Risks

Interim Report January-March, 16 May 2019

Factors of uncertainty over the global economic trend affect the retail trade and consumer confidence in all of the company’s market areas. The company’s major strategic risks are associated with changes in consumers’ purchasing behaviour and buying power, especially in Finland and Japan, which are the company’s biggest single countries for business.

Near-term strategic risks include risks related to changes in the company’s design, product assortment and product distribution and pricing. Digitisation in retail trade and the intensified competition and rapidly changing operating environment that this entails also bring risks and new revenue generation models. The company’s ability to design, develop and commercialise new products that meet consumers’ expectations while ensuring effective production, sourcing and logistics has an impact on the company’s sales and profitability. International e-commerce increases the options available to consumers and multichannel business is of growing importance in the retail trade. Maintaining competitiveness in a rapidly changing operating environment being revolutionised by digitisation demands agility, efficiency and the constant re-evaluation of operations.

The company’s growth is based primarily on expanding e-commerce, on partner-led retail in Asia, as well as on increasing the sales per square metre of existing stores in the company’s main market areas. The Asia-Pacific region is Marimekko’s second-biggest market, and it plays an important role in the company’s growth and internationalisation. Changes in distribution channel solutions may impact the company’s sales and profitability. Major partnership choices, partnering contracts and other collaboration agreements involve considerable risks. With the company’s internationalisation and the growing interest in its brand, risks related to grey exports have increased, which may have an impact on the company’s sales and profitability. Store lease agreements in Finland and abroad also contain risks.

Intellectual property rights play a vital role in the company’s success, and the company’s ability to manage and protect these rights may have an impact on the value and reputation of the company. Agreements with freelance designers and fees paid to designers based on these agreements are also an essential part of the management of intellectual property rights. As the company internationalises, the risks of infringements of its intellectual property rights may increase, particularly in Asia.

Prominent among the company’s operational risks are those related to internationalisation and digitisation. There are risks associated with information system reliability, dependability and compatibility. With digitisation, various risks related to cybersecurity have also increased. Malfunctions in data communications or, for example, in the company’s own online store, may disrupt business or result in lost sales. There are also risks associated with procurement and logistics processes and price fluctuations for raw materials and procurements. The company primarily uses subcontractors to manufacture its products. Of the sustainability aspects of manufacturing, those related to the supply chain and enhancing its transparency, in particular, are of growing significance to customers. Compliance with sustainable business methods is important in maintaining customers’ confidence; any failures or errors in this area will involve reputation risks. Any delays or disturbances in supply, or fluctuations in the quality of products, may have a harmful impact on business. As product distribution is expanded and operations are diversified, risks associated with inventory management also grow. As Marimekko is a small company, ongoing modernisation and development projects increase risks related to key personnel.

Climate change is expected to bring an increase in various extreme phenomena such as floods, typhoons and hurricanes. Marimekko has stores in areas in which such extreme phenomena may occur, and if they damage stores or cause momentary changes in consumers’ purchasing behaviour, it may result in lost sales as well as expenses. Extreme phenomena may also affect the availability of products if they cause damage to the company’s suppliers’ factories. Furthermore, climate change or extreme weather may cause droughts, soil depletion or other changes in growth conditions, which could impact the availability and price of Marimekko’s most used raw material, cotton.

Among the company’s financial risks, those related to the structure of sales, price trends for factors of production, changes in cost structure, changes in exchange rates (particularly the US dollar, Swedish krona and Australian dollar), taxation, and customers’ liquidity may have an impact on the company’s financial status.