activation kit where we could visually present the product in the store so that it stood out. We used our digital assets to communicate to our consumers about it. We gave our team product knowledge. We incentivized them. We made sure that we had enough of the inventory. Thomas, you know, worked very hard for us to supply the product, and the performance was extremely strong.
As Anders talked about, the mesh bracelet in the UK very quickly became the number one selling bracelet during the activation period, and also it was the number one selling bracelet across EMEA as well, during the activation period. So again, we know when we have beautiful product, and we call it out in our stores, our consumers will buy it. Disney was a fantastic example of how you activate a concept. You know, not only was the Disney product amazing, not only is it beautiful product, not only is Disney such an amazing brand, the performance of this was actually just as strong on the basis of how it was executed within the business. There was a strong plan behind the activation. It was very well presented in the stores. Our teams were armed with the information that they needed.
We had enough inventory. Visually, we communicated it very strongly on all of our touch points, and the results were very, very strong. For the first month after the launch, we, the share of revenue was in the double digits. For the first ten days after launch, we sold 103,000 pieces, you know, across our concept stores within EMEA, and in the first month, we sold 377,775 pieces. In fact, some of the pieces, like Minnie Mouse, the performance of that item was stronger than any Christmas promotional item, any Christmas item that we'd ever focused on. So it was extremely strong and a great example of how you can take a concept, a new concept, and how you can focus on it in your business to drive performance.
So those three commercial drivers are an important part of how we commercially plan and commercially focus on the driving of the revenue and performance in our business. So e-commerce, and, you know, as we talked about, we have plans, and we're focused on driving our e-commerce business to 10%-15% by 2022. Of course, you know, we're gonna. The two main areas we're gonna focus on will be around driving traffic and also conversion. Also, of course, we will continue to focus very a lot of strong commercial focus on how we utilize our eSTORE as well. At the moment, we have good traffic to the eSTORE, but there's certainly opportunities for us to improve it.
Search engine marketing, social and digital, those types of opportunities are currently under-penetrated, and there are opportunities for us to improve that, to drive more traffic. When we talk about conversion, our conversion at the moment is 1 to 1.5. The industry benchmark for jewelry is around 2%. So there is opportunity there for us to be able to improve that as well. So they're two very, very strong focus areas. If we talk about conversion just for a minute, the site optimization, and Minna touched on it within her presentation, but how we. Some of the areas that we're looking at improving conversion is we're merging our brand site with our eSTORE. We are currently working on that at the moment.
We're looking at things like the user journey, page by page, making sure that, you know, because our eSTORE is another shop, and our customers, our consumers, shop our eSTORE. So it's important that the way we set it out and the way we lay it out, and the journey that they take through our eSTORE makes sense to them and it's easy for them to do it. Mobile experience development is important so that they can utilize the experience that they want across the devices. And then, of course, making sure that the site, the development of the site and the features that we have on the site are very, very strong, so that our e-commerce store is activated for our consumers.
omni-channel is a big opportunity for us, and there are four main areas that we talk about when it comes to strengthening our omni-channel experience. The first one is the integrated fulfillment across channels, service across channels, making the journey a lot more seamless for our consumer across those channels, and then digitally enhancing the in-store experience. I think the biggest focus for us at the moment is the integrated fulfillment across channels, where we make store inventory visible online for our consumers, where we look at cross-channel fulfillment options around click and collect, order in store, ship to home, and then, of course, the exchanging and returning of products for cash or exchange or refund across our channels.
Our current fulfillment at the moment is okay, but we've got plans certainly to make it a lot stronger, and the clear plans are in place. In the first half of this year, we're focusing on establishing the return in-store and refunds component. In the second half of this year, there's a pilot that'll be running in the U.S. around click and collect, having in-store stock visibility and the reserve and buy in-store components in our U.S. business. And then, that'll be rolled out in the U.S. across 2019. And then in 2019, we will look at a strengthened service level delivery for our consumers. So lots of opportunity for us in this area.
So to summarize, the four main areas that we talked about and you know, I suppose the journey that we're going on towards 2022 is, you know, owned and operated is our preferred concept. We will open around 200 concept stores per year. We will have a fully branded network. We've got a Retail Excellence Program that really focuses on in-store experience and inventory management, as I talked about, really strengthening our trade and promotional commercial planning within the business. E-commerce, growing to around 10%-15% of our revenue, and having an industry-leading omni-channel functionality for our consumers within the business. Thank you.
Thank you, Stephen.
Thank you, David. Any questions?
Thank you very much. It's Mikkel Kousgaard Rasmussen from ABG Sundal Collier. A question on the in-store refunds and the Click and Collect. How exactly is that going to work out? Because, again, when we speak to franchisees now, they don't take returns for products bought online. So you're going to pay a small fee every time they do that, or how is that going to work out?
I think when it comes to our franchise partners, we're currently talking to them about how they can be involved in that with us. Clearly, it is a resistance for them, but we will continue to talk and work with them on the ways that we can work with them on helping us collectively look after our consumer. The way that we will do it and the way that we will work with them will be different in different parts of the world, depending on our relationship with our franchise partners and our agreements that we have in place with them. I think a big part of what we're trying to do as well is also help them see and understand that good omni-channel functionality is actually good business for them.
But isn't this going to be extremely difficult? Because now some of them, I'm sure they've seen your results, and they know that they're eventually going to be shut down from now until 2022 if they are not going to be upgraded, and then you go and ask them this. I mean-
Yeah. I mean, it will be difficult, and the discussions will be challenging, but it is something that we must do. So we need to work with them and find a way, and we will certainly do that.
When should we expect a solution on that?
Well, I mean, in our owned and operated stores, we do it now. And with our franchise partners, we wanna put that in place, you know, throughout this year.
Kristian Godiksen from SEB. Just one question on which kind of franchise stores is that you target to?
Ah, sorry.
Sorry. Yeah, so, which kind of franchise stores is this that you target to acquire, you know, in terms of geographical exposure and also in profitability terms?
Well, I think it's going to be different across markets. In some places we have franchise contracts where their deals are coming to an end. In some places, we will have franchise partners who will be approaching us because they are interested in selling their business. And, you know, we obviously look at every situation individually and independently of the other, and we would make the decisions based on what we believe is strategically good for us as a business at that point in time. So, I think, you know, there will be a number of different ways that it will happen. And that will evolve over a period of time.
This is Elena Mariani from Morgan Stanley. How do you plan to balance 200 concept stores opening per year with a potential improvement in your stores' profitability? So you have a very clear plan on the store openings, but how should we think about the economics of the single stores and how they're going to evolve over time? Because I see a risk of a lower sales density going forward, rather than just stability of improvement.
Yes, Anders, yes.
Sorry.
I think that's a very, very good question. In the next section, Peter will actually address exactly that question and show you examples of where we're going. So if that's okay, we'll take it there.
Thank you.
But a good question.
