Verkkokauppa.com Oyj (VERK) Earnings Call Transcript & Summary

Welcome to Verkkokauppa.com Capital Markets Day 2024. My name is Marja Makinen, and I'm heading Verkkokauppa.com's Investor Relations, and I'll be your moderator here today. The video you just saw is our advertisement currently running on TV here in Finland. The world is getting expensive, Verkkokauppa.com is getting cheaper. Last time, we gathered for the same event was 2021. And at that time, it was only the virtual event. Now I'm so happy to see also live audience here in Helsinki. However, the majority of the audience will be following the event through a live webcast. So warmly welcome our audience online as well. Since our last event, a lot has happened in the world, in the market and also in our company. We launched an update on our strategy at the end of last year. And now, we will give you some concrete on the actions of how we will progress with the strategy during the strategy period until 2028 and even beyond. Here, we have the agenda for today. We will have 6 interesting presentations, starting with our CEO, Panu Porkka's strategy update, followed by 4 deep dives in the strategic cornerstones. And last but not least, a financial update from our CFO, Jesper Blomster. Before we start, a couple of practicalities related to Q&A. So after each presentation, we have time for a couple of questions for each presenters. And then after the -- all the presentations at the end of the event, we have a joint Q&A where all the presenters will be answering your questions. The audience here in Helsinki, before stating your question, please wait for the microphone and then state your name and the company. And the audience online, you can participate by commenting and sending your questions throughout the whole event by sending questions via the question function right below the stream window in the event page. Your questions are visible to me, and I will then address those to presenters. We will have a break around halfway of the presentations, around 20 minutes. And then we plan to end around at 3:30 depending on the amount of your questions. And after the official part, the audience here in Helsinki, we invite you to stay for a while to join with our management and have a moment to get together here. And just to remind you, we will be making forward-looking statements during the presentations, and there is a disclaimer on the presentation material for that. But now let's kick the day off. I will hand over to our CEO, Panu Porkka. Panu will walk through our strategy and how we change the retail in Finland. Welcome, Panu. The stage is yours.

