Good afternoon, ladies and gentlemen, and welcome to Marimekko's Q3 Webcast. My name is Anna Tuominen, I'm the IRO of Marimekko. With me today we have our President and CEO, Tiina Alahuhta-Kasko, and our CFO, Elina Anckar. We will first hear Tiina's presentation about the results. After that, we'll have time for your questions. You can type in your questions already during the presentation on the webcast site. Tiina, go ahead.
Thank you, Anna. Good afternoon, everyone. It's my pleasure today to open up Marimekko's performance in the third quarter of the year. Getting started, looking at the big picture, the third quarter of Marimekko was a good one, despite the challenging circumstances as the coronavirus pandemic continued to heavily impact the fashion industry and specialty retail sector all over the world. Thanks to a good trend in wholesale sales and prompt adjustment measures, we were able to increase our net sales and improve our results in this challenging operating environment. At the same time, while the pandemic impacted our customer numbers in stores in the third quarter as well, our continued strong online sales supported our retail sales. Overall, the rapid adjustment measures and an increase in net sales improved our third quarter results.
Our fixed costs were also reduced by subsidies granted in various countries to mitigate the negative business impacts of the coronavirus pandemic. We can also see that in managing this exceptional crisis, in addition to us having a really topical, relevant brand, further gaining interest in its international attractiveness, paired with our ability to react swiftly in this exceptional circumstance, also amongst our strengths in this situation has been our comprehensive lifestyle range of products, as well as our diverse business and distribution channel model. Further, within the past months, in order for us to respond better to the requirements of this new operating environment, we have unfortunately been needing to initiate and conduct change negotiations in Finland as well as corresponding processes in our organizations in Scandinavia, North America, and Australia in order to reorganize and streamline our operations.
Now we have a new, even more customer-centric organization based on omnichannel thinking, and we're convinced that this organization will improve our operating capabilities in this highly transforming market. When looking into more in detail in the performance with regards to our net sales and operating profit first in the third quarter. In the third quarter, our net sales grew by 10%, driven especially by wholesale sales in Finland and EMEA. In total, our wholesale sales increased up to 37%, and especially in Finland we saw a tremendous growth of 66% during this period under review. In Finland, the strong wholesale sales were also supported to parts with non-recurring promotional deliveries.
As said, while the pandemic still heavily impacted in the form of decreasing footfall into the physical stores, at the same time, our retail sales actually ended up declining only moderately, namely 5% on a global level, due to the continued strong performance in online sales as well as total retail sales in Finland remaining on par with the comparison period, which is a great accomplishment in this highly challenging environment. What is good to also note is that the retail sales figures also include about EUR 1 million in sales, which were left unrecognized as revenue in the second quarter of the year due to the logistic challenges posed by the pandemic situation. When we look at the performance in the January-September period, our net sales in the end declined only 5%, but definitely the decline was due to the impacts of the coronavirus pandemic.
The decline in the net sales was offset to at least a good degree via the booming online sales and the strong trend in the Finnish wholesale sales that was partly also supported by the non-recurring promotional deliveries. Naturally, when we look at the full year, the first nine months, the temporary closure of stores and significant decline in the customer numbers caused by the pandemic did indeed have a clear effect on the retail sales. Therefore, when we look at the group's net sales, the decline was attributable especially to the decreased retail sales in Finland and North America, as well as a decrease in the wholesale sales in the Asia Pacific region.
What is good to remark, that actually in the Asia Pacific region, we also have an exceptional delivery pattern in the comparison period, which had a negative impact on the wholesale sales development compared to the comparison period. Overall, I would say really strong performance in this highly exceptional circumstance. When we look at the split between the different key markets, net sales split between the different markets, no major changes within the past nine months. When we look at the breakdown of net sales by product line, we have seen a tremendous increase in our home products, especially now in the third quarter. That is very logical, understanding that the pandemic has expedited the increasing interest of consumers towards home decoration.
