Welcome and good morning to this presentation of Clas Ohlson's Q2 report for 2018/2019. Let me start by saying that we had hoped for a slightly better underlying EBIT, due to soft sales in September, we land at SEK 124 million. Despite this, we follow our plan to deliver 4%-6% EBIT margin during 2018/2019. Also, this morning, the Clas Ohlson board has taken a decision regarding a new strategy for our international presence. This means that we will focus our business outside the Nordics on online. Another consequence of this is that we will close our store networks in the U.K. and in Germany.
This will have a positive impact on EBIT of SEK 75 million once the store network has been closed, and there will be a cost attached to this at maximum SEK 210 million. Looking at the agenda for this morning, I will start with a business update, then hand over to Pär to do the financial development update and a little bit about the events after the reporting period. We will finalize with the summary and a Q&A facilitated by Niklas Ekman from Carnegie. Starting with a little bit regarding the results from the second quarter. The second quarter, we are following our plan, and we report organic sales of 4% and online sales of 33%.
For the first six months, we achieve our sales goals of organic growth 5% and online exceeding 50%. All in all, this leads to an underlying EBIT of SEK 124 million. In Q2, we have also followed through on our implementation plan of the new strategy. As we informed about in the report for Q1, we have now a program for implementing the new strategy called Clas Ohlson 100+. We have during the quarter invested SEK 90 million in the program, and it's been mainly focused on lifting our online capability, and I will come back and explain a little bit more in detail exactly what it is that we have done. Adding together the underlying EBIT of SEK 124 million and the investment of SEK 90 million, we arrive at a reported EBIT of SEK 33 million for the quarter.
Then looking at online a little bit more specifically, we have a goal to double online sales every other year, meaning increasing yearly by 50%. The first six months, we achieved this with an online increase of 51%. We are still in the beginning here, of course coming from low level, but we can also see that our efforts are paying off. What is it then that we have done? I would like to spend a couple of minutes on explaining a little bit more in detail what we have done. This is also to give you a very concrete example of what we are using the investment of 1%-2% of the underlying EBIT in.
We have in the first and second quarter this year been focused on lifting the conversion of the traffic to our online site, as well as improving the technical stability of the site. Starting with conversion, that work has been focused on two main areas. One is to secure that we have a competitive offer when it comes to the fulfillment of online orders. We now have same day or next day delivery capabilities, either through click and collect or through last mile transportation providers in the metro areas in all our markets. This is a capability that was implemented last week, and that is an important part of the plan for Christmas. It also means that we actually have eight extra trading days on e-com this Christmas compared to last year.
Another important step in increasing conversion has been the implementation of a new search engine and an improved navigation. The new search engine is more intelligent and takes learnings from customer behavior in order to refine the search for the customer when entering the site. The technical stability that has been a lot about securing the capacity of the site and the speed of the site. This is, of course, generally as we are now increasing sales, but it's also to handle peak season. Talking about peak, I would like to take a couple of minutes on the results from this year's Black Friday. What you see on this slide is a comparison of the performance online this Black Friday compared to previous year, 2017. Starting with the visitation, we saw a 41% increase of visitation to our site.
This is a result of the change in brand building approach and marketing approach that we have made that we see materializing significantly online. If we then look to the left, you can see that people actually spend more time on the site. They browse more, and the sessions last longer. This is an improvement of the experience which comes from both improving the content side, but also the search and the speed of the site. Finally, to the upper right, you see conversion increasing 63% this Black Friday compared to last year's Black Friday. As I've already mentioned, this is an important step for us, and it comes from the efforts that have been made on the checkout part of the site. All in all, we increased the transactions this Black Friday with 196%, and sales were up 191%.
It means that this was the second biggest online trade day in Clas Ohlson ever, with only our birthday in June being bigger. I would like to take a step back and just briefly recap the Clas Ohlson 100 + program that we presented in Q1. This is a program where we are investing 1%-2% of the underlying EBIT in initiatives that have two objectives. One is to reduce our cost with SEK 200 million-SEK 250 million, and the other purpose is to drive growth for the future. All together, these initiatives will enable us to achieve 5% average annual organic growth within the current five-year period. It will also enable us to reach 6%-8% EBIT margin from 2021 and onwards.