All right. Thank you, Marja. A warm welcome also on my behalf to Verkkokauppa.com's Capital Markets Day. My name is Panu Porkka, and I'm the CEO of the company. Today, we have an exciting day ahead of us. You will be hearing a lot of interesting in-depth presentations about our strategy, about our target, about our road map towards our financial long-term targets. Let me start my presentation with the introduction of my team. There has been a few changes in the last couple of years. Our latest arrival, new CFO, Jesper Blomster, joined the company just 3 weeks ago, and he's ready to take on the last part, give you update on the financials and wrapping up today. Also presenting today Jyrki Tulokas, Chief Strategy and Technology Officer; Nina Anttila, Chief Supply Chain Officer; Chief Marketing Officer, Suvituuli Tuukkanen; and Tatu Kaleva, Chief Commercial Officer. Also Pekka and Satu are here available for the live audience afterwards for questions. The company is born online in the year of '92, way, way before many other players that today are operating in the same environment, starting with computer parts, hardware, moving into components, computers, PCs, laptops, tablets, et cetera, nowadays tapping in all consumer electronic categories and also outside of that. We have been building our business model strongly throughout our online and e-commerce site. And we have now today 4 megastores supplementing that business model locally as well. The company was first not listed 10 years ago, 2014. We transferred into the main list of Helsinki NASDAQ 2020. We've been investing in the company a lot in technology, in automation, warehouse automation, packaging automation. We have renewed our site. We have improved our processes, category management, pricing, et cetera. And we have now just shortly, end of last year, renewed our strategy. And now today, we're going to give you insight on the next step and next step change for the company going forward in the growth path again and improved profitability. The company is quite uniquely positioned here in the Finnish market. The oldest e-commerce company, the biggest e-commerce company, the best-known e-commerce company, most preferred company in our line of business. We have 73 million site visits a year. We have the widest assortment right away available here in our Helsinki logistic hubs, 24/7 within an hour for major part of Helsinki Metropolia area. We are the most preferred company in consumer electronics. And on top of that, we have extremely satisfied and loyal customers. Our NPS is world class 73, and we have extremely engaged customers as well. The thing that we are especially proud of is the way we conduct business, selling high-quality products for a need, for a cause, ending up in market record low returns. 0.7% for our e-commerce company is something that we have not faced before. So we are extremely proud of being sustainable in the way we run our business. The market has been pretty tough the last couple of years. We have faced crises that were not expected. There were geopolitical crises. There was energy crisis, inflation starting to increase rapidly. And the time of 0 interest came to an end. And all this led into a different environment that we have seen and everybody else has seen before. The consumer confidence has been rock bottom for 2 years now in a row. And you see bottom left, that this is a leading indicator also for discretionary shopping. So the black graphs that you see is the specialty retail market in Finland, shrinking for 2 years now in a row, something that's not that often to be seen. If we look then specifically in consumer electronic market in Finland, it has been declining now for over 2 years, so 3.6% and last year, 6.6%, and now really hitting the bottom this year first quarter, declining by almost 10%, so 9%. So there is some postponements in investments. But there are also some positive lights and indications that in the last couple of weeks are to be shown. Everybody is expecting 6th of June, like the rising sun, what happens with the interest rates. The expectancy out from the banks is that, that will be a decreasing one. And as the first indication start to show, we believe that the consumer confidence will follow as well. But we have made a thorough analysis on consumer behavior changes on megatrends, and we have fully incorporated those in our strategy. We know for a fact that online is shifting -- offline is shifting. Online market is basically the only market, only channel that is growing at the moment. We also know from consumer insight that fast and convenient shopping is actually coming to be the most or the biggest preference driver in retail. It's getting to be a new norm in Finland, at least if we have a say on that. There are new ways of buying, owning a specialty high-priced items, consumer electronics, and we want to tap into those additional revenue and profitability streams throughout our service portfolio. AI is not just changing the way businesses are conducted, analysis are done, business decisions are done. Also, consumers are utilizing AI in the day-to-day life more and more. And this will lead into the devices being more and more sophisticated. And starting from this summer, there will be a lot of new launches on the device side to have the capabilities to utilize the technology at hand to be offered to the consumer in the day-to-day life. And also the rising importancy on sustainability, not just the younger generation, this is getting a new norm for all segments, all cohorts. And it's extremely important to take that in consideration as a company when building future growth and business models. So if we start with the online penetration accelerating. This is data from certain sources. For example, Statista is indicating that actually online in Finland is going to be the one or be the channel that is growing throughout the upcoming years, some 6% on annual level. That is also expected in consumer electronics now of around 40% or just above 40% market share online, it is expected to be clearly above 50% by end of our strategy period. But what is actually interesting to see is that if we ask the consumer in consumer electronic purchasing choices, today, online is already the most preferred way of purchasing. So the preference is there, the market will lead -- will follow. So that gives us a huge opportunity for growth years to come. Fast deliveries. This is a chapter where we, in the Finnish market, lag behind our Nordic peers, European peers, global peers. In China and U.S., fast deliveries is almost the norm. But when asked consumers in the Finnish market, actually, the 2 top preference drivers are smooth shopping experience and fast and handy deliveries. So product price, yes, retail, super important hygiene factors, you need to have those in place. If you want to drive preference, you can do it with a smooth experience and fast deliveries. The global same-day delivery market is booming, still booming, and we will -- we expect this one also to happen in Finland. Third, strategic trend tailwind, the ways of buying, the ways of owning, new ways of acquiring devices, products are booming outside the Finnish market. But also when asked consumer landscape in Finland, over half have at least tried out certain kind of subscription, part payment or financing services when acquiring something slightly more higher price point. We see that the global market for buy now, pay later is booming like hell. So that market is really increasing. So we, as a company, need to take advantage of that trend because that will be also following in the Finnish landscape. Like said before, we have the AI changing how we work, how we live, how we utilize our devices. Starting from this summer, more and more suppliers are coming out with new set of devices, new launches, new lineups, so that will give us also a small boost because like I said, there has been postponements in consumer electronic device acquisitions in the consumer and the B2B landscape. So the devices are getting older. So at some point, they need to be replenished. And now with the new devices, there's one more reason to do that. So this is expected to have a positive indication on our consumer electronic market. And then lastly, if you look at the sustainability and the circularity, this is actually one topic where we Finns don't follow. We are on the curve, sometimes above the curve. These 3 market kind of things and utilizing marketplaces for used products, used clothes, for example, the Finns are quite familiar with circular economy actually already. It's not tapped into all categories yet, but we see a huge potential in consumer electronic market as well. Interesting is that we have those first adopters, those technical versatile people, tech geeks, who really appreciate the high, high-end products. But we also do have the consumer segments who are willing to buy reused products as well. So there's market, there's opportunity and we have the segments ready. So we need to utilize that. So if I sum up those trends, the market in Finland, our total addressable market, you can see below, which categories we have included. So basically, we have excluded groceries, luxury, cars, fashion, clothing, for example. Everything else is in scope. That market is not expected to grow more than 1.9% a year. Even more interesting, if you look from online/offline angle, the offline is expected not to grow at all, to be flat. So the whole growth is expected to come from online. So the market growth opportunity for us and for everybody else is EUR 700 million and that all -- the whole EUR 700 million is coming from online shift. And we are quite confident that we will have our fair share of that transition. So let us -- let me walk you through the cornerstones of our strategy. You will be hearing a lot about these topics. Today, mostly around the fast fulfillment, fast deliveries, that is the key, that's the sharpest angle of our strategy, how to utilize the capabilities that we have built throughout the last couple of years of being the fastest in Finland. A curated assortment, how we built that, how we touch on different price points, how we fuel it with high-quality own products, that insight will be given by Tatu later on. Besides the core business, we are also focusing on new business models, meaning new segments throughout our brand work and increased preference, new categories throughout utilizing our platform and improving our hero assortment, new business models in service area and retail as a media, but also new markets. So many, many different streams, which Jyrki will give you more insight on later. And we stay true to our core, most efficient retail operations, making sure that costs stay at a healthy level, we invest in technology, in light business model and therefore, enable scale in our business. So here, you see a slightly busy slide, but they are our distinctive competitive advantages on the left side, fastest fulfillment to lowest cost. Faster and cheaper is our slogan and we're actually executing that nicely. We have a leading platform built only for our purposes. We have an in-house IT department developing it agile towards our strategy, taking in consideration consumer needs and trends. Most efficient retail operations accompanied with strong brand and rebel attitude makes us standout. We have an extremely strong value proposition to our customer, Finland's fastest ultimate convenience, winning assortment, best-known brands, best availability, probably always cheaper prices and that all in a fair manner keeping the customers happy, being always on the customer's side. These leading into our long-term strategic targets, aiming at annual growth of more than 5%, outgrowing the market, as you saw from the figures, targeting EBIT margin above 5% by end of '28, at the same time, cost to be below 10% of revenue. And on top of that, we also have target to pay out 60% to 80% of our annual net profit in quarterly growing dividends. This is the essence of the strategy, how we rewrite the rules. We make fast, convenient digital shopping with fastest delivery within an hour or at the latest guaranteed next day, the new norm. Nina will give you a concrete path on how we're going to do this. So we are in a position that we are the market leader, but we also want to change how the game is played. We want to make online the most preferred channel. We want to make the online purchase as smooth as possible, including all services that you can offer also from offline. So making online the preferred choice. We will rewrite the rules that fast delivery, same-day delivery is a norm in Finland. It's not a surprise. It is something one might or should expect. And we want to be the ones who is raising the bar and making every other look slow. And this -- in this way, we believe that the way of purchasing, buying and owning products will change throughout the years. So if I sum up my presentation, we have really built a robust business model, which withstand different market surroundings, consumer trends, and we are the market leader, the local champion here. We have made a thoroughful analysis on megatrends, consumer behavior changes and incorporated those into our advantage and taking full in account in our new strategy. We have a clear strategy, which we can execute. We have a clear plan on how we're going to execute that to provide us future growth and higher profitability. The key essence, according to data and analysts, and also our understanding, is to accelerate the online transition, especially in specialty retail and consumer electronic market. We believe that offline is the one that will be losing ground, as does Statista. And last, but not least, we have a winning team. We have a winning mentality. We have a great staff to strengthen our value proposition, be there for the customer and make sure that we stay the local champion for years to come. Thank you all, and have a great day. You're allowed to applaud.