Again, this is a great indicator of the strength of the Marimekko lifestyle business model that we're able to cater our customers also in this new situation. What is even more evident in our current fashion collection is this casual and relaxed look and feel, and that is definitely something that has appealed to consumers around the world. We can see that content of the collection is supporting our performance also in the ready-to-wear line. When we look at our global footprint, so in the first nine months of the year, 57% of the Marimekko stores and shop-in-shops are located outside of our home market, Finland, and we have a total of 151 Marimekko stores in 15 countries, while e-commerce serves our customers in 32 countries.
Our brand sales increased in the first nine months by 18%, and in Q3, around 62% of our brand sales came out of our home market. We can definitely, when we look at the first nine months' performance of the brand sales, which consists of the estimated sales of the Marimekko products at consumer prices, we can see a nice uptick in the brand sales, especially in Asia Pacific region, which is our second-biggest market area. When we look at our operating profit, so as said, thanks to the prompt adjustment measures and increased wholesale sales, we were able to strengthen our operating profit from EUR 7.8 in the previous year, or in the corresponding period previous year, to EUR 10.5 million.
The earnings, as said, were boosted by a considerable decrease in fixed costs due to the adjusted operations. The decreased fixed costs were also supported by the subsidies granted in various countries to Marimekko to mitigate the negative business impacts of the coronavirus pandemic that we've been confronted by this year. A decline, however, in the relative sales margin had a weakening impact on the result. This was due to the higher logistic costs attributable to the increased online sales. When we look at the year to date, so the first nine months, so of course, we're very proud of the fact that we were able to strengthen our profitability in these challenging circumstances, our operating profit increasing to EUR 14.4 million. It's pretty much more or less the same drivers behind.
Naturally, the earnings were boosted by the considerable decrease in our fixed costs, thanks to the prompt adjustment measures that we've been agilely taking starting from the beginning of the year. However, we did see a decline in our relative sales margin, again, mainly due to the higher logistic costs resulting from the increase in online sales, as well as reduced net sales had a weakening impact on the results. Looking into some of the key events in the third quarter. Very exciting was that actually in the early fall, we gave the first sneak peek to next year, to the 2021 collections of Marimekko. The 2021 year marks quite a special year for Marimekko because it is our 70th anniversary year.
We gave a little teaser on our collections in this anniversary year by organizing a digital presentation of our pre-spring 2021 collections at the Copenhagen Fashion Week, which currently is considered as one of the top four in global fashion events. This digital presentation was filmed here at the Marimekko House at our textile printing factory, really celebrating our key differentiating point, our unique art of printmaking. This digital format really allows us a great opportunity not only to talk and present our collections to our industry media and other professionals, but also to our consumer audience. This way, further strengthen our important values of inclusivity and equality.
What was also quite a fun detail in the presentation was that to really pay tribute to our commitment to timeless and long-lasting sustainable design, the new pre-spring 2021 collection looks were styled together with some vintage gems from our archive. The fun part is that it actually is quite difficult to say which one of the products is new and which one is from the archive due to the essential timelessness of our products, which is extremely topical, especially today. Beautiful news also in the third quarter was that our work together with the Finnish fiber technology company Spinnova was recognized in Fast Company's reputed Innovation by Design Awards. We were chosen as a finalist. This award came from the work that we have done together with Spinnova.
It was in February 2020 when the Marimekko prototype outfits produced as part of the collaboration, namely the first ever printed clothes and bags made of Spinnova's sustainable fiber, were introduced. Overall, the Spinnova fiber really is a great example of a very promising new sustainable material innovation that we believe that can tremendously, once commercialized, impact the fashion and textile industry by reducing its environmental impacts. As mentioned earlier on, in order for us to better respond to the intensified pandemic, expedited, intensified structural changes in our industry, as well as dramatic transformation of consumer behavior, we needed to initiate change negotiations in Finland and corresponding processing in our organizations in Scandinavia, North America, and Australia in August to reorganize and streamline our operations. Actually then in October, we were able to announce our new, even more customer-centric organization based on omnichannel thinking.