Updating a little bit, on what we have done during the quarter on the cost side, first of all, we confirm the potential of SEK 200 million-SEK 250 million in savings. During the quarter, we have started an organizational review, and we are just in the middle of it. This is about ensuring that we have an efficient organization. It's also about making sure that we now harvest the potential of the big investment that has been made in the new IT platform sCORE. Another important part of the cost initiatives is to optimize the assortment. We're doing this in a systematic way, category by category, of course, with the purpose to drive sales, but also with the purpose to improve the level of our purchase prices.
We have during this quarter renegotiated SEK 500 million of COGS. We see good savings coming out of that. Finally, we're pushing ahead with reviewing our spend on the indirect side, which amounts to in total SEK 1 billion. That work is progressing very well. Commenting then, on the growth initiatives, an important part sits in increasing sales per square meter. Here, we are constantly working on optimizing the store network, tracking store by store, red, yellow, green, and have action programs in place for each and every store. We're doing this within the existing contractual contract set up. As I just mentioned, we're optimizing the assortment category by category. We will now implement the first part across the store network here, that is within the Multimedia segment.
We're also implementing now the sCORE capability of being able to tailor assortment store by store. Secondly, sales per customer is another ambition that we have. Important steps here have been to improve the cross-selling across the categories. As you might know, our stores are very organized category by category. We are now taking steps in how we do our sales solution and merchandising solutions and in improving the cross-selling between different categories. Another important step during this quarter was the launch of Clas Fixare on the 26th of November, and that was preceded by a pilot during Q2.
Online, I've already talked a lot about, but let me just add that we are pushing ahead with the pilot with Amazon online in the U.K., as well as we have done now a big marketing campaign together with MatHem, and we see significant increases in that business also. That concludes the update on the Clas Ohlson 100+ Program. I would then like to go into a big decision I think that was taken this morning. The Clas Ohlson board decided this morning to adopt a new strategy regarding our market presence. As a starting point, we have concluded that Sweden and Norway are highly profitable businesses. They are growing well, and we have a clear plan for the future in how to continue that development.
When it comes to Finland still have big potential in improving profitability-wise to be on the same level as Sweden and Norway. We do not see any reason for Finland not being on par with Sweden and Norway. We are now taking more steps here and investing both management resources and attention to make all of this happen. Thirdly, we see that the international approach that Clas Ohlson has must change. We see customer behavior changing more quickly than ever. We also see that our performance in U.K. and Germany is not on par with our expectations. We have therefore decided to focus our international expansion going forward online. This is consistent with the strategy we have already put in place.
To comment on the markets, you can say that in the U.K. we have had stores present now for 10 years. We had to have step at a time, taken big and significant measures to improve the profitability, but it's not been enough to stop the losses. In Germany, we have run a pilot in Hamburg with four stores. We can conclude now that this pilot do not show enough potential for profitable growth to continue. We have therefore decided to close all stores in the U.K. and in Germany. Approximately 150 Clas Ohlson coworkers are affected by this decision. We see a maximum cost of SEK 210 million to close these costs.
This is of course now subject to negotiation with each landlord to find the most optimal solution for how and when to do the closing. This closure will have a positive EBIT impact of SEK 75 million once the store closure has been performed. We have decided to operate the online business in U.K. and Germany from the U.K. This means that we will close down the headquarter in Germany and run everything from the U.K. This is of course because it makes it much more efficient. I think also important to mention, it makes us present in, as I see it, the most advanced e-com market in Europe, namely in London, in the U.K. This is a big advantage not only for U.K. and Germany, but also for Clas Ohlson in its totality.
To sum up then the financial impact of all of these things, as I've already said, the implementation of the Clas Ohlson 100+ Program is proceeding according to plan. We are investing 1%-2% of the underlying operating margin. All according to plan, SEK 90 million this quarter. We confirm the cost savings of SEK 200 million-SEK 250 million. This is not yet materialized, which we have also already informed about. It's all according to plan, the full of the effect of this will be seen in 2021. We have growth initiatives running, all according to plan. We see that we, during the first six months, deliver our sales targets of 5% organic growth and exceeding 50% online sales growth.
All in all, this then sums up to an operating margin of 4%-6% for 2018-2019 and for 2019-2020. On top of this, we are now taking another measure to make sure that we can deliver the 6%-8% EBIT margin from 2021 and onwards, and that is the closure of the store network in the U.K. and Germany. This means that we do a one-off reservation for the closing of maximum SEK 210 million, and we then have an upside of SEK 75 million hitting the bottom line once the store network has been closed. That sums up the business update, and I will now hand over to you, Pär.