Listen, you showed the example of the results of the Black Friday campaign in the U.K., where like-for-like sales were up 102%. I think it's fair to assume they were not up 102% for the whole quarter in the U.K. I wonder what's the sort of differential developing like when you look at like-for-like growth during promotions and outside of promotions. Is it gaining traction during promotions and similarly weaker outside? What's the non-promotional like-for-like trend, for example, in the U.K. in Q4, where you've had, I think, three times as many promotion days as the year before? Are you becoming increasingly dependent on those promotions, or how do you see that?
I think... Well, we're not becoming increasingly dependent on promotions. A promotion or promotions are part of our commercial planning. You know, in the past, we actually didn't plan promotions all that well. You know, we're now looking at key commercial trading periods like Valentine's Day, Mother's Day, Christmas. You know, Black Friday was an interesting one because it is now such a commercially strong trading period, that if you don't actually have a promotion as a retailer during Black Friday, you're actually gonna hurt your brand when it comes to the consumer, because they expect you to have one. So as far as the performance of the business goes in and around promotions, you know, obviously, we expect the business to perform well during a promotion.
If it doesn't, we reevaluate what it was that we did to understand whether we would do the same thing again, whether we do it at the same time. And I think, you know, promotions are, promotions are a part of how we run our business, but they're one of three components. So we don't just look at them in isolation, we look at them, how they complement campaigns and collections, and how we actually also activate product. But, you know, they are an important part of how we commercially drive our business.
Hi, it's over here. Just in terms of the blend of e-commerce versus physical store, so the numbers that you put up on e-commerce getting you to 10%-15%, I'm not gonna ask you to commit to this, but it's entirely plausible that, that, that number by 2022 could be a lot higher than 15%. So my question is: to what extent do you think about the blend of those two things, and you would actively scale back on the space expansion if e-commerce growth was surprisingly positive?
Anders, that's one that we would talk about in the main Q&A a little bit more.
We can do that. I think we talked a little bit about it previously. It is important for us to find out how is this going, and the thing is that there are so many different views on exactly where e-commerce is going to end. And I can tell you, we've also had these discussions of some of the older people in the room, like me, thinking that it might be around 8%-10%, and others believing that it might be 15%-20%. Now, I think what is important is that for us, from a profitability point of view, it's not really important whether we get the sales the one place or the other place.
I know from our perspective, but also from your perspective, the risk would be we would open a lot of stores, and then we don't need them anymore because people have moved on to e-commerce. We believe that with the 3-5 years agreements we have on our retail space, if there would be an alignment and a change towards more e-commerce, then we can adapt to that. So we feel that we are in relatively good, in good shape in that. And we've run numbers, which is not a lot smaller than what we are looking at, the 10-15, but we have surely should run numbers, which is higher as well, to see how would this affect our rollout of stores, because we have to take that risk into account.
I'm not too worried, and by the end of the day, then you can start to get out of retail space if that would be necessary. Now, the numbers that we have on e-commerce are probably okay, but not great. But I mentioned previously that we believe that outside of the U.S., it's probably around 3%, which is e-commerce at this time. To see that going to 10%-15%, we actually believe it will. But going even further than that, I'm not sure. We've seen in some categories, it's just gone much further. But going back to David's comments, also Minna's and Stephen's comments on the consumers and women's relationship to jewelry, the question is how far it will go.
But we've looked at some of the risk momentum in this as well, and we feel pretty comfortable that unless it explodes to 50% next year, which I don't believe, I think we're in good shape. I hope that answered the question.
Thank you for all the questions. David will also be available for questions later, of course. I think it's time for a small break before Peter will go you through the financial implications of the, of the plans. So please be back in... yeah, 17 minutes, 4:10 P.M. Thanks.
... Ladies and gentlemen, I think we're ready to proceed with the next presentation, so please take a seat. And now, Peter will take you through the sort of the financial implications of the strategy towards 2022. Please, Peter.
Yes, I will now talk you through the financial outlook for the next five years. We have a strategy that will deliver sustainable growth, a strong margin, and all in all, we are doing a transformation of the business while we are maintaining the asset- light, the cash generation, and the high payout investment case that have been the characteristics of Pandora over the last couple of years. We have solid plans and a strategy in place, and not least, a fully committed organization to deliver on this in the next five years. So we have spent the day talking through the integrated value chain of Pandora, our unique integrated business model.
I will talk you through the building blocks of the case, our strong financials, delivering a sustainable growth of 7%-10%, strong margins around 35%, and an asset-light business model with around 5% in CapEx, and finally, our cash generation and high payout. So now I'll talk you through each of the building blocks, starting with sustainable growth. Looking at this picture, I'm sure you have all done the math, applying 7%-10% to the starting point, the DKK 23 billion. But just to help you out, this will translate into a revenue of DKK 32 billion-DKK 37 billion of revenue in the year 2022, or DKK 2 billion-DKK 3 billion per year.
Some of you might think back in time, where we had high double-digit growth rates, but the law of big numbers, the base is getting higher, and therefore, the percentages will be lower. Growing DKK 2 billion-DKK 3 billion per year on top of DKK 23 billion is getting to a lower percentage than if you apply DKK 2 billion-DKK 3 billion of growth on top of DKK 13 billion. So what you could say is a normalization, which we have talked about all along over the last couple of years of growth, is driven by a higher base. Some of our major markets are slightly leveling off, that being Italy, U.K., and Australia. And also, you have noticed that we are stepping down a bit on the store openings from around or above 300 over the last couple of years to around 200.
Just a reminder, earlier, Anders presented the outlook for 2018, and that will be in line, of course, with our 5-year strategy and the numbers that we have presented… Those of you who looks at currency as well, I'm sure you can calculate that there will be a headwind in 2018 from currency around -2% to -3%, and these numbers are in local or fixed currency. We are transforming our network into a predominantly owned and operated network by doing openings as owned and operated, and doing forward integration. We have mapped the network globally, where do we see opportunities for store openings? And we do see an opportunity of around 1,000 concept stores globally, that we will open with around 200 per year, each year in the next 5 years.
So in five years, we will have two-thirds of our network being owned and operated, so around 2,300 owned and operated stores, and we will have one-third being operated by franchise partners and distributors, or around 1,200 stores. So the openings will come down a bit from above 300 to around 200. We see slightly less opportunities in the more developed markets, and we have this ambition of a sustainable and controlled growth. In terms of the split of the openings of 200, we will increase the owned and operated from around half of the openings to two-thirds being owned and operated, and one-third being distributor openings. And then a few franchise openings where that does make sense, but it is an exception. In the distributor markets, it will be driven by markets like India, Philippines, and Indonesia.