Thank you, Panu. That was an excellent presentation to start the day. We have now time for a couple of questions. So let's warm up with one from the online audience. So what happens when demand picks up? Will all players focus only on defending and growing market share at the expense of profitability?

Well, that's a good question. Actually, typically, when the demand picks up, it tends to lead into less pricing activities because the demand is picking up and you don't need to push the market anymore. So I think that is maybe the key impact on the margin, not that everybody would be defending the margin rather than -- there's no need to invest margin anymore in the growth. So typically, that comes with market changes into a positive one. That is -- but that's also accompanied with inventory levels. So if there's a surplus level of certain categories that need to be sold out during the season or before a new launch is coming, that doesn't, let's say, change the game. You still need to push those kind of categories out.

Good. Is there any questions on the audience? Yes, please, just wait for the microphone and...

Yes. Maria Wikstrom from SEB. I have 2 questions, which first one is that I saw that your NPS was up 5 percentage points in 2023. So what do you think are the key contribution factors as consumers liked you more last year?

Good question. I need to think what we want to disclose. No, I mean, we are obviously extremely happy and proud of that high NPS. I think that comes out of a certain kind of portfolio. First of all, we have renewed our site in total. So all relevant consumer touch points have been improved, and we can see that in this touch point, the friction has been less. Secondly, we have continued to invest in product information. So if you find the product, you have good reviews and good information, typically that yields into a conversion of purchase. Thirdly, I think the way we conduct business in our stores is sustainable. We have reinforced the way we face our customers in the store. We help them out. We don't push anything that might have a positive impact as well. We have renewed our strategy. We have renewed our marketing. We have been quite active in certain communication parts. So standing out or being true to our core, that seems to be helping so one can identify that we are slightly different than the other players. So maybe differentiation is also impacting that positively.

And then my second question is while we expect the demand to pick up, how does your inventory level look at the moment? And how do you think, I mean, the inventory looks, I mean, for the competitors? So just thinking that if we actually -- what will happen once the demand will recover?

Well, that's a good question. I mean we try to analyze the inventory levels on the market the best we can. To our understanding, there is still certain surplus in the market in certain categories -- in certain big categories because we see this minus 20 out of all, which is not sustainable in a profitability manner. So that for us is an indicator that there's still some pressure on selling things out. And in those categories, we don't have a problem at the moment. We are on a good healthy level. We are now in the midst of summer season. So we have also grills and bicycles and things for outdoor and garden in our warehouse at the moment. So those things need to be sold out. So at the moment, it's on an expected level. What happens in 1, 2, 3 months' time, it's something we need to keep our eyes on. So there are certain categories which we need as well to push out during the season.

Thank you, Maria. Is there any further questions left please?

Calle Loikkanen from Danske Bank. You showed a pretty interesting kind of data and statistics on how the online market and the different markets are globally developing and what the CAGR for the coming years is. I was just wondering about the kind of the Finnish market because we are often a bit different in the global context. So first of all, how confident are you that global trend will land to Finland as well sooner or later? And then also that have you started seeing any signs of these trends that you showed earlier?

Yes. It's a good question. And yes, we have answers to that also. We have concrete figures on our parts of business, how they are evolving around these topics. But to the first question, yes, I'm confident. We are slow adopters in Finland, but it's basically, every trend comes with a certain delay also to the Nordics and to the Finnish market. So we can't recall any major trends not hitting the Finnish market. It's always a question of time, if it's 1 year or 5 years' time. We see in our own customer behavior already that when customer is choosing the fast deliveries, for example, that has some positive impact on how the consumer is behaving after that. There will be more insight today around that and also the other topics, so what -- how they look in our business from figures as well. So there will be proof to our views. I don't want to take everything from my team, which will be presenting those topics later on.