Thank you, Lotta. Moving on to the financial development. Sales for the second quarter increased by 8% to SEK 2.157 million. We saw growth in online, up 43%. Moving on to the sales per market. We saw increases of sales in Sweden by 4%, in Norway by 5%, and in Finland, we had a flat trend. Outside Nordic, it grew by 7%. Looking at the first half year, sales were up 9% to SEK 4.115 million. Online grow more than 50% according to our target. Looking at organic sales, it was up 5% also according to our target, this was a good first half year.
We had 14 additional stores summing up to 237 stores in total. Looking at the gross margin for the second quarter, it went up to 41.6% compared to 41.2% the previous same quarter. This was because of positive effects from the strong NOK affecting the sales and a weaker U.S. dollar affecting the purchase, and also from pricing and increased profitability from our campaigns that is part of our program. On the negative side, we had the FX hedges on NOK balancing the positive effect and also currency effects related to the delays in the inventory and sourcing cost. But all in all, you can see we had a little bit of a trend break for this quarter compared to the previous years.
Looking at the share of selling expenses, it went up 4.9% units, according to our plan, to 36.5%. This is because of the Clas Ohlson 100 program, as Lotta mentioned. Also, because, you know, in this quarter, we have, as shown by the slide, for e-com, for example, we have increased the capacity and the capability for e-com in the platform, also in the physical capacity in our distribution center. We also had commercial activities in marketing and brand building not affecting the gross margin, affecting the selling cost. We want to mention that this is also affecting the third quarter.
We're building, just not for the second quarter, but also for the third quarter, which means that this is a little bit higher probably than expected from the markets. The administrative expenses went up SEK 10 million according to our previous communication. The overall profit for the second quarter amounted to SEK 33 million and the underlying result was SEK 124 million adjusted for the CO100+ program, non-recurring and one-offs as previously mentioned by Lotta. This means that the underlying EBIT margin was 5.7%. Looking then at the first half year, the operating profit amounted to SEK 65 million compared to SEK 225 million the previous year.
Adjusting for the CO100 program and the other underlying effects, we ended up at SEK 186 million compared to SEK 240 million the previous year, and we are on an underlying EBIT margin of 4.5%. The investments for the quarter amounted to SEK 117 million, and the main areas were new stores and refurbishment, SEK 32 million, and IT systems, SEK 52 million. The financial position is still strong. We have cash flow from operating activities was negative, SEK 89 million compared to a positive cash flow the previous year. Inventory is up to SEK 2.345 million, and this is due to build up for the mainly the third quarter here with Black Friday and Christmas.
We also have 14 more stores than last year. Also worth mention is having a separate e-com assortment that also affect this. We're building up for this third quarter all in all. Looking at net debt, we had a negative net debt of minus SEK 486 million compared to a positive cash position the previous year. Right now, we have approved credit facilities of SEK 750 million . Moving on to events after the reporting period. November sales that we released today was up 10%. We grew in all areas. Sweden by 10%, Norway by 11%, and Finland by 5%, and outside Nordic countries by 17%. Organic sales were up 8%, like-for-like, up 6%.
We had a very strong November sales quarter, month, sorry. Handing over to Lotta.
Thank you, Pär. Just summarizing a little bit then. First of all, Q2 is according to our plan, both in the running business but also in the strategic development we are doing. We are investing 1%-2% of the underlying EBIT margin. As you have seen from the presentation and the report, it's a little bit front-loaded, exactly as Pär has explained as well. Of course, the purpose with this is to get the upside of these investments as quickly as possible going into the so important Christmas trade. We also see that the growth initiatives bear fruit. Black Friday is a good example of that. We confirm the SEK 200 million-SEK 250 million in cost saving potential.
Finally, we have taken another important step on our journey to profitable growth, and that is the new approach for international expansion, which will allow us to grow internationally in a more cost-efficient and scalable way, but also with a lower financial risk attached to it. That concludes the presentation of the report. Niklas, please.
Thank you. I'm Niklas Ekman here from Carnegie. I'll be leading the Q&A session here. Starting with the second quarter here, just to clarify, when you're talking about fairly strong gross margin development here, this is in a quarter where you've been still very aggressive in terms of campaigns, is it right to assume that when you're the costs that have been taken in this quarter that have mainly affected OpEx, those are not including any price reductions or anything? Basically the price reductions are lower in this quarter compared to the corresponding quarter last year, and the OpEx increase is due to investments and increased marketing activities. Is that the way, right way to look at it?