The regional split, 25% in Americas, 50% in EMEA, and 25% in Asia Pacific. That split was the same as 2017. One could ask, what about EMEA, the 50%? That will be driven by markets like Italy, France, India, and also Turkey. We are then adding incremental revenue of up to DKK 1 billion per year, so in the range of DKK 500 million-DKK 1 billion, from forward integrations. Around 75-150 concept stores per year being acquired from franchisees or small distributors, but excluding big distributors like Russia, South Korea, and Taiwan. So on, the store openings, adding 200 stores per year, the retail revenue per store will go down, going forward, to around index 75 compared to the existing average. Take Italy as an example. We have opened quite some stores in Rome and also in Milan, and other big cities in Italy.
They have revenue of DKK 25 million plus. We're now opening stores in smaller and more remote parts of Italy, where they will have lower revenue, somewhere around DKK 5 million per store, so five times less the bigger cities. Also, we are opening concept stores in new markets. As an example, we are expanding in Latin America. We are opening stores in Colombia. Even though Bogotá in Colombia is a big city, then initially, revenue in a concept store in Bogotá will hold less revenue than a store in Milan, in Italy. So new stores will have lower revenue per store than existing store base, but same EBITDA. And one thing to note about the Pandora business is, that all our concept stores are profitable. So big and small, they are all profitable. But a bit more on, on ownership. We are taking control of the network.
We are buying back stores with a strong financial rationale. We get 2x the revenue and close to 2x the EBITDA by buying back stores. EBITDA, 1.8x or close to 2x, there is a slight drag on the margin. Of course, when we take back and acquire stores, then we need, and we get the direct store costs in our books. We also need to build a bit of, supporting functions for recruiting store staff, managing the store network, finance, and so on. And finally, part of the promotions currently carried by franchise partners will be part of our P&L going forward. But overall, a strong business case, buying back stores, doubling the revenue, and nearly doubling the absolute EBITDA.
We do that by buying back the stores at an attractive purchase price, in the average, on the range of 1-2 times franchise partners' EBITDA. So overall, strong financial rationale, but let me talk you through the impact on our different revenue lines. And up front, a small warning, this will get a little bit technical on this one, but it's important to understand the moving parts in our reporting. We are transforming our network in four ways, so going across. We are opening concept stores, and we can decide on three different formats of doing that. We acquire franchise stores, we acquire distributors, and we close multi-branded accounts. That does impact our reporting, retail, wholesale, and third-party distributors. So when opening a concept store, the revenue per store will be index 75 going forward compared to the existing store base.
When buying back franchise partners, franchise partner stores, we have taken some of the higher volume stores. Those have gone out of the wholesale line, and we have put them into our retail reporting line, meaning that revenue per store, revenue per wholesale store will go down, and our retail will be impacted positively by that. On distributors, we have acquired most of the large distributors, only a couple of the big ones left. So again, Russia, South Korea, and Taiwan being the biggest. There are many smaller distributors left. There's a long tail, some of them with a smaller revenue and less stores than actually some franchise partners. Then, we will continue building a branded network by closing multi-branded accounts.
So we take out revenue from the wholesale line, and then there is some spillover to other parts of our network, being other point of sales surrounding, or it could be our eSTORE or concept stores. But when closing a multi-branded account in the middle of Texas, and then finding out and quantifying the spillover to other channels, that is simply not possible. But it's not all about space growth and forward integration. Like-for-like is important, and we will drive like-for-like also going forward. We will do that by focusing on traffic, on conversion, and basket, as David said. He talked you through some of the levers for driving like-for-like. But like-for-like will normalize, and we have said that all along over the last couple of years, that high double-digit like-for-like is not sustainable in the long run, and that also for Pandora, like-for-like will normalize.
It will normalize from 10%-15%, 15% in Q4 of last year, to the low to mid-single digit range. The base is higher, driving percent down. We are acquiring and have been acquiring stores in the more developed markets, U.S., U.K., and Australia, which is driving like-for-like down. We have stores that simply does not have capacity to transact more. We mentioned the Birmingham example at a teleconference, where we had stores simply reaching capacity, not able to squeeze a single consumer more through. So what we did there was we opened a couple of more stores that impacted like-for-like negatively, but the overall retail sales out in that catchment area did increase. Also, we have some high like-for-like markets, which are normalizing. Take Italy as an example.
Finally, our like-for-like number includes e-commerce, and e-commerce does carry a lesser of a weight in this number going forward. Now a few words on the category split. We have today presented an ambition of balancing our product portfolio to diversify and to reduce the risk in our business. Charms are important, charms are our foundation, but we also want to grow the other categories from 25% of revenue to 50%. Just doing the math on some of this, 25% of DKK 23 billion, around DKK 6 billion in revenue. In five years, 50% of what I mentioned was DKK 32-37 billion, is say, plus DKK 18 billion. Going from DKK 6 billion to DKK 18 billion in revenue in the other categories is quite an ambitious target we have set.
Again, I'm sure that some of you have already put some of these numbers into your models and modeled the development going forward. And if you put in the 50/50 split, a 7%-10% growth, and then back out the forward integration, and then look at, so where does the charms category end in this? And that calculation will show a flat charm business. However, when doing the math, think probably slightly above 50% for charms and slightly below 50 for the other categories, then see the impact of the numbers. But key is, we want to maintain our charms business. It's our foundation, and we see a lot of opportunities, but we want to build the new categories and build a diversified revenue with a 50/50 split. And now on to the last part of the revenue, so the other point of sale.
In five years, all other points of sale will be branded shop-in-shops. Brand is key, and that's why we are closing 1,500 points of sale and upgrading 2,000 points of sale. Just a small reminder of other points of sale, that is not a concept store, so we are not doing massive store closings in the size of 1,500. This is a dealer, take a small Danish goldsmith that does carry a couple of trays of Pandora products that we close. We have done around 1,000 per year over the last couple of years, so we are actually reducing it because we are through the major part of the closings of these other points of sale. We actually need other points of sale, but they need to be branded.
The reason we need those is that they drive awareness in the other categories. In some countries, there's actually a very high loyalty towards your local dealer, and also parts of the world, it's countries are big, and there are locations where there's simply not enough people for us to open a concept store, and that's where we would like a branded shop-in-shop. The closings of these 300 other points of sale will be a drag on the revenue, so there will be a small negative impact due to lost selling. On the margins, there will not be a material impact on this going forward. There is an impact, but it will not be a material number like the one that we did in Q4 that you might remember a year ago.
This concludes the revenue, and now on to margins. We will continue driving our business with a strong margin around 35%. First and foremost, we have an ambition to grow our revenue and also a higher absolute EBITDA. We do that rather than driving percentages. The more EBITDA, the more payout, and that's why we are focusing on absolute EBITDA. The result of our strategy is that the EBITDA% going forward will be around 35% for the next five years, and that will be already from 2018. Owned and operated will be a small drag on the EBITDA margin, but we get 2 times the absolute EBITDA, as explained earlier. You might remember that Anders, he mentioned or showed a number of 1% impact from owned and operated earlier, and now there's 2% on this slide.