Well, thank you, Panu, and thank you, audience, for the good questions. Now we will continue with the presentations. Panu just told how we will rewrite the rules of retail and how placing delivery speed will be a new norm for buying. We want to exceed customer experience with the most effortless shopping experience. Now I will welcome Nina Anttila, our Chief Supply Chain Officer, to the stage, and Nina will tell you how we make shopping fast and extremely convenient. Please, Nina, welcome.

Hello, everybody, also from my behalf. It's really truly a pleasure to be here to share the excellent story of what we have been doing and will be doing, what comes to making shopping fast and extremely convenient for our customers. First, I will walk you through how the journey so far has been, and we will go through the renewal of our online experience and what an impact it has on our consumer and customer behaviors. Then we will go through the new service we have launched in the Helsinki capital area, as Panu already elaborated, so 24/7 deliveries from our facilities and with 1-hour deliveries to home or 15 minutes click and collect from the store. Then we move on to the present situation where we are extending our reach to our own stores where they are preparing themselves to start the similar kind of services in Turku, Tampere and all regions. And in the future, we will then step a little bit inside what kind of potential we have to extend the reach even further with potential micro fulfillment centers. So first, about the first door to our store, which is the online platform. In 2023, we renewed our platform. So the door to store is really now looking different. The findability has improved and the customers can find what they're looking for much faster, which is the first step of fastness. With the renewal, the time they spend on our store has increased by 15%. Also, the average order value has increased by EUR 22 and the shopping cart abandonment has been reduced by 29%. So the customers who step in find what they're looking for, they also stick to the plan and buy it. Behind the scene, we have also improved and built our capabilities ready for retail as media as well as making it easy if we so choose in the future to onboard potential new categories. So there is what is meeting the eye in the front, and there is renewals in the back. Our NPS is really high, 73%, and which gives us reason to believe that the fast and an effortless shopping experience truly is a key driver for customer engagement. When we ask our customers what are the key features for the top Promoter Score, they tell us, 82% is delivery, effortless and ease of shopping experience 86%, and fast service 88%. So not only do we believe that this is important, but we get it reinforced back from our customers as well. And then we're looking at this physical delivery, the material flows from our stores and our warehouses towards our customers. What has happened there? In Helsinki warehouse, we automated the warehouse itself. We have fully taken into use the out-of-store investment as well as packaging automation. This enables us very, very efficient operations. And we have capability to store 32,700 stock-keeping units in the fast delivery assortment. The service itself, as mentioned, is 15 minutes from order to delivery in click and collect and 1-hour delivery to your home door, if you are within that delivery range in capital area at the moment. We have also leaned our operations in the warehouse from receiving the order, to delivering the order, and we are continuing this journey also towards other parts of the processes in-house. And this has really, really great impact already on how we operate. The operational efficiency has increased by 22% measured in lines per hour. So how many lines we can get through with the same resources we used to have in the past. Within the past year, we also have shortened nearly half our delivery lead time, so 43% reduction from customer order towards the delivery, and delivery here means the customer has it either in the parcel locker or the collection point at the disposal or in this 15 minutes click-and-collect path, both are covered in the measurement. And the team has done excellent job. They keep on coming with new proposals all the time. So I don't see that this is the end of the journey. It's the beginning of the journey. So we continue to improve more and further because the good delivery performance does not only resonate outside with the customers, it also resonates very well internally. As a key example, for example, with this delivery improved performance, we can see that in customer care, the contacts have been reduced by 44%. So the customers really are happy. They get what they need fast and effortless and stick to that. Our main delivery flow today is the next-day delivery. And there, we are continuing the path to develop it further with our existing capabilities with our partners and with our assets that we have. And this is really based on the seamless collaboration among ourselves with the delivery network we use because we can only be as good as the weakest league in this whole flow. So by taking care of our on-site and making sure that our partners do the same and making sure that the handover points, the cutoff times and everything are optimally adjusted, we can continue on this path where we are already finding ourselves by having next-day delivery growth by 77% year-over-year. The journey will continue to cover majority of population by '28, and there will be many, many smaller steps taken along the way to make sure that we fine-tune this end-to-end process continuously. Though we are happy with this next-day delivery performance, and we know it's important for the customers, as being #1 online store in Finland, we are able to set the new standards on delivery speed and effortless shopping experience. We are looking at outside of Finland as well, and we see that in case you are not fast enough, the slowness of deliveries is one big reason for abandoning the shopping cart. So in the studies in outside, 23% of customer, they abandon because of slow deliveries. In the recent study in the U.S., we also see that the request for next-day delivery or same-day delivery having high values of 74%, 67% equally, it can be a key differentiator between 2 providers, who can provide the faster deliveries will get the deal. So that is why we need to continuously focus and keep on our effort in speeding up the deliveries with a bigger share and bigger penetration in the country. Panu already elaborated the statistics from Statista, where you can see that this same-day delivery market is growing rapidly in the world, and Finland will follow. Being extremely fast, we have also seen that our NPS being normally 73. With the 1-hour delivery service, it is as high as 91% -- sorry, 91. So there is a huge difference between the consumers and customers who choose the 1-hour delivery service to the higher scale of NPS score versus the 73, which is already a world-class like Panu was highlighting. To revolutionize the retail, we will minimize the reasons to shop online and make it easy for the customers to just wait that the goods come to them that they can conveniently do the shopping where they are, when they are, and we will make an effortless easiness delivery to them. And just to highlight, the fastest case so far in our 1-hour delivery service has actually been 12 minutes from order to delivery to the customer. That is really, really fast. And that has no room for any slack in between of the handover points. So the effortless blazing fast deliveries, they drive the customer engagement as we can see. So therefore, this service will be extended, and I will tell you about it in a minute. Already now when the service is available in capital area, so when it's been made available, we can see that 48% growth year-over-year in customers selecting this service. 86% of this 1-hour service orders are coming from consumers. If we look at this NPS score increase from 73 -- sorry, 91, it's 30%. So that is a key reason for us to drive higher engagement with our customers. What we also see is that the consumers choosing this delivery service, they tend to buy twice more frequently than other customers. So not only they are more happy, they buy more often and keep coming back to us. So this year, 2024, we will be onboarding this service to cover our own stores in Turku, Tampere and all regions. And by doing this, we will increase the penetration or the coverage of the population by 43%. So we will be then able to provide this really nice service to a wider audience in Finland. And as we speak, the teams are already preparing for this improvement. So this is really ongoing 2024 improvement. Towards 2028, we have the opportunity to deliver and extend this service even further into the largest cities by using cost-efficient micro fulfillment centers. So how we will do it is that, first, we need to understand what is the desires from the customers. And first step is really to blend in the holistic demand picture with predictive analytics and data science, spice it up with social media trends as well as macroeconomic indicators in order to know what is needed and where and when by our customers. We always need to be one step ahead in order to prepare for the nice delivery experience. When we know what is needed, we will then need to translate this into optimized fulfillment. And there, the decentralized distribution plays a key role. We need to be close to the customer in order to reach them within 1 hour. And when thinking about managing this kind of delivery network, the AI and machine learning-based solutions for operating the material force will be vitally important, and the digital twin will show us where to focus at every moment in real-time information environment. As a result, we will be where the customer needs us to be. We will continue to be effortless shopping experience across the country. We will do this in a very smart way. So every item that is in decentralized mode in the warehouse is available within 1 hour where it needs to be within 1 hour, and it's available tomorrow where it needs to be tomorrow. So there is a pooling effect. So we will not be exaggerating the inventories on top of each other, but it is actually one. The possibility to establish the micro fulfillment centers, we will conduct by utilizing our partner network, working very closely with them. So we will be having the space as well as the labor in transactional mode, so as a pay as you go. So the space we use and the transactions we consume will be pay-as-you-go mode. The algorithms of selecting where to go and what to store, these we will need to boost continuously in order to be this one step ahead where the consumers want us to be. And we are not doing this solely on our own, but we are also partnering there with the world-leading partners like MIT. Then this system to optimize the material flows, we need to -- we have a system now, and we will need to boost it, obviously, for the coming years, as we normally do always with the [ ITs ]. So the journey so far, we walk through this online experience improvement, which has been taking place '23 and the establishing of 24/7 deliveries with 1 hour, 15 minutes lead time in the capital area, which we will be extending into the own stores, Turku, Tampere, all regions. Why we do that? Because our customers tell us it's important. NPS from 73 to 91 as well as double frequency in purchasing are clear signs for customer engagement and encourage us to do so. And moving on from there then in the future, we have the potential to upgrade even further the delivery network to meet our customers where they want us to be with these micro fulfillment centers. The key takeaways. The journey is already going. We are already on the path. We see already how the world is transforming, and we are spicing up with our efforts, speeding it up where we can by continuing to offer effortless shopping journey with very, very fast and effortless delivery experience. And it will consist of these speedy deliveries, 1 hour when the consumer and customer choose so, but we will continue to excel in the next-day delivery equally so. And by doing that, we will do it in an asset-light manner and with very fluid inventories. And to support this journey, the AI and machine learning-based solutions to support the material flows will be further developed. That is now all from my part.