I think it's a good conclusion. If I start a little bit, I think we have said the last quarterly reports that we are doing a lot of work on actually optimizing the promotion side. Even though you as a customer might, which is good, see that you get a lot of competitive offers, it might be that that is not spread in the way it used to be spread. We're also doing this in a smarter way, and so I think we see some effects of that. Then as Pär said, the OpEx side is also impacted by the fact that a lot of the online investments and the production of the marketing that is aimed for Q3, that cost is actually taken in Q2.
Mm-hmm.
It's a little bit skewed from that perspective.
Yeah. I guess, a follow-up there also that you, in the coming quarters, we should also expect, or we could expect that the campaigns are not going to be a further, driver downwards on the gross margin. Is that the safe way to assume?
We continue to work with optimization. I mean, we have communicated very clear frames for this work and those we will stick to.
Yeah.
I think you can also mention if you see it as two steps. I mean, the first part is to drive traffic and to create awareness of Clas Ohlson, and I guess, looking at the selling costs, that has been also affecting the quarter. You can see by the slide Lotta showed about Black Friday that we have actually drove more traffic. The second part is affecting gross margin is actually the pricing where we increase, sometimes increasing price, but we're also more targeting in our campaigns, affecting the overall average.
Mm-hmm.
Okay. This has been kind of a year of transition starting from Q4, where you saw a significant decline in profitability.
Mm.
This is the third quarter.
Mm.
I assume that the fourth quarter or, sorry, the, your Q3 will be the fourth quarter with also fairly significant costs related to this transition, and then you have annualized this, and gradually we should start to see improvements. Is that the safe thing to assume?
Yeah, the program lasts for eight quarters. During those eight quarters, we will invest 1%- 2%. After these eight quarters, that goes away.
Mm-hmm.
At the same time, we have communicated very clearly a cost reduction of SEK 200 million-SEK 250 million. It's actually a double effect going into 2021.
Yeah
... on the positive side, so to say, and then growth 5%.
That was kind of a follow-up on those cost reductions because obviously you have taken on a lot of costs in the last couple of quarters, but this SEK 200 million-SEK 250 million is not just taking away.
No
... some of those costs.
That's why I'm trying to be clear that the 1%-2%, that investment will not happen after the eight quarters. I mean, part of that investment is to take down the cost level. That's why you will see what I would call then a double effect.
Mm-hmm.
Yeah.
also just to be clear, the SEK 75 million you're looking at in savings now-
Yeah
... from the U.K., German business-
Yeah
is on top of
Yeah
the SEK 200 million-SEK 250 million.
Yes. Yes.
Can you say anything about how the dismantling of these stores, what kind, what is a realistic plan? Will this be basically a big one-off cost in Q3 and then that provision will then be eaten off, so there will not.
Exactly.
Basically from Q4-
Yeah. Yeah.
there will be no losses.
Yeah
... in U.K., Germany?
As Lotta said previously, each discussion with each landlord will be dependent on the contract and some of these contracts will end pretty quick with breakup clause, with no drama, and some of them we need to discuss how to end this. We want to give our team the best possible way to do it in a commercial way and also for the landlords the best possible way.
Mm-hmm.
We don't think it's unreasonable to have concluded this at the end of this financial year.
Yeah. Concluded meaning that the last store will be closed by April?
Mm.
Okay.
Yeah.
In U.K., Germany, unless I'm mistaken, the aggregate losses are now amounting to somewhere in the range of SEK 1.5 billion. Is that anything, those losses, anything that you can use going forward in terms of the tax loss, or will that be very complicated given that it's outside the Nordics?
I will not go into the tax setup, of course, some of these losses has been used, closing the U.K. stores in the past and we have a setup where we want to benefit as much from, as possible from that.
Okay. Also on November sales, obviously very strong, how much of this was driven by Black Friday? Have you seen a general improving trend in November, or is this very much Black Friday related?
I mean, as I said, Black Friday was extraordinary. It was actually, if you, if you combine online and store, it was the second-biggest sales day in Clas Ohlson ever, so of course significant. It's not as simple as that, actually. We saw a very, I would say, a very good trend in general, in November.
Okay. In terms of profitability, is Black Friday very negative for you, or can you drive sales strongly and still have decent profitability?
I mean, it's all about gross profit and bottom line.
Mm-hmm.
That's how we run the business, also Black Friday.