It is so that we will have a 1% impact in 2018, and then as we take back stores and build our owned and operated network, that number will increase to around 2. On products, again, Anders showed 1%, and there's 2 on this. We are transforming our product assortment, increasing the number of DVs. Already this year, we're launching 2 new concepts, and we are building an assortment with more gold in it. Not solid gold, but the use of gold in Shine and in Pandora Rose. That will drive the impact from product innovation to around 2 percentage points in this period. At the same time, as Thomas explained, we have efficiency initiatives in place in Thailand and in the organization, as well as a procurement excellence program.
So while the percentage points impact from owned and operated and product innovation will increase from 1% towards 2%, then leverage and efficiency will kick in and offset that, and thereby maintaining a margin around 35% in the period. The efficiency that will drive the funding of our strategy, so the strategic initiatives, the operational efficiency, as explained by Thomas, and then leverage, which we will primarily see in our admin line.... We have built the global offices and regional offices needed to drive a company of our size. We will drive efficiency in that, but we will also build administrative functions in new markets, like we are currently doing in Latin America, out of our new office in Panama. So efficiency and leverage will fund the transformational strategy that we have initiated.
Now let me go on to margin, from margin to our asset light business model with around 5% of CapEx. Let me give you a couple of insights into that. Thomas presented all our new crafting facilities in Thailand. We have and are about to conclude the DKK 1.8 billion manufacturing capacity expansion program. We have done that on time, on budget, if not a little bit ahead of our initial plans. We have also built a new innovation center hosting 400 people, working with 3D printers and pretty advanced technology, shaping the technology around our crafting in Thailand.
That we are about to conclude, but we will continue building capabilities, that is around new capabilities like plating in Thailand, also in our innovation center, where we will stay curious, and we are also adding some support buildings in Gemopolis to support new crafting facilities. On owned and operated, we are increasing the number of stores from currently around 1,000 to 2,300 in five years. Our concept stores, they need to be refurbished every three to five years. That does cost around DKK 1.5 million per store. So adding that up will be DKK 0.5 billion in CapEx plus as we enter into the strategy period. And finally, we are building capabilities around omni-channel, so building our eSTORE, building our CRM systems, and integrating that with our physical stores.
All this will come with a CapEx of around 5% of revenue going forward. On the working capital, we are currently tracking around 15% of revenue in working capital. That we will maintain going forward. We are doing some transformational activities that will increase our working capital. Opening more owned and operated stores will come with a bit more inventory. We are increasing the number of products in our stores to 1,800. Again, we need a bit more inventory in our stores and in our supply chain for that. But we have and will initiate activities to reduce the working capital by optimizing our value chain and our distribution centers, and the lead time, as Thomas explained. So working capital will remain flat at around 15% in the period.
Looking back at the Pandora investment case, we have had a high return on invested capital. In the last four years, consistently around 70%. We will maintain a high return on invested capital going forward, despite building capabilities, spending CapEx on 5% of revenue on CapEx, and doing forward integration. We will spend up to DKK 5 billion on acquiring franchise stores and smaller distributors, so up to 750 stores in the period. So that concludes our thinking on capital. Then moving into the cash generation and the payout of Pandora. We are highly cash- generative, and we will continue distribute all the cash that the business is generating. Take a look back.
We have had a strong cash conversion of around 70% in the last couple of years, and all cash have been paid out to shareholders at a level around 80%-90% in the past couple of years. Looking at 2014, we actually did hold on to a bit of cash, which we then paid out in 2015, as well as we took on a bit of debt in 2015. But on average, a high payout of 80%-90% in the period. So a key characteristic of the Pandora investment case is our cash generation and the high free cash flow that we are generating. I have talked you through the individual building blocks, but just for the sake of good order, we have summarized them on a picture. Couple of comments on this, the tax rate, which historically have been around 21%.
We will move into a range of 21%-22%. You might ask, what about the US tax reform decided in December? That will actually drive down the tax percent by, say, 0.5%, not material. But on the other hand, the country mix, so higher tax rate countries will be a bigger part of our revenue, and therefore, also be a bigger part of the tax payment. So a tax rate of 21%-22%, and the tax exemption we do have in Thailand, they still remain in place. Just for the sake of good order, again, CapEx of 5% of revenue for crafting facilities and furniture, and so on, IT systems.
On top of that, we are adding forward integration of franchise stores as well as distributors up to DKK 5 billion in the period, so between DKK 500 million and DKK 1 billion per year in the next five years. Then a bit on payout, and we will continue a high payout to shareholders. The principle of zero to one net interest-bearing debt to EBITDA will remain in place. But first and foremost, we are looking for business opportunities to grow the business going forward. We did a change in February on our capital allocation and the payout to shareholders. At that point in time, the share price was around DKK 900 or DKK 900+. Today, it's around DKK 600. Clearly, that decision and that change does look a bit different today than it did back in February of last year. We have received a lot of input, comments, reactions, advice on this.
Together with the board, we are firming up our thinking on this, and we will communicate the split of this in connection with our annual report in February. But we're very well aware that almost no matter what we do, we cannot make everybody happy on this. If we change it, some will yell at us. If we maintain it, some will yell at us. But we will do the analysis and do what we believe is the right decision and communicate that in February. So today, we have talked about all the great opportunities ahead for Pandora, and there are a ton of opportunities that we are pursuing going forward. But as with any plan and any business, there's also some risks involved, no matter how solid that plan is. Also, I want to make a couple of assumptions very explicit.
So currency, gold, and silver prices are as of today. A couple of the risks, just to call out one, which we also discussed a bit during David Allen's presentation, and that is the franchise partner relationships. Franchisees have been important for Pandora, and they will still be important for Pandora going forward. So despite the transformation we are doing, in five years, still one-third of our concept stores will be operated and owned by franchisees and distributors globally. However, we are changing the business model into more owned and operated. So as to franchise partners in individual countries, some will continue, some will exit, but we will still have franchise stores going forward. In such a transition, there could be short-term impact on numbers. It could be revenue. It could be they reduce their buy-in of our collections, so reduce their inventories.
But rest assured that our focus is to do a balanced transition from predominantly a wholesale business to predominantly an owned and operated business. So to summarize, we do have a solid plan in place, but with all plans, there's always a risk in any transformation. So to summarize our unique integrated business model, which we have explained today, delivering strong financials based on sustainable growth and strong margins. We're doing a transformation while we are maintaining the asset light, the cash- generative, and the high payout investment case that Pandora have been and still will be.... We are not just ready to execute on this plan, we have actually already started doing it, and I'm sure you can see some of the examples we have listed today on all the infrastructure we have put in place, the manufacturing, the crafting facilities, the IT systems, and the organization.
It is a ready and committed organization you have in front of you, ready to deliver on the plans. With this, I will hand over the word to Peder Tuborgh for a couple of closing remarks before we do a common Q&A session.