Thank you, Nina. A very interesting presentation. Shall we go to the questions?

Sure.

So let's take the first one from the online audience. Here's a question that you mentioned in the presentation that you have improved the efficiency of intralogistics by 22% and almost halved the lead time from order to delivery. Can you give some examples of this? What have you done?

Okay. Let me think. So first of all, we've transformed the flow, how the order enters our delivery machine, if we call it so. So we will -- we put a lot of effort on that the order is getting -- or reserving its right place among the sequence when they leave out. So it's full mechanism. So really mingling the orders into one pot and then they get them out in the order they leave the building, let's put it this way. And we are not doing this alone only, but we are also working with our partners so that there is no minute lost when we hand over something for the delivery network. So they also know what they expect. And they also tell us what is the right sequence of getting the parcels from us to them so that they can be really meeting the delivery deadline, which is the same for us and them. We share the same customer at the end. So it's internal, external seamless collaboration and aligning the priorities and making sure the customer order get its right spot.

Sounds great. Good. Is there any questions on the audience? Yes, Sanna [indiscernible], please.

Sanna Perala from Nordea. I actually have a follow-up question on that. In the chart, you said you increased your next-day deliveries and 1-hour deliveries quite impressively in Q1 versus last year. You mentioned some concrete internal changes you made. So was this increase internal, based on your changes? Or was it demand driven?

No, it's really based on really squeezing out the, if we call it, waste. I mean every step, if it's not increasing customer value, it's waste. So we really have looked through the whole process backwards when the customer receives the order, and then what needs to happen before that in our partner network and then when the order is supposed to be leaving from us to walk past from there. So we started from some bigger things, and then the team has continued on the journey. I really, really have to say that I admire the whole team by coming up with continuous improvement items that we further on continue to shorten the lead time as well as increase the delivery accuracy. So it's stubbornly working towards a common goal.