Mm-hmm. Good. Let's see if we have questions. Yeah, Nicklas Fhärm .
Thank you. Nicklas with SEB Equities. I'd like to ask about cash flow and dividends. Now you have SEK 490 million in net debt, which is, like, SEK 730 million increase from net cash a year ago. Cash flow after first six months is negative SEK 90 million. My question is, how much of the SEK 210 million is cash costs? To what extent would you prioritize, on top of coming extraordinary costs and the starting date today, to pay out the SEK 395 million in cash dividends as it did last year? Which I believe is the guidance.
Mm-hmm.
Let me start by looking at the second quarter. It's the quarter where we have paid out the dividend. We're building up the inventory for the third quarter. It's a heavily burdened quarter that we look at right now. That is an important aspect. Looking at the U.K. and German closure, I mean, you can see it's the landlords, it's the staff cost and, of course, there's some inventory and other balance sheet items that are non-cash. The three parts. We will come back in the third quarter by the composition of that, so you can look at that and do your analysis. Of course, everything is not cash related, as you say.
Mm-hmm.
Going back to the dividend, we have, you know, previously mentioned that, and of course, everything will always be a matter of the AGM at the end of the day, so I will not comment on that at this stage.
Okay. If I may, one more question. Could you provide us with... Because I think the gross margins is sort of, the main surprise in these results today. Could you provide us with a little bit more insight on the gross margin bridge, please?
Mm-hmm.
I had assumed that you would have a fairly positive impact from FX.
Mm-hmm
... in terms of U.S. dollar sourcing in particular. Could you walk us through how you end up at plus 40 basis points?
I will try to do the basics. As we show on the slide, it's on the positive side, we had the NOK affecting it, and of course, the hedges we have on NOK. NOK has gone up, and just the three, you know, last weeks has gone down. We had the positive effect of the NOK. Little bit balancing then on the hedges for the quarter, and then we had the U.S. dollar affecting the this positive.
I think the part where you have not probably looked at is the price and the campaigns where we have been more, I guess, in the past, not for all markets, increasing the prices or driving these campaigns in such a sophisticated way, which means that we're balancing up the starting position a little bit more than we expected, probably. That was then balanced by the, some, as I said, the hedges from NOK and, what's left in the inventory from the past going through the system.
Mm-hmm.
Just to ask, it's price increases?
Just a quick follow-up. price increases is one of the-
Yeah. If you look at on the average level, I mean, the prices itself, but also the why we, the way we drive the campaigns, that has been, in the past, a little bit dilutive, so to say, which means that average price goes up, both from a starting position, but then also from after the campaigns. I guess that is a little bit of a new factor coming into, to your calculations. We have mentioned it as part of a program that we will work more analytically in this area.
I think it's important more to maybe answer a question that you're not asking, but still, it's not, we're not inflating growth by huge price increases. That is not. It's more an optimization because we believe in the competitive landscape, there's not really room for that, but you can always optimize.
Yeah. Yeah, we couldn't grow this much if we weren't competitive. Yeah.
Mm-hmm.
Thank you. Magnus Råman, Handelsbanken. you mentioned that the sharp rise in OpEx here, you mentioned investments in Insjön, in your fulfillment capacity or your delivery capacity. Can you elaborate a little bit about these investments? Aren't part of those investments coming as CapEx? Is everything OpEx?
In this sense, it's capacity for delivering out mainly e-com and also flows, which means that in September, October, you build capacity, you hire more people, you train them, and you educate them, that you can utilize then in the Black Friday and during December sales. We have a very heavy peak, and we don't have that as a normal manning. That will be, you know, hitting before we need it, we need to build it. That is hitting the second quarter, and then the real use or the will be used in the third quarter for the DC.
I mean, since we should expect higher online volumes continuously in the company, should we expect also higher staffing to handle these volumes? I thought you'd previously talked about improving the Insjön fulfillment center in terms of machinery.
Yeah. I think you can see it in certain steps. First step now is to secure the what we have, and this third quarter, which we are focusing a lot on.
We can use what we have. You know, increasing the volumes to our target to have e-com of 15% of sales, then we're up at SEK 1.5 billion , we can have more automation. The second step is to optimize the flexibility with the workforce planning, you know, do minor automation, optimize the flows. Right now we're moving out from the first step, going into the second step, doing that. We're coming from where e-com was very small, and it was quite, you know, stable flows out from our distribution center, where it's much more need of flexibility both for the week, the month, and also for the year.