Let's give him a hand, huh? Thank you. That was a long day, wasn't it? I hope it was an interesting day. Ladies and gentlemen, thank you for coming. Thank you for your attention, and thank you also for your involvement. I've listened very carefully during the course of today. That was why I came, listening to you. Also, in the breaks that there have been, where I've had chance to speak to as many of you as possible. That has been valuable to me. Let me start by saying that the board has, during 2017, worked very closely together with the management and the extended organization. We have spoken to and met many people from different layers and from different angles of the organization.
We have spent considerable amount of time together, and that has been time well spent, and that is also necessary when you introduce a strategy with such a level of detail that I think that we have presented to you today for a five-year period. You better have done your homework also as a board. We know that, we have a firm plan. We believe it is very tangible and easy to understand what to do. Now it's time for us to execute on that, and that is something that lays ahead of us. We know our marketplace in detail.
You had a glimpse also of some of the risks, but there are also external factors, and of course, we have done our homework and tried to elaborate and balance what we have presented to you today, also, the numbers you saw here at the end, up against all kinds of eventualities that can happen around us, so not only something that is in our destiny or our own hands. We see ample opportunities for Pandora, and we believe that we have a very tangible plan going forward to grab these opportunities. What is more important, that we have also, alongside of pushing and working hard and observing also the hard work that has been done all over in the management and in Pandora to reach the numbers almost in 2017.
We've done a lot of very good stuff, a lot of change in the organization to be ready alongside of the strategy. It's not good enough just to have a fantastic view on how the future should be and talk a lot about, in academic terms, how you can actually grab these things. You also have to be ready with your organization, with your people, and I actually hope that, Anders, in next time that you're together, not two years from now, but maybe during the course of one of the quarters, where we have chance to meet you and talk to you, that you would also ask us some questions as to what, how is the organization feeling? What are we doing in terms of actually building up capabilities?
We have, in the HR or in the board, been very interested in how our capabilities on the people side actually has been developing and how we could prepare for the journey going forward. Because otherwise, without the right people in place, nothing will happen, and that is a truth in all companies. I do hope that you appreciate that we are reaching out to you with a great level of transparency. There might be a few things that we've forgotten. That was not intentional.
We really wanted to reach out to you with a high level of transparency, and with a significant level of detail in how we see the years to come unfold, both in terms of activities, what to do, where to do it, and how it will be turned out into numbers and finances, and I know that's the thing that is, of course, closest to your heart. On communication, let me say that I know that we can improve on communication.
The board knows, the management knows that we can improve on communication going forward, so that you can also understand whether we are delivering on what we are talking about today, and that will, of course, happen, and let me say that we will come back and do maybe a few amendments, to ensure that you feel comfortable, most of you, in terms of communication going forward. Now, what I'm gonna show you now is going to be very quick. Is that the page? Yeah, I think it is. You've seen this, so don't look at it. You've seen it in, during the course of today several times. Oh, there it comes. That's great. You've seen it, several times. Like that, that's how it goes. You've seen it, and actually, we don't need to pay attention to them.
But again, but let me just put a few words around this, my own words. We have a clear view of the challenges, as Anders said in the beginning, in the morning here, that we faced in 2017. We have taken learning, as we've discussed it in the board together with the management, we've taken learning throughout 2017 of these challenges, and we have built change of our conduct into the strategy that we have presented to you today. It's not a wishful thinking. We've learned from 2017, and we have built these learnings into the strategy. I think that our discussion and the wonderful presentation from Stephen on product innovation, taking that to a completely new level compared to what we have seen the last year, is probably the biggest example of that.
We've also, I would say, strengthened Pandora in 2017. We haven't talked much about that today, but as the chairman of the board, I would just like to say that our infrastructure, our processes, the ways of working internally in Pandora are at a much better and completely different place than where we were just a couple of years ago. And that is, to me, also part of having a sustainable plan going forward. I believe also that the capabilities of the organization have developed. We've talked about the design team today. We've talked about our innovation center, and actually, the movie doesn't do justice to that fantastic center, and congratulations on having 4 floors, I saw. We wanted 3 floors from the board, and he built 4, so that must be promising. Thank you for that, Thomas.
What I'm trying to say to you is that we are confident from the board that we will deliver, and we will transform Pandora into the company we've talked about today. Now we'll go on to something that you've also seen during the course of today several times. What you have heard about today is how we will transform and develop the company throughout the value chain, and this is the starting point, the platform, that Anders talked about in the morning.
You've heard it from Stephen, who talked about the whole new product design approach, but he was also very humble about that team that he has built, and I must say that the, both the quality, but the number of people that we have in Stephen's department today is completely different and at a higher level, both in numbers and quality, than just a year ago, and certainly two years ago. That gives me confidence when I talk to Stephen. Tom has talked about a brand-new production platform during the course of today. Think about it, we did not have an innovation center 12 months ago. We have just opened an innovation center, and we have put 400 people into that center, and they are working. It is not a wishful thinking.
They are working on the strategy that has been presented to you from a product point of view. We have, during the course of 2017, opened two new production sites. You actually saw them with your own eyes, and I know that some of you have been out there and visit at least one of them. In Chiang Mai, in Lamphun, but also in Bangkok. You saw the pictures. They employ today 10,000 people together. These 10,000 people were not employed in these sites twelve months ago because the sites were not in operation twelve months ago. That has happened during the course of 2017 as well, and that is the backbone of our delivery. Without that, nothing could have could be achieved going forward. Minna talked about marketing today.
She more talked about how we will focus much more on digitalization for all the obvious reasons, and I think there were some conversations around, and I know that from the company, where I'm also CEO, that you never get it right. The only thing we don't know is that we don't know how big it will be. What we do know is that we need to be on our toes, and we need to be minimum on par on any, of our peers in our industry in terms of delivering digital ambition and, how to, speak and, and engage with consumers. And that is the promise that we are giving ourselves and you, that we will be on par, and we will do it well. And Minna also talked about our intimate understanding of consumers. There was a couple of slides on that.
There's much more to it. All I can say is that the board is very happy that Minna and her entire marketing team, also those who are sitting in, in the markets, that they are, have an intimate knowledge at a completely different level where we were two years ago, where the consumers are, what they're doing with the products, and what are their dreams for the future. We better be right on that and have a lot of knowledge because we intend to spend DKK 2.5 billion during this period, year after year after year. So let's not, mess with that. We'll do it based on science and insight. And then David talked about our distribution network today. He showed that there is ample growth out there, for sure, and there are different avenues to growth.
That is something that I like. It is something that I'm not used to from the dairy company that I'm CEO. I have not seen such a big opportunity and avenues of opportunities to work with, so congratulations on being CEO in Pandora, Anders. There's lots of opportunities, both geographically and in terms of products and categories, in terms of how David talked about our mix, and how the mix in our retail and distribution network can and will likely change. In there lies the opportunities, and we are going to grab them. Peter rounded it all up by talking of and putting the finance together. Actually, he showed you a set of very promising, but also well understandable financial dynamics within Pandora, and we are not shy to share that with you.
