The year 2014 saw the official kick-off of our Transformation Strategy 2017, in which we focused more than ever on change, innovation and progress. We invested many extra millions of euros in upgrading our online and offline retail formats and in the underlying logistics systems and IT and appropriated substantial funds for the corporate reorganisation at Blokker B.V., all of which marks the official start of our transformation. Our new strategy and the hard work and dedication of our 22,000 committed employees are what keeps us in the game as a strong player and will help us to return to profitable growth in the foreseeable future.
We continued to face tough market conditions in 2014 and had to cope with lower revenues in our main sector, Household. Coupled with our provisions and increased expenses, this has resulted in a net operating loss. We are aware of the need to go full steam ahead with the transformation and are confident that, supported by our dedicated employees, strong retail brands, solid plans and strong financial basis, we will remain a powerful and sustainable player in the turbulent and sometimes erratic non-food retail market.
FOCUS ON FORMAT DEVELOPMENT RATHER THAN EXPANSION
As reported in our previous annual report, we shifted our focus for the first time in years from expansion to format development and e-commerce. In 2014 as well, we concentrated on the quality of our current online and offline formats as opposed to expanding our store base.
OUR ‘CHANGE AGENDA’
QUALITY, SERVICE, CONVENIENCE AND RELEVANCE
We are rapidly introducing a variety of new innovations in order to continue meeting our customers’ needs. There are many different ways of developing new formats, ranging from opening pilot stores to updating existing stores. Many of our stores are being or will be completely upgraded. We began this process in 2014 and have since changed the format of a total of 51 stores or reopened them based on a new format – and we are only just getting started. The initial results have been promising and we will be changing over more stores to the new format at an accelerated pace.
At the same time, we also want to keep surprising our customers with new product ranges, and indeed, we continued to actively pursue new partnerships and enter into licensing agreements with various high-profile brands in 2014. Successful examples of this include the new products under licence from cable food channel ‘24Kitchen’ and ‘Rudolph’s Bakery’ at Blokker and Cook&Co. Blokker launched an exclusive and exciting range of Douwe Egberts products in 2015 – a perfect selection of beloved and trusted home-grown Dutch brands. Consumers can currently redeem their Douwe Egberts Reward Points at more than half of all Blokker stores and we expect this promotion to drive strong sales gains in the future.
Creating and launching strong white-label brands such as the UMIX range of furniture at Leen Bakker and the Le Sud garden furniture line at Leen Bakker and Blokker are both excellent examples of some of the innovative changes we have introduced in our product ranges.
The launch in 2014 of Nextail, our Shared Service Center (SCC) for omnichannel retailing, is a key milestone in our company’s history and consistent with our strategy of becoming an omnichannel organisation. The 2014 results are encouraging, with revenue having increased by 24% to EUR 98 million.
The talented e-commerce specialists employed at the Nextail SSC serve all our webshops, with activities ranging from social media and online marketing to online development and content improvement for the thousands of items we offer our customers in our current webshops. Following the launch of new webshops for Xenos and Blokker Belgium in early 2015, our group currently has twelve online sales outlets.
The services we provide to our customers form an integral part of our business, extending to our stores, our online channels and our aftersales services.
According to data collected by research company Service Scout, Cook&Co provided the best online service of any retailer in the Netherlands in 2014 and in April 2015 Blokker won the Consumer Centric DNA Award for ‘Most Customer-Friendly Offline Retailer’.
We will also work to further improve the service level of each of our formats in the coming year. How should our retail employees be trained in order to communicate to customers the value to which each of our formats aspires and how should they interact with customers in this era of omnichannel retailing? These are the questions at the heart of the ongoing debate in which we engage in our organisation.
We can only deliver the level of service and quality we want to our customers if we maintain the long-term drive to change, upgrade and improve our company alongside our stores. However, these changes cannot be achieved in just one year, which is why our transformation strategy will see us through to 2017. As part of these initiatives for change, we developed a roadmap for IT in 2014, one of the reasons being to make more business data available in real-time.
Having successfully launched a group-wide Enterprise Resource Planning (ERP) system at Bart Smit in January 2015, we are pleased to report that preparations for the launch of this same new system at Intertoys in June also point to success. The system is set to be rolled out at the other formats in the next few years. Meanwhile, the implementation of a single e-commerce platform for all our webshops is also proceeding according to plan. The benefits of these efforts will be substantial once the standardisation has been completed. The improved check-out process for webshops can now efficiently be rolled out for all our webshops in a standardised format.
We have also begun implementing a number of changes in our logistics systems. In the Netherlands and Belgium, we are currently setting up a new supply chain organisation which will transport goods from suppliers to consumers with even greater efficiency. One of the key logistics issues for our organisation is improving our working capital and we are in the process of developing a group-wide and integrated set of processes and procedures in our Supply Chain.