That's some areas where we work a lot on. We cannot have this, you know, as a fixed manning, and we cannot have, you know, people coming in the same day because it's quite complex. We're working quite hard on getting this, you know, as the industry as such with the Black Friday and Christmas, you need to balance that.
If I interpret you right, the interim period where you will sort of use extra staffing to handle rising online volumes may last for several years before you take decision to...
No, no. I guess the overall trend for e-com is going up. For each step of this, we can invest in more automations. Right now, the volumes may be not enough for that. Now we work with workforce planning and flexibility in our agreements to make sure that we can ramp up and ramp down. That, I think, is the same for the industry. I think Amazon announced that they hired 300,000 people for Christmas, and then they're looking at automation to reduce that. I think that's a retail, you know, issue right now with peak sales, and we're doing the same.
Right. Then on the opportunities in Finland, you mentioned-
Mm.
opportunities to set up a sign here.
Mm.
improving profitability.
Mm.
Can you elaborate a little bit more about what measures you see?
It's primarily about increasing sales per square meter. That is the parameter where Finland is not on par with Sweden and Norway. I think there are two main levers to that. One is, of course, to review the square meter part. There we have a quite intense effort now to look at the store network and use every opportunity that we have to adjust that. That is one part. I think the second part is regarding the assortment because, believe it or not, even though it's a one-hour flight, they do consume a little bit differently our products. I think there is also an opportunity to actually have different assortments taking a little bit of a different position in Finland compared to Sweden, Norway.
We will also levers. It's not so much a cost issue, it's more a sales per square meter issue, and this is where we now need to just take action on this.
This action, it could be also store closures of complete stores, or is it mainly reducing surface?
I mean, it comes back to what I've said, before, that the store optimizations, we take care of that in detail. We look at store by store, and it can be about renegotiating the rent, it can be about the surface, it can be about, actually relocating. We will use all of the tools that we have to optimize. I don't exclude any measures to actually move the profitability in Finland in that sense.
Okay. Just finally, on U.K. and Germany, did I get you right that already by the end of this fiscal year you plan to have every 10 store closed?
Yes. That is the ambition.
Thank you.
Of course, we will not take stupid decisions, so that is why we need to have the process with the landlord running now. We don't think that that's unreasonable.
Thank you. Andreas Lundberg with ABG. When do you think you will see the cost savings coming through from the SEK 200 million-SEK 250 million program?
Full effect in 2021. As I mentioned in the presentation, I mean, we are already now we have a big part of COGS that is being renegotiated. We are addressing the indirect spend. Of course, it will not be on and off between 2019, 2020, and 2021. It will take some time. I mean, COGS by nature needs to go through the inventories and be sold before it turns out in the P&L. We have to be the P&L effect here, we have to be a little bit patient, 2021, there will be a full effect.
Cost savings from U.K. and Germany should then pop up after the stores have been closed, or?
That is what we say. SEK 75 million is attached to this closure of the costs, and there the ambition is to actually finalize this during this financial year.
Can you also talk a little bit more about your future strategy in U.K. and Germany, you know, when it comes to online and how will you make that business-
Mm.
profitable? How will you work?
I mean, first of all, we have actually during the, I would say last 12 months, in the U.K., gone from a quite store and an e-com light strategy to an online first strategy, and built, we have seen online increasing dramatically in the U.K. during this year. We've built a team, which is skilled in this area, and we took another step late summer in starting the cooperation with Amazon. We're also investigating other ways of building the brand than having stores, which I think is an important part of this journey. We see this as a natural part of strengthening the online capability in general in Clas Ohlson. On the assortment side and the brand building side, we need a little bit of a tailored approach.
That is what we are now working on, in parallel with the closure program.
How are you working with Amazon? Are you also selling through or without them taking any they're not buying your products, it's the store-in-store solution you're using?
Yes, right now. Mm.
Okay. Thank you.
Can I come back a bit on the store optimization issue?
Yes.
Not just for Finland, but in general.
Yes.
What is your view here going forward? You've obviously significantly slowed your store opening-
Mm.
for the Nordics.
Mm.
You're looking at much smaller stores now.
Mm-hmm.
Where do you see this going forward? Are you looking at significant store closures eventually or is it mainly about reducing store space?