Also, following up on it, how it goes along in the quarters and in the years and half years to come, we will come back to you on the, on that. No doubt, it doesn't really work, does it? But you've seen it before. No doubt, so I could just close it and keep on talking. No doubt Pandora will be different in 2022, but in a positive way. I hope that we have inspired you and given you a higher degree of understanding how that will look and feel like going forward. We definitely find in the board full unders- of course, a full understanding of what is going on.
We support it, but what is more interesting, we also know that over and above or beyond the plans that we have presented to you, there are also pockets of other opportunities that we haven't talked to. And that is how any plan should be. You should always have a little more opportunities than what you promise each other, and that also lies behind such a plan. Let me round up by talking about the shareholder perspective. That is why we are here. It is the board's ambition towards you, as shareholders, to deliver a strong and sustainable and financial investment case, and that is what we believe that we have presented to you today. I will not repeat the numbers.
They have been both written and understood and talked about, and argued and put lots of arguments put behind it, but those are the—they are as they are, and we feel proud about it. Let me instead just say a few more words on the share buyback and dividend issue. The board is currently evaluating its distribution strategy, meaning the split between share buyback and dividend. We're not ready to decide and announce what we do, but we will, as Peter said, be ready in a few weeks from now. I have talked to several of you investors during the course of the last, I think, five, six months.
I've had many telephone conversations, and from time to time, this issue has come up, and I can echo what Peter said, that not all have the same opinion, but we, that's just how it is. We are carefully, as I said, evaluating and reviewing your input and the balance between the current dividend and the current share buyback. And you, I can say no more to you, but I know that you are very intelligent, and there must be a reason why the CFO and the chairman addresses this issue, and that gives you food for thought. Once again, thank you for coming. Thank you for your valuable participation. I know you'll be longing for a great Q&A, and that's going to come up now, so I'll give the floor to Anders.
But I would like, because I will not come up here again, to extend my thanks to the management, and, I hope that you will, join me in giving the entire team an applause for having, a nice presentation for you today. Thank you very much.
Thank you very much, Peter. I think we are at a time point now there, where instead of doing closing remarks on closing remarks, it's better to go into Q&A. Maybe I'll just start with answering a question that has been there in the room a couple of times, and I hope that I'll be able to answer it, if it has not been answered yet. There's been some questions about promotions and our promotional level in 2017. In my presentation, I said we did everything we could in the fourth quarter of the year. We also did everything we could without hurting our brand. I firmly believe that, and where we have our brand trackers on a quarterly basis, that is also confirmed by that. But we did everything we could.
So, when you look at 2018 and what you should expect on promotions in our plan at this time, it is on a bit lower level than it was in 2017. And I think, the rest of the team will join me. So, and of course, we didn't have a session for Peter, so, it's also a good chance of asking him some questions on the numbers. Will you put it up? Sure. So here we are. Who will lead? Will you lead, Magnus?
Let's stay with one question at a time.
Yeah, one question.
Hi, everyone.
Not in the corner.
Anne-Laure Bismuth from HSBC. Regarding the promotional activities, how many promotional activities do you plan to have in full year-end 2018, and how it will compare to 2017 or in previous years?
... In terms of product, in terms of design, so you mentioned that you have 18 designer, but how is it working between the design team in Copenhagen and the design team in Milan? And do you plan to further extend this team as you may build some regional design team? Thank you.
Did I get your first question right? How many promotions have we planned?
Good plan.
Okay. First and foremost, we need to be, have promotional activities when consumers are in store looking for promotions. I think David talked very much about that. We don't have a plan of promotional activities across Pandora. We have that country by country, because it differs very much. So I can't give you a number. Just saying, what we've said is basically for the fourth quarter of 2018, we'll take down the level a bit. I hope that answers your question, but we don't have the plan for the whole world, or it will be very extensive.
On your question on the design team, it's an integrated design team, so it's not a design team in Copenhagen and a design team in Milan. We go backwards and forwards. On top of that, again, as I said earlier, it's also very integrated into what Thomas presented, so all the product development innovation center is also contributing to that. So it's an integrated design team.
Again, please keep yourself to one question at a time.
Ole Martin Westgaard, DNB Markets. Here I am. On your guidance for 2022, at the low end, there's simply no growth in charms and bracelets, and at the high end, there's 1% CAGR or something. And I'm wondering, how does that reflect your sort of view on the relative performance in the charm and bracelet category?
I think, yeah, and I don't know whether you want to do it? Well, when you look at the development, we've also done the math on the numbers and understand where you come from. And especially if you take the lower development, the 7%, and look at that, where's the growth? That's why Peter said, when you look at the split between the two categories, you should probably think charms and bracelet a bit more than 50%, and the other categories a bit less. We've had that discussion.
I can tell you, we've also had that discussion with the board, because they could also calculate and they said, "Don't you want to grow?" And we said, "It's just clear for the organization to say that we want to go with a 50/50 split." So it has been an important thing to keep it to that. But I understand your question, and the only thing I can say on that is we will continue to develop the charms and bracelets category. We also talked about new platforms.
But we are listening to a market which is growing 6.5% on a CAGR basis, and you are assuming this kind of growth rates. You are implicitly assuming that you're gonna lose market share, and that is... Is that your view on the world?
No, it is not. I think that what you should look at is also how the dynamics is. In one of my slides, I showed you the first year, people, they buy quite a bit more than they do in the following year. The great thing is they stay with us, and they are stable there. But if you look at some of our more developed markets, like the U.K., Italy, and Australia, where the penetration is pretty strong, we have to be realistic of how we can develop that. It will probably also mean that the category might be a little bit smaller in some of those countries over time. But the thing is, if you take all the different building blocks, put them together and maximize them, you will end up with a number which can be a little bit unrealistic.
That's where we get back to Peter's slide on risk.
Hans Gregersen from Nordea. If we look on your retail margin, that is slightly below, let's say, your wholesale margin. Can you give any insights to how come you can have such a high margin in retail operations, which is significantly above anybody else? Thank you.
I'd say first and foremost, it's due to our crafting facilities and our integrated value chain. We can do production of our products in Thailand at a cost that nobody else can. So that is the key driver of our high margin.
But that is not the question. The question is, if, I mean, understand, let's say you have 35% EBIT margin in your wholesale, which covers the production, but the markup you have in the retail also have the same margin. Why can you have such a high margin in the retail space?
Again, the numbers we showed, when we take on stores, we multiply the revenue by two. The margin is slightly dilutive. As we take on, first of all, rent and store staff, we also need to build an organization around it, as well as we need to have some of the promotions that are currently carried by the franchisees. So that is why there is a small dilutive impact on, on this.
Yeah. Kristian Godiksen from SEB. I was just wondering, on page 150, I can't get it to add up. You say you expect cash out of around DKK 5 billion over the next five years for buying forward integration, so that's DKK 1 billion a year. And I just can't get that to add up to why, if you are able to acquire an EV/EBITDA of 1-2x, because that would mean you would acquire EBITDA of either DKK 500 million-1 billion, and you're only acquiring revenue of, you know, DKK 500 million-1 billion as well, so that's a quite hefty EBITDA margin.
