“Probably Always Cheaper”: Finland’s Most Popular Webstore | H.E.R.O. Issue 14, 14 December 2020

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“Probably Always Cheaper”: Finland’s Most Popular Webstore | H.E.R.O. Issue 14, 14 December 2020

December 13, 2020 Uncategorized 0

Who could have foreseen that Europe's largest and probably the most successful home electronics store with 35,000 square meters of retail space, around the size of 5 soccer fields, is in a former cargo port-turned-modern district in Jätkäsaari, situated on the southwestern tip of Central Helsinki facing the open sea? The Jätkäsaari store also features Finland's largest and free sightseeing terrace with a MiG-21BIS fighter plane!

The Jätkäsaari store is one of the four megastores operated by this retail innovator who is Finland’s largest, most popular and most visited online retailer that offers over 65,000 different items from 25 main categories, providing over 2,500 pickup locations and also the fastest same-day delivery in Finland. The ecommerce innovator has Finland's most visited website with 20 million visits during Q3 and 57 million during Q1-Q3 2020. The company strives to be as open and transparent as possible in its operations and on its website are over 300,000 customer reviews that were published. The company is also the consecutive consumer’s choice winner as the best online retailer in Finland 2020.

And it all started with a 16-year old entrepreneur who sold electronic goods in the basement of his home 28 years ago in 1992. Founder Mr. S still owns 49.1% of the company which had a different philosophy from many international ecommerce actors from the start. The  customer base would grow with new product categories, which now contribute 15% of its revenue, but not by trying to widen the market geographically. For instance, the company is now the market leader in music instruments and toys. The company also has in its selections of around 4,000 products under its own private label brand product for sale, which account for ~5% of revenue. The company’s customer promise of “probably always cheaper” also reflects the company well operating model. The company strives to be a price leader in all the product groups it sells and strives for avoid product groups where it is unable to fulfil their customer promise.

This week, we highlight one of our portfolio companies, Finland's Most Popular Webstore in Home Electronics, which is up +8.2% during the week (7 to 11 Dec 2020). It had earlier reported on 23 Oct 2020 a healthy set of 3Q2020 results and registered its 28th consecutive growth quarter, in which sales climbed 7.3% yoy, operating profit rose 30.2% yoy to an all-time high, with ROE (= EBIT/Equity) of 46.7%, and the number of new online users grew by +20%, with strong performance in several evolving new categories: BBQ & Cooking +50%, MDA (major domestic appliances) +40%, Sports +30%, Office & Supplies +30%, Home & Lighting +30%, and fast delivery options under high demand jumped +267%. This rising dividend-yielding profitable and cashflow generative innovator has also compounded +85% in capital gains in the recent one year vs MSCI ACWI World index +13%.

The home electronics market in Finland is highly competitive due to homogeneity of products and price sensitivity of consumers is very high. In the Nordic region, home electronics prices are lower in Finland than in Sweden and Norway due to the fierce competition. Brand significance is mainly minor and practical consumers are willing to do significant search work to find the same or a similar product cheaper elsewhere. As a result, the industry’s average gross margin is very low. In recent years, several players in the industry have either ceased or reduced its operations drastically, with many players leaving the market. The clear winner of the industry in recent years is the company who has succeeded clearly in increasing its market share to over 20%. Still the runway is still long and visible with e-commerce share of home electronics in Finland at around 25% of the market, with the company the #1 market leader.

The company’s agile and scalable business model in effectively combining a web store and four megastores with a continuously evolving omni channel service concept ensures a superior customer experience, including personalized content for every consumer online and a wide variety of services such as financing, returns, instalment. The fast and seamless customer experience has been enhanced with the search engine optimization through multiple updated category descriptions and content, improving and automating chat responses in customer care with artificial intelligence, and completing and launching an Online Outlet feature.

The company has wide, broad and relevant product offerings in chosen categories. This is enhanced further with its new B2B2C site that was launched to attract the best local Finnish suppliers and to strengthen its leadership as having the largest and most desired assortment in Finland, and consumer preference and demand is also shifting to supporting local companies.

The company also has the fastest deliveries in Finland with same day delivery with lowered price since September 2020, and 3-hour Express deliveries available since 2014. There has been an explosion in demand for fast delivery, with +267% growth in same day & Express deliveries during 3Q2020. The company is able to provide such convenience in the best possible availability with unmatched fast deliveries to its customers because of its local warehousing advantage.

All of these competitive advantages have strongly positioned the company as the local hero ready for the Amazon opportunity leading into retail going online at a faster pace, with the patchy entry of Amazon.se in Sweden in October 2020 without critical fulfilment capabilities.

Founder Mr. S shared: “A lot of online retailers have a strategy to go to other countries, but we will stay in Finland and expand our selections where we know our consumers. So we only do business in Finland, we don’t market ourselves in any other language than Finnish and we have no plans for going outside the country. Our brand is well known in Finland, but outside we wouldn’t be anything. I don’t think Finland is too small a market for our company. We only have a very small percentage of the total retail market in Finland. Some go crazy and try to conquer other countries with unknown brands starting from zero. We felt that we need to get to Finland first, by introducing new categories and products.”

CEO Mr. P shared: “Our key competitive advantage against Amazon is local warehousing. We have two warehouses with 70,000 items. From there we get the stuff for the next day. That speed will not be achieved without a central warehouse in Finland. In addition, customer service and maintenance are our competitive advantages. We have four giant stores that are visited by hundreds of thousands of people. The multi-channel business model also attracts international players. We have benefited from the shifting consumer behavior accelerated by the COVID-19 pandemic and we expect that the shift to online sales channels becomes permanent as consumers and businesses adapt new behaviors. We are well positioned and will be a relative winner in the “new normal” business environment of the future. The company will continue to focus heavily on technology to further improve our strong market position and to strengthen our low-cost structure in order to deliver on our customer promise of 'Probably always cheaper prices.'”