We believe that this new organizational model paired with our long-term strategy we have a strong recipe in mitigating also through the exceptionally uncertain times created by the pandemic, and operate successfully also in the new realities that arise from all of this. At the same time, we also had a couple of changes in our management group, namely Dan Trapp starting as the Chief Sales Officer actually a couple of days ago now, and Sanna-Kaisa Niikko starting in the Chief Marketing Officer position already before mid-October. When we briefly look into our outlook for the remainder of the full year 2020. As we've overall stated also before, the coronavirus pandemic is the worst crisis experienced by our global fashion industry in decades, and it has indeed taken uncertainty over the global economy to a completely new level.
Definitely that has an impact on consumers' purchasing behavior. It's evident that these exceptional circumstances can have an impact on our sales profitability and cash flow, and they may also affect the operational reliability of our value chain. When it comes to the depth of the economic recession in different markets caused by the pandemic, naturally the duration of the pandemic, the infection waves, and the way that the crisis is handled has a big influence in that.
When we look into our two major markets of Finland and the Asia-Pacific region, if we start from Finland, which traditionally as our home market represents around half of our company's net sales, the outlook of our domestic market and therefore the company's consolidated net sales and earnings are influenced by the trend in customer numbers in retail stores during the rest of the year, and whether online sales continue to perform well. What is good to note and remember is that in Q4, many of our significant sales campaigns are taking place. What we have also informed about before is that the domestic wholesales in 2020 are boosted by these non-recurring promotional deliveries, the total EUR value of which will be substantially higher than the last year and the vast majority of these deliveries taking place in the second half of the year.
If we look into the Asia-Pacific region, our second largest market area and playing a crucial role in our internationalization, when we look at the impact of the pandemic to the year 2020 in this market area, we see that the possible new infection waves and the speed of recovery from the pandemic in the different countries can affect especially our company's sales outlook for the coming year in the Asia-Pacific region. Overall, despite the pandemic, we do at Marimekko see increasing demand for our products in the region in the longer term view. We have, as many of you might know, last year become aware of some unfortunate cases of gray imports and have taken due action on these control measures we estimate to have a clear weakening impact on our company sales and earnings in 2020.
What is positive though is that the licensing income for this year is now forecast to be higher than in the previous year, thanks to the better than expected estimated development, really speaking actually for the growing interest towards our brand. The import of e-commerce in our company's business has continued to grow in 2020, and we do expect the online sales to perform well also in the last quarter of the year. Overall, when we look at our full-year outlook for retail sales, that essentially depends on the return of customer flows to stores during the rest of the year in each market, as well as the possible new infection waves, which may or may not require temporary closures of Marimekko's own retail stores.
As said, due to the non-recurring promotional deliveries in Finland, or these non-recurring promotional deliveries in Finland wholesale, those will be supporting our full-year wholesale sales altogether. It is still in our plans to open approximately 10 new Marimekko stores and shop-in-shops in 2020, with the main thrust of them being on retailer-owned Marimekko stores. What is positive is that to date, these exceptional circumstances created by the pandemic have had so far only minor impacts on our supply chain. However, in the early part of the year, we did indeed face challenges to our logistics due to the exceptional situation. The net sales and earnings for the rest of the year do essentially depend on maintaining the operational reliability of our distribution centers and logistics in the pandemic situation.
Furthermore, as a result of the growth in online sales this year, we do expect the full-year logistic cost to increase noticeably compared to the previous year. Fixed cost, as you know, we've crafted up early in the year an ambitious fixed cost savings plan to adjust our operations to the new reality. We do expect our fixed cost to continue to decrease during the remainder of the year compared with 2019. In addition, also marketing expenses and investments are estimated to be lower than in the previous year. We gave our financial guidance to the market in mid-September when we concluded that we have better visibility now to estimate the impacts of the pandemic to our business. Today, we have reiterated that we expect our group's net sales to be lower than in the previous year in 2020.