First of all, it's up to DKK 1 billion that we will pay for buying back and do the forward integration, so up to DKK 1 billion. Next thing is the incremental revenue of DKK 500 million-DKK 1 billion that we did mention. That is our incremental revenue. The 1-2 times the multiple on the franchise partner EBITDA. Please remember that the franchise partner does have both our incremental revenue as well as our wholesale revenue. That equals the full retail value. So if, if you apply that, then you end at the multiple that of one to two. But if you don't, then you'll get closer to 4. That is, that's right.
Yeah, but, but I guess, wouldn't that also mean that they would have an EBITDA margin of around 25%?
I'd say some partners do have a margin that is somewhat lower.
Chiara Battistini, JPMorgan. Can I just come back on your guidance on, on the like-for-like going forward? You're saying like-for-like in the concept stores is expected to be stable going forward. So just wanted to clarify, is that also for the franchised concept stores or only owned and operated? And just a follow-up clarification on what Peter said about e-commerce having a lower weight as you go forward, a lower weight in the contribution to like-for-like. I'm not really sure why that would be, as it's growing and increasing the weight, I guess. Thank you.
Maybe I'll start that, and you can take the second one. If we look at our like-for-like numbers, there's not a big difference between the like-for-like numbers in owned stores and franchise stores. I'll give you some numbers for the owned stores, and we expect that to be positive.
Just because I guess some of the retail excellence initiatives you're going to take are going to be focused on owned and operated stores rather than the franchise stores, so I guess the performance will actually start to diverge more between the two?
We have seen in some markets a slightly better performance in our owned and operated stores, that's for sure. And the initiatives on retail excellence is concentrated on our own stores, but we do have a good cooperation with our franchisees, so of course, we're also going to invite them in to that part of it. Some probably want to, some probably don't want to.
The reason for the weight of the eSTORE, we have acquired quite a number of stores last year, and also going forward. Those stores will, of course, roll into the like-for-like number and carry a higher weight in that calculation.
Yeah.
E-commerce will also continue to grow as getting from the currently 6% to 10%-15%.
There's also some up here.
Lars from Carnegie. Since I only have one question, I formulated one that applies to all six of you. No, I'm kidding. I'm just joking. No, on slide 145, you had the this stepladder with the EBITDA margin. There, there were two parts I kind of missed, because in 2017, you had a 70 basis points tailwind from reversing this provision in Q2, which is not in this ladder. And in 2018, you will have a 40 basis points headwind from amortizing the distribution rights in Spain. So I wonder where those two fit into this? And also, it appears to me the factors that leads to the negative step change from 2017 to 2018, and to compensate us, would also be in force from 2018 to 2019, 2019 to 2020, et cetera.
So, how certain can we be that margins now change level and stays flat, and that we're in fact not witnessing more steady margin compression?
Yeah, maybe just starting on your calculation, our EBITDA, that is earnings before interest, tax, depreciation, and amortization. So when we amortize-
... Same thing.
The rights acquired in Spain, it's below that number.
Bigger EBIT pressure than EBITDA pressure from 2017 to 2018.
We have started the transformational journey already in 2017 by acquiring stores, so that will roll in in 2018 and have an impact on the margin.
So, correctly assumed that the decline in EBIT margin will be bigger than the decline in EBITDA margin from 2017 to 2018?
If you take in the amortization of the distribution right in Spain, that is impacting that, yes.
Okay. And then the tailwind from the reverse provisions, where do they fit in?
Yeah, they fit... First of all, this is the high level building blocks, and I'm sure that we, after today, will have the opportunity also in connection with our full year roadshow, to go into more details when we explain our 2017 numbers, so how to get that into the all the Excel sheets. So getting into 0.something, a percentage point, I think we'll leave for that discussion.
It's Mikkel from ABG. So online is obviously growing quite decently in the years to come, and I think that in the past approximately year, you've talked about how you are looking at potentially insourcing the eSTORE from PFS web, and I think you're already doing that in Australia. So, I mean, now online is going to grow quite significantly in the years going ahead. Can you give us an update on how has these negotiations ended up or this exercise you've been through? Are you going to insource it at some stage, or are you just putting more pressure on PFSw eb in terms of pricing, or what's the outcome of that, please?
It's absolutely correct. We've had this opportunity to do our own eSTORE in Australia and do the replenishment. We've learned a lot from that. We've also used that to make sure that we have the right prices with our partners, and actually, we had those two different opportunities or options. One is to talk to our partners, the other one, to do it ourselves. I don't know whether we, at some point over this journey, will in-source this, but at this time, we believe that the prices we have are competitive. So, but it's something that we'll be constantly looking at.
But for junk at the scale, you can say, 5 years?
It depends on how we develop in our relationships, but, but I think that's, that's what we can say at this time. But of course, we are looking at that all the time to see what is the most cost-efficient solution. Maybe one more thing to say on this, I hope that you've seen that we've done a lot in the business, and we will do quite a lot in the business over the next five years. We also had to say, how many things do we want to optimize, and how many projects do we wanna do? As we can see, this is an area where we're actually doing okay. It's probably an area to just leave for now, and we might come back to it later.
It can again be to see whether we can get the right prices, or it's better to do it ourselves.
Hi, it's Laura from Temasek. Can I just understand a little bit, you know, when you evolve from a wholesale model into a retail model, how do you expect your margins to remain as similar? For example, in a market like the U.S., whereby 70% of your stores are actually in Grade A malls, and you can see, you know, rental increases and increases of between 10%-15% per annum. How does that factor into your EBITDA margins going forward? Thank you.
Yeah, I'm not sure the increase in rent you're referring to. In most of our locations, globally, we do pay a turnover-based rent of the stores with a minimum in the contract. So rent is already factored into our numbers.
Largely in Asia, most of the stores are actually coming from Asia, largely, and I was looking at your stores, you know, they're largely in very good locations and malls, whereby, you know, the rental increases are quite high, even from Singapore itself. So understand you're saying that that's the base rental, but, you know, there's always this practice of, like, increasing rent every year. So how does that factor into your EBITDA calculations?
But I'd say also in Asia, we have a percentage-based rent. And rather than looking at increasing rent levels, we've actually had a process where we are looking at negotiation and renegotiating our lease agreements to try to get a bit of leverage there. Now, clearly, we do not have the same opportunity to go into a negotiation as a Zara or an H&M, because we are talking in a lot of malls about a 60 sq m store. But we are still doing it, and we are also seeing benefits from that exercise.