Our goal of further developing and expanding our omnichannel operations also requires that we optimise our logistics systems. Another challenging change project that is currently underway is the e-distribution centre we are creating in Gouda for the blokker.nl and blokker.be webshops.
Cost savings remain essential for our organisation. While our two largest expenses continue to be rent and wage costs, we managed to significantly reduce rents in the Netherlands during the year under review through a structured approach of negotiating with all our lessors. Wage costs are being kept strictly under control across the entire group by making sure the work our employees perform in our stores is adapted to revenue trends and store traffic. We are therefore focusing increasingly on the costs of our non-merchandise in order to reduce our total cost base.
As we are experiencing first-hand, change is not necessarily always a positive thing: for the first time in our history, we are forced to let approximately 400 employees go at Blokker stores across the Netherlands. Blokker’s recent lower retail sales revenues and shifts in store traffic have left us no other choice but to reduce the workforce at half of our own (non-franchise) Blokker stores.
The current, dynamic retail landscape is changing so rapidly that the work which was traditionally always performed by our employees is constantly subject to evaluation and change. Our HR department supports these organisational changes in a number of ways, including through the group-wide, performance-based assessment system introduced recently.
In addition to Human Resources, various other departments are also enhancing their operations in a variety of ways. This includes the customer service departments of Blokker in the Netherlands and in Belgium, each of which made great strides during the year under review. There are many aspects in our company that require new skills and the will to change our organisation and it is very satisfying to see the energy with which our teams are dealing with these changes.
Blokker Holding’s retail portfolio saw two significant changes in 2014. At the end of June, we sold the Tuincentrum Overvecht (TCO) chain of garden centres. Blokker Holding had originally acquired this company with the intention of gaining a foothold in the retail sector in exurban areas. We were expecting that a possible liberalisation of zoning plans would enable us to sell our other product categories in large shopping precincts in less populated parts of the country. We decided to sell this division in 2014 because the operation of garden centres is no longer among our core activities. An additional factor is that TCO had been operating at a loss in recent years.
The second key change in the portfolio is the deconsolidation of the Casa chain of household supplies. Following the transfer of management control over all Casa activities, Casa was deconsolidated at the start of the year under review and is currently classified under ‘Associates’.
We are optimistic and confident that we will remain in the game as a stronger player in the years to come. At the time of writing of this annual report, the first new Blokker TV adverts were being aired on Dutch television. Using the payoff Fijn dat we er zijn (It’s good that we’re here), we are reintroducing ourselves to the Dutch public as the leading omnichannel household goods retailer in the Netherlands. The payoff is the result of careful marketing, based on consumer research and the experiences of our customers, suppliers and employees. We are about to open dozens of stores based on the new format and we are making substantial investments in blokker.nl. We have already taken the first steps and our expectations are high.
But our innovations are obviously not limited to Blokker alone: all our retail chains are working hard on this and we are backed by our many stakeholders, who are enthusiastically welcoming and supporting our plans for a transformation. We have listed some of these stakeholders, along with the various ways in which they contribute, below.
- Our customers contribute their own input and ideas for our new formats, as well as providing feedback and keeping up with our new formats, brands, product ranges and webshops, even if there are start-up issues. We would like to take this opportunity to thank our customers for their input, loyalty and support.
- Our employees are more flexible than ever, and – given the recent changes in the non-food retail sector – they must be able to adapt to new duties and new and different working hours, both in our stores and in the distribution centres. We are working in new group-wide positions at the head office and in logistics, including in Supply Chain, Category Management and format development. We have also changed the way we work together and are looking for more synergy across the operating companies in Shared Service Centers such as for omnichannel/e-commerce (Nextail), IT, quality and real estate properties.
- The Central Works Council provides input for our agenda for change, shares ideas and provides constructive criticism. The Council is working with us in our shared effort to turn the transformation into a success.
- Trade unions play a key role during corporate reorganisations. We are working with them in order to protect jobs in the future.
- Suppliers of merchandise contribute to the supply chain process, which will enable us to optimise our working capital.
- Suppliers of non-merchandise are improving their services and providing more value for money.
- Lessors are working with us on building realistic business models. We expect market-level rents and flexibility with regard to the term of the leases.
- Our shareholders and members of the Supervisory Board support our plans. The shareholders are patient: our revenue has been lower than in the past and the company’s transformation cannot be achieved in just one year.
I would like to conclude by thanking the stakeholders listed above and our other partners for their vote of confidence in our ongoing corporate transformation.
Amsterdam, 13 May 2015
Chairman of the Board of Directors