Comparable operating profit is also estimated to be approximately at the same level as or lower than the year before. Net sales are expected to be lower than the previous year and comparable operating profit to be approximately at the same level or lower than the year before. Maybe now it would be time for some questions.
Thank you, Tiina.
Thank you.
We have a few questions here already, but if you would still like to ask questions, please type them in the message board. The first question is actually a follow-up on the outlook. Detailed question related to gray imports.
Yes.
Gray exports. The question goes, you're still indicating that they will have an impact. What are they related to and what's exactly going on? What are gray exports and what's happening?
Yeah. What gray imports or parallel imports or exports means is that Marimekko has a selective distribution system. We basically have a set of requirements that any kind of distributors or retailers need to comply to in order to be able to be our resellers. In the Asia Pacific, our loose franchise partners are our exclusive distributors. What we have now found out is that in some of those markets, there have been some resellers selling our products who are unauthorized. Basically, we're talking about the sale of original Marimekko products, but the sellers are unauthorized sellers.
There's also a question related to our new digital platform, new online commerce site. The person would like to know a bit more about our plans online and digital services coming in 2021.
Yes. Okay. This is a great question as well. It goes without saying that the role of digital commerce has been only increasing in its importance, especially now in 2020, but also years before that. Because of that, we've been actually, luckily, already for multiple years, been investing in the development of digitalization at Marimekko and overall online commerce, may it be our own, but also e-tailer business. As announced also in today's interim report, we are planning to revamp our online flagship experience at the beginning of next year. In our industry, it is super important for us to be always on top of our game when it comes to omnichannel customer experience. Basically, the online flagship renewal is part of this ongoing work that we're doing.
Of course, now with digitalization further being amplified during the course of 2020, this is an area which we are now studying rigidly in order for us to be able to provide the best possible inspiring and customer servicing experience, may it be in our online store or in the physical store. Naturally, the overarching being that we want to develop the seamless omnichannel experience to our customers.
More details then later.
Yes.
There's also another question related to that, e-tailers. In Sweden and is expected to target also Finland, which is one of our biggest markets. Do we have an Amazon strategy is the question, or How do we expect this to affect our online sales?
Yes. I think that this is, for example, Amazon now spreading into further markets, this is a result of the ongoing sort of amplification of digitalization in the marketplace. It goes without saying that at Marimekko, it is super important for us and our teams to have a close eye on the developments in the digital sphere of the business and digital marketplace of our business. At the moment, when we look at the digital channels, of course, the most important digital channel for us today is the Marimekko online store. That's the kind of heart of our online community, and that's very often the case, the first touch point in the consumer journey to our brand. While we invest in the development of our own channel, we do see opportunities also within e-tailers.
Also, due to the opportunities that they allow for us to recruit also new customers, while being sales channels, they're also marketing channels for us. Today, also the digital marketplace of our industry is highly developing and disrupting. We monitor the situation very carefully and then align our approaches.
Do you expect this to have an impact on our own online sales or overall profit margin in this region?
The Amazon coming. Well, I think that's too early now for us to say, but as I said, we need to keep on monitoring the development of the overall digital marketplace. As I said, today our main digital channel is naturally the Marimekko online flagship store, while at the same time we do make efforts to also increase our e-tailer presence.
Yes. There's another question related to brand sales. Brand sales were up nicely. While overall sales, cumulative sales, were a bit down. Can you explain the difference?
Yes. And maybe Elina Anckar, you can also pitch in here, but basically, in a sense, the brand sales are the Marimekko sales converted into retail sales across touchpoints. It sort of measures the reach that our brand has. For example, in the Asia-Pacific region during the first nine months, we've accumulated nice licensing income. That is also something that can then translate nicely into brand sales. Elina Anckar, would you have anything to add?
No, I think you put it-
Yeah
In a good way.
You can join here as well.
Yes. I will join you here.
Yes
time to breathe as well.