This is Elena Mariani from Morgan Stanley. I just wanted to go back to the like-for-like, point. So you've said that you've isolated all the building blocks as we have. But if I take out from your 7%-10%, organic growth, the forward integration, and then the store openings, I struggle to get to, a low- to mid-single-digit like-for-like across all your stores. So I wonder what I'm missing, because I have the impression that given that you're also saying that your store productivity is going down overall, that overall the like-for-like, let's say, sell-out across all your stores implied in your guidance is actually going down. Am I missing something?
Overall, we have included some guidance on like-for-like, saying that like-for-like is important, and we will guide you on our retail like-for-like number. So that is the, say, low to mid-single digit number we are mentioning.
Sindre Sørbye from Arctic. As your retail revenue grows and also as e-commerce revenue grows, will you consider linking up with some payment provider to capture more of the value associated with the payment? Credit, I mean, instead of, instead of letting like, American Express having, like, 2% cut, I mean, you can capture part of that yourselves. There's a lot of fintech solutions coming up now.
I'd say it's. First of all, we are negotiating our payment providers globally to get the best possible payment for those. And then, in some markets, in China, we use some of the local payment methods. It's not currently something we have in the pipeline, but of course, we are looking into opportunities.
... Just a quick question on U.S. retail, because that's been one of the key investor concerns over the past years. Basically, we are afraid that there's a huge structural change. Could you perhaps talk a bit through about the discussions you've had on this topic? Because it seems that it's changing so fast, and you're giving five years projections. What's actually the assumptions behind your strategy here, given the investor concerns that is in the market about the U.S.? Thank you.
If we take the starting point of how we see the American market developing, we can see that there's been a big shift from brick-and-mortar and into online. Clearly, we are evaluating what kind of a store footprint should we have in the American market. I talked a little bit about the fact that if we look at the U.S., we have around 360 stores. If we look at the U.K., we have about 230 stores. So it's not a massive brick-and-mortar footprint we have in the American market. We've kind of mapped out the areas where we want to have a representation, and we're taking a cautious approach to making sure that we have the right presence in the American market. We will see how the balance between eSTORE and brick-and-mortar is going to move...
It is a pretty high number to have more than 20% of the revenue of jewelry being online. The good thing is, we have the same profitability. Have we undershot the development in the U.S. market in terms of, of e-commerce? With the 3-5 years rental agreements we have on our stores, we also have the ability to balance that and, and make sure that we don't get overexposed. But at this time, we can actually see that we have areas in the U.S. where we need to, and should open a few more stores. I don't know whether that answered your question, but clearly we need to be agile on that, because we're talking about something which can move really forward fast, and some people believe that, others believe it's going to be in a more moderate speed.
I think that no matter how it's going to move, we'll have to make sure that we move with it. Clearly, if we see e-commerce really going forward in a very, very strong way, we are going to open 200 stores a year because we put that in front of you. We're going to reevaluate that and say, "Okay, maybe we'll do a little bit less of that, and we'll capture more of the revenue online." I think the good thing is that we can do both.
Thank you. Mark Miller from Gabelli. I wanted to start by saying, thank you to the Pandora team for the presentation and the great details shared today. And the good lunch and refreshment, and so on. My question is to come back on the commodity prices and the commodity exposure. So I understand that there is a bit of a shift in the assortment mix, and notably going through a change towards like more precious metal such as gold and palladium. I was wondering if you can comment a bit on the sensitivity of the margin to the commodity prices, if it's still roughly the same as the one you guided before, or if it's going to change a bit going forward? Thank you.
First and foremost, thank you very much for your comments, and then Peter will answer the question, I think.
Yes, it's not something that will have a material impact on the margins on commodities. So still, a 10% change in commodity prices will impact our margins with around 1%. And the reason for the new Pandora Shine and also Rose, having a slightly diluting impact on the margins is, that while we are pricing it a price point higher, then actually the percent is still a bit lower, just like it is on gold products. So it's not related to the cost of goods sold, rather than the markup to retail.
I think we have time for one last question before Anders will wrap up the day.
Thank you very much again for a great presentation today. George Kounelakis from ENA Investment Capital. In the whole presentation, there's a huge emphasis in terms of the network transformation, from now to 2022. Could you give us a little bit more color in terms of the geographic mix, which obviously is very relevant, A, in terms of the growth, and two, in terms of how you go about it? In terms of Asia, how you target it, how you see the 2022 break, breakdown in terms of revenues fee.
Yeah, I can talk to the store openings that we envision, and that is the 200 store openings per year, around 50% in EMEA, 25 in Latin America, with a focus on Chile, Colombia, Argentina and Mexico. And then in Asia, we'll have store openings in China and also Philippines and Indonesia. In terms of
Yeah, and maybe just adding on that, if you look at the way we've built the plans, it has been market by market. So we've been looking at the opportunities in the individual markets like Mexico, seeing what do we think that we should have in terms of store footprint, and that is then the numbers which has been put into the plan. So we've done this not by saying we wanna do 200 stores a year, but market by market, if that helps you.
Can you give us a sense in terms of the geographic mix of revenues in 2022, so that we get a sense in terms of where you see the growth coming? One thing is in terms of the new opening, but it's in terms of overall the growth from where we are now.
Asia will be a bigger part of the revenue in 2022 than it is today.
So that's probably one of the bigger ones. We still believe that EMEA is going to be a very big part of it as well. We see good opportunities also for continuing developing the business, and then we have the Americas, which will grow through primarily Latin America. Anyone? There's a question up here. Oh.
Hello, Caroline Schweitzer, Colony Advisors. Just a question on the fear of, say, a channel stuffing potential write-off. So, I mean, sellout wasn't great last year. You have a lot of good new products to come. So can you talk a bit about what you're doing to kind of clear the channel? I don't know if you're re-melting or discounting, and I don't know if there's any write-off expected.
Clearly, what we do with our products is we have a number of outlet stores that we utilize to clear old products. We've also a program in some of the markets, where we have an exchange program for some of the franchisees to help them out. And clearly, by the end of the day, if we have products which doesn't sell, and that's the way we've done it historically as well, we melt them down. But that's the last resort. So the first resort is to go on sales. David does, and does that well to clear stock. Second one is into the outlets, and then anything we have over, we re-melt.
Mm-hmm. So would you say the channel is clear now?
Well, I think that when you look at the products that we have launched and the development we've seen in those products, clearly, we have seen a little bit less of a consumer acceptance of those products. Whereas our view is that the products that we are launching in the beginning of this year, they seem to, at least in the very, very earliest days, get a lot of attention from consumers. We are always clearing products in our channels, and if we have a little bit extra to do because of that, that's what we have to do. But it's not something that we find is humongous. We'll see-
I'm sure there will be opportunities to discuss the Q4 numbers more when we come with those numbers in February.
Mm-hmm. If there's details around that, we can talk about it. Okay, so I think it looks like everybody's getting hungry or some are maybe looking at their plane. So thank you all very much for coming. It's been our pleasure to share our plans for the next five years with all of you. And thanks for being here. I hope many of you have the opportunity to stay for dinner. Otherwise, safe travels. Thank you very much.