I think I've said before that, I mean, if I take the stores that don't contribute on a store EBIT level, I can more or less count them on one hand. We know exactly who they are and the country managers know and everyone working with that knows. We have a very concrete plan store by store. We will as much as possible use the contractual framework for handling that because that is simply the most cost-efficient way of doing it. There can always be exceptions to that when you see that this will just be consuming too much money and focus by waiting. I think on the other hand, if I take another example, we opened a compact store at Ringen here in Stockholm, which is hugely successful.
I think there is also a potential, especially in increasing the penetration in the metro areas in the right way. There is not a sort of a one truth in this. It's about doing it on a store-by-store basis, both in growing but also in taking away or adapting. That is exactly how we are working with this.
Mm-hmm. also if you could clarify a little bit, the SEK 200 million-SEK 250 million in cost savings.
Yes.
Can you say a little bit more about where these costs will be taken out? How much of this is store related? How much is, distribution center, headquarters, marketing expenses, et cetera?
Mm.
Where do you allocate?
I would say it's three main buckets. One is definitely the COGS side, where as I said, we have during this quarter renegotiated COGS of SEK 500 million. That is a big part of this. We have of course more to go. We have SEK 1 billion in indirect spend, which is things that we buy, services, it can be furniture, toilet paper, deliveries, all of that. Here we see substantial savings. As I also mentioned, we are in the middle of an organizational review. This will also include FTE reductions.
Maybe we should check if there are questions from the conference call.
We have one question registered. It's from Stian Enstrøm from Nordea. Please go ahead. Your line is now open.
Yes. Thank you. yes, I imagine that you have a few contracts with quite long remaining lifetime in U.K. and Germany. I assume that a large part of these SEK 210 million in cost would be provisions for rental costs. Is that correct?
Yeah, I mean, it's as we said before, it's some of these contracts have break clause that will come into action pretty soon. Some of them are longer.
Mm-hmm.
I mean, that is one component. The other discussion is with the landlords, what they can do with these stores. We will go into negotiations and try to find the most, you know, efficient way for both parties.
I mean, how realistic is it that you will be able to leave these contracts without paying for it, so to say?
I mean, we have said today that we have SEK 210 million closure costs. That is the maximum cost we have set up to do this, that is related to one of those components as you mentioned.
Worse to worse, if worse comes to worse, you might then end up with sitting with some stores quite a long time then, I would assume after this.
Yeah. In a theoretical world, of course, yes.
All right. Just wondering also your midterm target here of 4%-6% EBIT margin. Is that including the costs for the strategic initiatives and sCORE, et cetera?
Yes.
Yes. Also how is it affected by the closure of the U.K. stores itself?
The cost related to the closing of U.K. and Germany, store network, it comes as a cost on top of what has previously been communicated at and will then be reported in the third quarter.
The savings are included?
The savings are included, you can say, of course, as a tool in reaching 6%- 8% by 2021.
Okay. That does not change with this closure?
No.
It's included already.
No. I think the 6%- 8% we set very consciously, from the perspective of each and every piece of our business contributing with profitability. What we see now is that the store network in U.K. and Germany do not have the potential to actually contribute to that target. That is what we are now removing then.
All right. Very good. Thanks.
Niklas?
And just as a-
Sorry. Go ahead, operator.
Thank you. Just as a reminder to all the attendees dialed in on the telephone lines, if you do have any further questions, please press zero one on your telephone keypad now. There are no questions registered on the telephone lines at the moment.
Okay, we'll go to Nicklas here on the floor.
Thank you. It's Nicklas from SEB again. Just a few follow-up questions. If you look at some of the consumer surveys around Black Friday suggest that about half of purchases would be sort of pre-Christmas trading. Do you have any views yourself, or have you done any surveys yourself on how you actually think that Black Friday increasingly is gaining share from traditional December trading, please?
I think that we, as I commented on before, for us, the November results, and I think, the sentiment that we have, right now is that, this was not preempting the possibility for a decent Christmas trade.
Just, for the record, you will have eight full more trading days in your e-commerce platform this year.
Yes. Yes
than you had last year's December trading.
Yes. Anecdotally, in Norway, we will actually have e-com open all the way until 24:00 between the 23rd and the 24th. We will actually deliver Christmas presents in the morning of the 24th, in case you're interested.
In Norway.
I could be a taker of that actually. My final question would be... Sorry, I lost that now. I'm sorry, I have to come back. I lost it, I'm afraid. Sorry.
Okay. Maybe you can say something about Clas Fixare.
Mm.
It's very recently launched.