But I guess demand has also increased in that service.

Of course. And for the 1-hour delivery, for sure, that was a new service we piloted at the beginning and there is a huge jump. But the majority of the deliveries, they are in the next-day mode at the moment. So therefore, that is the area we need to excel equally. So we can't forget one or the other. We need to deliver on both flows.

Thank you, Sanna. Calle, yes, please.

Calle Loikkanen from Danske Bank. I was wondering about the 1-hour deliveries that, what is the average value of the order where the customers have chosen 1-hour delivery? What's kind of the average value?

Now the average order value, generally speaking, has been increased, as I said, EUR 22 with this renewal of the platform as well as the underlying services. Now to distinguish the 1-hour delivery is a number that we need to come back to in the -- later in the afternoon.

Okay, sure. And then I was wondering that the target for '28 is to have the 1-hour and same-day deliveries in quite a big part of Finland. How much CapEx do you need to kind of be able to execute that?

The request for the CapEx is rather minimum. As we said, we will be doing that pay as you go. So we will be working closely with our partners. Both the space as well as the labor required to deliver this service will be transaction based. So not CapEx, OpEx.

Any further questions in the audience? Okay. If not so, I would like to thank you, Nina.

Thank you.

Thank you for your answers and presentation. You will have a chance to continue discussions with Nina during the break we have. But before the break, we have one more presentation from our Chief Commercial Officer, Tatu Kaleva. Tatu will tell you more about our assortment and how it's optimally suited for fast deliveries, and also about our own brands and how they will make a difference. Please, Tatu.

Good afternoon, and welcome on my behalf also. I'm really excited to talk to you, tell you more about our winning assortment and also how we support the fast deliveries that Nina was talking about and also about our -- the role of our own brands. But first thing I really want to highlight is that customers love our assortment. We have over 0.5 million transparent product reviews from the customers, and we used this data to curate our assortment on a daily basis. That means we're constantly looking for better products. If a product gets bad reviews and doesn't do it for the customer, we go out and find a better product that does it better and then gets better reviews. And with these 500,000 product reviews, we have an average of 4.3 stars, and that is really high. Let that sink in for a moment. And when the customer gets the product he or she needs, gets the right product, we see that also as really low customer returns. And like Panu also pointed out, 0.7% is exceptionally low in our business. We also -- our assortment is also perceived as the broadest and most interesting assortment available when it comes to -- compared to our competitors. In my presentation, I will walk you through 3 points that make a winning assortment for us: first, what we mean with the hero assortment; then secondly, expansion to next -- to new categories; and third, our own brands and the roll off of our own brands in our assortment. Let's start with the hero assortment. Customers value our strong offering in high-quality products. We have over 2,800 brands available at the moment that makes 58,000 SKUs of best brands and most exciting new products. New SKUs are also introduced on a weekly pace of 400, and that means that our assortment develops daily according to new product launches, customer wishes, trend analysis. And in addition to that, we also featured 2,500 high-quality own brand products, which already cover over 80% of our main categories. I will give you -- yes, and brand and own brand split is the own brand products make up 3% of our total SKUs, but they contribute already to 6% of sales. Then the hero assortment. This is the strong core inside our offering, and it consists of the most wanted product that customers want to have fast delivers. The hero product also form our core revenue stream. So hero assortment is most wanted products that the customer prefers to have fast delivery on. And of course, with these ones, we want to take extra care that we are always on point with our customer value propositions, availability to make fast deliveries possible, the right price, you will probably always get the cheapest from us and best-in-class product information to make it easy for the customer to choose the product online and high quality, of course, because we want to make sure that the customer is satisfied with the product. And these hero assortment characteristics are supported by our company's underlying assets, extensive and exciting offering, local warehouses, efficient retail operations, transparent product reviews and high brand preference. We are also constantly tracking trends to be the first one offering new gadgets and fulfilling customer needs. We use many sources, more or less commonly accessible. Of course, we take -- have a good eye on the market at all times. We also get insights from our partnerships and monitor trends, for example, on social media. Because an interesting assortment is not just about the biggest brands, it's innovative, trendy stuff as well, some niche stuff as well. And over the last 3 years, we have been growing our brand count by 38% and also our own brand assortment by 48%. On the other hand, we also closely manage the performance of our assortment. In the last years, we have been adopting to a declining market by optimizing our assortment and according to changes in customer demand. And we have been able to bring down our inventory value by 24% and at the same time, increase our performance on an SKU level by 5.9%. And optimization is, of course, done on a daily basis to ensure a good fit with our internal logistics. It's really important for us. And when the assortment is in good shape, we are even more capable of scaling it then. And with that, I jump to the next topic of assortment expansion. Here, you can see a picture of where the analysis is based on market growth on the X axis and online transition on the Y axis, and the bubble size in the picture indicates online market size. So 3 conclusions here. The red ones are our existing core categories. And there can be seen that there is still market growth to be seen, for example, in major domestic appliances and small domestic appliances, MDA and SDA, and then some online transition also forecasted for some smaller red bubbles. Secondly, our growing categories are the gray ones. These we have already tapped into, but with a quite narrow assortment. And these are heavily shifting online during our strategy period, and there's also what we see some potential in. We have also identified some new potential categories within the blue ones. And -- but these decisions on which categories we are going to launch hasn't been disclosed yet. However, these new potential categories will be tapped in from 2025 onwards. But first, we need to make sure that the expansion has to be a good fit with our automated product flow, our internal logistics and also complement our existing assortment. And again, this goes for new categories as well. We want to offer the most desired products. It has to be suitable for fast deliveries. You will probably always get it cheapest from us. So the right price, best-in-class product information and dropship suitable supply, not to put too much strain on our inventory and as well as low return rate is a business that we're looking for. So new categories from 2025 onwards that fit our platform and logistics. Third topic is our own brands. These are really important for us on one hand because they prove -- they boost our profitability, and on the other hand, they create exclusive reasons to shop with us because the great value they offer. This is something we have been building up our capability with our own brands for over 20 years. And focus on quality has landed us in recent years with a rating of -- on an average rating of 4.2 stars, which is on a very high level. And we also have the ability to build brands that shift our customer preference in the market, for example, with Blackstorm, which is known for gaming and computer products. And by having that position and the trust that comes with the customer reviews, we have been shifting sales towards our own brands with better profitability. Margin contribution of our own brands has increased by 10% in the last 2 years. A great success story is Strome, for example. It's our own brand, and we sell products in small home appliances, large home appliances, home and lighting products, and it has become a valued brand among our customers. Since 2020, we have put a lot of work in building up the offering. We have brought different price points and also improving the quality, improving the customer reviews, and sales has followed. Last year, our average rating for Strome was 4.3, and in 3 years' time, sales has gone up by 79%. And that's what we do. We always try to find the best value for money when it comes to our own brands. Talking about Strome, he's a really concrete example of what the great value for money is and beating the brand. And on the left side, we have one of our best-selling washing machines with the slightly better technical specs, but it has the best product reviews and a significantly lower price point. And that's what we're looking when we build own brand products. It has to have the same or better specs, always tested and complied with regulations, affordable price, competitive features and, of course, the same lifespan as the brand product has featuring spare parts, et cetera. And how do we do it? How do we get 5-star ratings for our private label products? I think -- or it has to do with being really openly on the customer side. We have those 0.5 million product reviews, I told you in the beginning, and that is also really important data when it comes to a product design. The customers tell us exactly what's good, what's bad, what features they appreciate, how they perceive the price and how they use the product. And our in-house product development uses that data to create new products for different use cases or making the existing products better. So our own brand products are designed directly to our customers, to our market with their feedback. And we also have this Asian specialist team that -- and their job is to make sure that we -- that what we want to offer in our market, we get the best price for the best terms and directly purchased from the manufacturer. And they're also taking care of audits and supporting logistics operations. And as a combination of these 2 assets, we're able to create quality products for market-specific needs with unbeatable price. Then this summer, for example, just a couple of weeks ago, we launched a collaboration with a clothing brand, Billebeino, which also showcases our quality-driven and efficient sourcing capabilities. And this time, it took the form of some cool glamping gear you can enjoy in the summer. So key takeaways. First, a curated by the customer and efficient hero assortment is the core of our offering, most importantly, to fuel the fast deliveries and effortless shopping. New categories will be rolled out in 2025, but there's some potential also in our existing ones. And thirdly, our own brands are important for us to boost profitability. They offer great value for money and brand like quality. And with this, I hope I've given you some perspective on what a winning assortment means for us. Thank you for listening.

