Business risks comprise all the factors that may jeopardise or prevent the achievement of the strategic goals of the Group or an entity belonging to it. Stockmann's business risks are divided into three risk areas:
Strategic risks, which refer to risk factors that are external to the company. Should they materialise, they may have a major impact on the company's ability to operate and on profitability. Such risk factors include fundamental and unexpected changes in the market trend, decreasing purchasing power and the country-specific risk pertaining to Russia.
Operative and accident risks, which refer to risks related to the company's functions. Should they materialise, they may lead to an interruption of business operations, inefficiency and unprofitability. Such risks include increasing competition, personnel, malpractice, ITC and information security risks, as well as risks related to the information used in decision-making.
Financial risks which, should they materialise, would adversely affect the Group's profit, balance sheet and liquidity.
In the current situation, factors of uncertainty related to the general economic conditions and, in particular, consumers' purchasing power and essential exchange rates, are estimated to be the primary risks that may have an impact on Stockmann's operations.
Risk factors, Financial Statements Bulletin 2016 (15.2.2017)
Stockmann is exposed to risks that arise from the operating environment, risks related to the company’s own operations and financial risks.
The general economic situation is affecting consumers’ purchasing behaviour and purchasing power in all of the Group’s market areas. Consumers’ purchasing behaviour is also influenced by digitalisation, increasing competition and changing purchasing trends. Rapid and unexpected movements in markets may influence the behaviour of both the financial markets and consumers. Uncertainties related to purchasing power and behaviour are considered to be the principal risks that could affect Stockmann during 2017.
The operating environment may also affect the operations of Stockmann’s tenants and consequently may have a negative impact on rental income and the occupancy rate of Stockmann’s properties. These, particularly if related to the biggest tenants of the properties, may have an effect on the fair value of the real estate
Fashion accounts for over two thirds of the Group’s revenue. An inherent feature of the fashion trade is the short lifecycle of products and their dependence on trends, the seasonality of sales and the susceptibility to abnormal changes in weather conditions. Responsible management of the supply chain is important for the Group’s brands in order to retain customer confidence in Stockmann. The Group addresses these factors as part of its day-to-day management of operations.
The Group’s operations are based on flexible logistics and efficient flows of goods and information. Delays and disturbances in logistic and information systems as well as uncertainties related to the logistics partners can have an adverse effect on operations. Every effort is made to manage these operational risks by developing appropriate back-up systems and alternative ways of operating, and by seeking to minimise disturbances to information systems. Operational risks are also met by taking out insurance cover.
The Group’s revenue, earnings and balance sheet are affected by changes in exchange rates between the Group’s reporting currency, which is the euro, and the Swedish krona, the Norwegian krone, the US dollar, the Russian rouble and certain other currencies. Currency fluctuations may have an effect on the Group’s business operations. Financial risks, mainly risks arising from interest rate fluctuations due to the Group’s high level of debt may have an effect on the financial costs and the financial position. Interest rate fluctuations may also impact the yield related to the properties owned by the Group, and thus to the fair value of these assets. Financial risks are managed in accordance with the risk policy confirmed by the Board of Directors.