Yes.
How initial learnings, how has this been received? Better or worse than expected?
Yeah, of course, it's a, it's a big thing for us that we went live with this and followed our time plan. We have 13 Fixare now, 10 generalists. Some people actually that have worked with Clas Ohlson for a long time, so the really typical Clas Ohlson coworker. We have three specialists within the electrical field and the plumbing field. I think the one of the maybe main feedbacks that we have gotten is that people enormously appreciate the packaging of this service. The fact that you can actually go into an app, select a specific service, and select a time slot when this will be delivered, I think that packaging is not so common in the market today. I think that's a big advantage that we have, that we come from...
We're used to packaging things for consumers, and we're now applying this to the service field. Yeah, maybe that's one learning. Of course, it's just a couple of weeks.
Mm-hmm.
We'll have to come back with more learnings. So far so good.
You're also going through your entire assortment now, or 50%-
Yes
...of the assortment you're looking at, reviewing.
Yes.
What are the learnings here? I mean, how big part of this is looking at being replaced, and how does that compare to a normal year?
I think one learning is that less is more, which is not news in a way because a lot of research shows that the choices normally not necessarily a good thing to a certain extent. What you will see in the multimedia segment is a reduction of range, but we have piloted this, and we see that it still leads to an increase in sales, actually, a more customer-friendly experience. I think that's a learning in general for us, being a retailer that has quite broad assortment, the need for always being sort of on top of what you're doing, reevaluating, and not falling in love with your darlings, but actually daring to take things away.
Will you then replace that with other products, or basically looking at an SKU reduction?
In some categories, what we have trialed now, it's actually a reduction. Of course, I also see this as a possibility to, in Clas Ohlson's channels, make space for assortments that will deliver new growth, because we need space to do that, so.
Mm-hmm. Finally, from my end at least, maybe you could say something about the MatHem collaboration.
Mm.
How has this developed for you so far?
Mm.
Maybe also something about how MatHem has delivered.
Mm
...considering that you own 10% of that business.
No, Yeah, as we see on the screen, we have now run the marketing campaign together. We have quite drastically increased our assortment. It's interesting because in the beginning we saw, which was the hypothesis, consumables immediately growing. That has continued. It's by far the biggest sales channel online for us when it comes to consumables. That hypothesis is confirmed. When we added on the cross-docking, we have now a connection between MatHem's storage facilities and some of our stores. We deliver a certain part of the assortment through cross-docking. We actually see quite big orders coming in of completely different type of goods. It's actually people buying their new drilling machine or their hairdryer or whatever it is.
We also see now a second flow, and that is, I think, the last mile capability and the convenience aspect of actually being able to have that delivered the day after, or in some cases, the same day. It's a little bit. We see a new trend in that sense in this business. I think the hypothesis we had when we stepped into this one year ago is confirmed. Then in the case of how MatHem is developing.
Mm-hmm
...I think it's developing very well. Yeah, promising.
It's been loss-making, I mean, since the start, and then those losses I think have been increasing recently. Has that stabilized?
I don't think I should comment on MatHem's financial here and now, but we. I'm very happy with the development and also with sort of how other, I would say, parts of that, the fulfillment level, the service level and so on, is developing.
How big part of your assortment can you now buy at MatHem?
1,600 products. I'm looking at Fredrik.
Mm-hmm.
Yeah. Approximately. Yeah.
Yeah. Okay. Excellent. We have one final question.
Yeah.
from the floor.
Okay, Magnus.
Mm.
How are you thinking here?
I think we will be very, I think conscious of our brand here. I, the scaling will actually take place in the same manner as we have done now, and we'd rather scale at a sort of the right pace to handle that because we've also done research that shows that when you have someone stepping into your home, the trust level is, it's binary, it's zero or one. We have to deliver fully on this one. We will not go into peer-to-peer here.
I think the main scaling opportunity, both from the perspective you're raising but also the geographical perspective, is actually the digital Clas Fixare, which will help us to scale and to offer this service more broadly, where you can actually do a little bit of it yourself but get assistance through sort of meeting Clas Fixare online. I think that is what we will use. I think the brand risk is far too big for us to enter into peer-to-peer.
Thanks.
Great. I think maybe we will wrap up the Q&A there.
Mm.
Any closing remarks?
No. Q2 according to plan, November promising, and a lot of good things happening.
Mm-hmm. Well, good luck. Thank you.
Thank you.
Thank you.