Thank you, Tatu. Very interesting presentation. So now time for a couple of questions again, and let's start with one from the online audience. You said that you are expanding into new categories. Could you give some examples of what those could be?

I think I answered that already. We haven't disclosed any specific categories yet. We are planning to expand in 2025. But at the moment, we are analyzing. We're looking at the market deeply, and that's also -- we're always interested in new possibilities there. But the thing is it needs to fit our logistics system, our automated supply product flow and also our existing assortment. And -- yes.

Okay. That's good. Any questions from the audience here in Helsinki? Maria, please.

Maybe one question, thinking about given that your assortment is changing all the time, and there was a time when you cut the number of SKUs quite a bit. So how do you make sure that the clients who are currently, like, they are with you, that they actually stay on board when the assortment is changing?

A good question. Of course, we adapt to the market situation. There was -- during the pandemic, we expanded a lot, and that had always -- that's because the customer demand changed and there was a shift in customer needs also. And now when the -- when we're adapting to a declining market, we cut the assortment, and we bring the number of SKUs down. But of course, we always do it from those SKUs, those products that we see that are not that important for the customer. We -- the products that bring in the traffic, we see that those are the ones interesting for the customers. We don't touch those. Instead, we bring better performing products in the selection.

And I mean, retail is always detail. And given that there is quite a bit of geographical difference between Helsinki and Oulu, but is the assortment exactly the same in Helsinki and Oulu?

In the stores? No, we have different store layouts, and it varies between all stores.

Good. Any further questions in the audience? Maybe then one more from the online. You did a lot of -- you mentioned that we did a lot of category optimization over the past year. What kind of results have we achieved?

I think I answered that also in the presentation. We achieved -- we brought down our inventory levels by 24% and also on an SKU level, we dug deep and rooted out the SKUs that weren't performing that good. And as a result, the performance of SKUs increased by 5.9%.