Yeah.
Yes. Any questions?
Wholesale sales also play a role in brand sales.
Yes. Definitely.
Exactly the same method there.
I have a question for Elina as well, related to inventories.
Yes.
Is there a need for discount sales or are inventories at a healthy level after weak sales figures in the spring?
As you can see, our inventories are at the end of Q3, they are EUR 2.6 million above last year. The situation has improved since the end of June. Knowing that our products are timeless, we have more time to sell them as well, also knowing that we have an.
Outlet
outlet chain visible in Finland, so we have the tools to actually sell them out and also we can utilize them in different campaigns. Yes.
In the Q3 result included, or the fixed costs were also reduced by some subsidies received in different markets. There's a question, can we expect subsidies also for Q4?
That's a very good question, and actually that is very much related also for the fact that how does the second wave of COVID-19 will continue in different markets. We've been getting subsidies in those markets where we actually run our own retail. In case those governments in those countries will grant more subsidies, of course, we will seek for them as well.
In the report, there was a mention about significant sales campaigns in the last quarter. Can you give any updates on that? What kind of are they or.
Yes. Overall in our industry, the fourth quarter is known to be a really important sales period, and I think that within the past years, there are more and more sort of industry related campaigns that take place during this time. In addition to the obvious holiday sales, there are the Black Friday, for example, at Marimekko, we have always typically had our Friendship Sales during the fourth quarter of the year as well. These are just some examples. Overall, the fourth quarter represents an important time for sales.
There's a question about the licensing income. At the beginning of the year, Marimekko estimated that it would be markedly lower this year. Q2, the licensing income outlook was bit upgraded to the similar level. Now in Q3, the report says that the licensing income is expected to be higher than previous year. Can you walk us through what has happened during the year with these licensing income expectations?
Actually, the answer is quite short. Our outlook has improved during the course of the year, and I think that this is a good indicator of the increasing interest, international interest to the Marimekko brand. Actually, we started the year with a more negative outlook, and during the course of the year, the outlook when it comes to the anticipated licensing income for the full year has improved, and now we expect it to be higher than in the previous year.
There's one final question, if no more questions will come, is about the one new product categories or new product development. How do you approach, in general, opportunities to enter new product categories and in specific, there would be potentially demand for Marimekko-branded face masks, for example. Why haven't you capitalized on that yet?
Overall, if we look at the big picture, and as what I mentioned at the earlier part of the presentation, is that we have seen that in the mitigation during the pandemic crisis, what has really played to our advantage is the comprehensive lifestyle portfolio featuring the three product lines, namely fashion, bags and accessories, and home.
As said, and as visible in the third quarter results, is the consumer's increasing interest in home decoration, which we've been able to really nicely capitalize on, knowing that we are known to be one of the first real lifestyle brands in the world who has had also home as part of our offering ever since the beginning w ithin the last years, understanding that we have a wide offering of products, in order for us to really celebrate the hero products of Marimekko, we have been actually optimizing our lifestyle portfolio quite a bit. Meaning that we have been quite careful when it comes to adding new SKUs or new product lines.
We have believed that by focusing, we can create even better hero products within our collections. That sort of philosophy really holds true even today, and I think that going ahead it will be a strong asset going forward as well. Having said that, of course, it is important for us and our design to keep constantly on the pulse of our consumers' preferences and needs and maybe changing daily lives. I think what is fascinating is going to be to see how the pandemic may be for a longer term perspective impacts the way that consumers lead their daily lives and what is important to them. With that, of course, we need to then understand whether there are new opportunities where we could become present in the lives of people, and then obviously tap into those opportunities.
It's continuous work that we're doing, but overall, our intention is not to spread the lifestyle portfolio more, but rather to focus and really celebrate the timeless, long-lasting, sustainable, classic hero products.
Thank you, Tiina. Thank you, Elina. We have no further questions at the moment. I would like to thank the audience as well. We hope to see you next time with our Q4 results.