Good. Thank you. And thank you for the presentation. Now we will have a break. We will continue at 10 past 2 sharp. So see you soon. Thank you. [Break]

Welcome back. Hope you had a nice break behind the screens as well. Just a reminder, online audience, you can send your comments and questions throughout the whole event over here, and you can find the question button right below the webcast window on the event page. So we have already heard how we changed retail in Finland, how we make shopping fast and extremely convenient, and about our winning assortment assured by customers. And now in the second half, we have 3 more interesting presentations deep dives into our strategy execution. First, Jyrki Tulokas, our Chief Strategy and Technology Officer will get you to our new business models and international expansion. Jyrki, please, the stage is yours.

So I hope you had a refreshing break as next we will dive into new business models and our international expansion. So why do we talk about new services and international expansion? Well, the answer is pretty clear as we and others in the market see that a lot of the future growth and profitability especially will come from these new type of services and add adjacent things to the core retail business. So we've already heard today about new adjacent categories that Tatu talked about. Now we'll dive into new geographic markets, wholesale adjacent services, retailers and media, finance and services and payments, and a little bit also about the customer loyalty and how all these come together. We actually have quite a lot of knowledge about new services and how they actually drive our business. So if you look at these 3 things really they drive both bottom line and top line the services and they drive differentiation, but they also drive a customer loyalty. So we've had for quite a while our financial service which has done very well during the years and between 2022 and '23, the growth was still 45% and reaching almost EUR 7 million as financial services revenue, and with very good profitability as well. So we see that services really drive that financial performance as well. But they do drive differentiation as well. And we see that last year, we launched the trading service where customers can sell their existing old product back to us once they want to buy a new one. We've seen a sixfold growth in that type of transactions. We also said as before the 1-hour deliveries the growth has been really phenomenal and 48% growth year-on-year there as well. So customers really love these type of services and they differentiate us on the market. But it's also about customer loyalty. Customers that use our Tili service that grew 84% last year, and I said before as well here that even though we have a very high NPS of 73 with all customers, it's even higher with the customers that use for example the 1-hour delivery service. So as from Panu, what drives the rise in our NPS? One of the reasons is that customers use these services where -- which work really well for us. So we've talked about international expansion in our strategy. So let's look at that next a bit. So we are not new to international sales. It's not talked about a lot yet, but we've been hovering between EUR 30 million to EUR 40 million a year range for some years. But inside that we've been really focusing on international sales to EU and there, we saw last year 17% growth to previous year. So really good growth for overall in EU, but in the top 3 countries that we have been focusing on, the growth was really high saw 82%. And these really make already the majority of our international sales. So we're focusing now on Nordics and Baltics, but next, of course, looking at the Central European big countries, how do we increase our sales there as well. So good start and how do we then do business internationally? It is mostly B2B at the moment. There are 3 different ways we work. So the biggest opportunity at the moment that we see is with EU-wide large retailer partners, similar companies to us that sell a lot in their -- usually in their own country. And these are direct relationship with those customers, usually multimillion opportunities for us per year. And we sell our own brands as well as global brands that we represent here in Finland. So we use the same assets that we have here in Finland, whether that is logistics or other assets to sell to these partners. So this is currently the biggest opportunity that we are working on, and signing new partners as we go. The second opportunity that we see is marketplaces in the Nordics. So we have a few marketplaces that we are actually managing the offering and pricing those products there and again selling both our own brands as well as global brands there, using again this is our own existing logistics model here from Finland. And then the third opportunity, which is a rising opportunity for us, is with small retail merchants around Europe. So here we talk about there are a lot of small retailers in EU that are searching for products across the area and these we will be handling then with very automated self-service type of model as this really needs to be efficient. But again, still using the same assets that we have here from a logistics point of view. So these are the 3 ways we are attacking the market and continues to grow well this year as well. So moving on to another topic that we mentioned in our strategy that we're driving, which is retail as a media. And with retail media, we see that the brands -- saw the brands that we sell and represent, they're moving their marketing money away from generic marketing in general to digital channels, but more and more to retailers. And why that is, is that we actually have the customers when they come to us, they're looking for a solution, they are there to buy and they're engaging with the brands. So it's the right place to be to advertise or do marketing and present your brand. And that's why -- and, of course, this is the biggest opportunity for online retailers as the customers are there looking for those products. And we have really a good understanding what the customer is looking for, what they're doing, we have segmented our customers well, and we can actually give back more visibility to the brand, how the customers perceive their brand, how they rated their products and so on. So there's a lot of information we can give back to the brands. So that's what's resulting into this growth that for example in our categories the market in retail media is growing like something between 20% to 40%. And for some in the market already, for some retailers, retail media is representing a majority of their whole profitability. So what makes us as a great place to do marketing? Well, retail media in our company we have -- as said by Tatu, we have 2,000 -- plus 2,800 brands that we represent. So there's a big mass that we can actually do retail media with. But why again they -- we are the primary place in Finland is that we are the biggest and most preferred consumer electronics brand here with more than 70 million visits a year. So that really gives the brands the visibility to them in Finnish market. But again as said before, we also have the really good customers that are engaged with us as a brand. So really strong customer NPS as explained also by Tatu that those customers give also very high ratings to products on our site. So again there is more visibility for the brand, how customers actually perceive their brand with us. So as for others, retail media possesses really an attractive opportunity from a profitability contribution-wise to us. So we are on a good way already and we are looking at doubling our retail media contribution by the end of the strategy period, so 2028. So how do we then get there? What are we working on at the moment? We're increasing our inventory, so expanding on-site and off-site our visibility. So what we can actually give and present to the brands as a media placement, we're doing a lot of commercial development at the moment with the brands understanding their needs and telling our story, what we can offer. We're also working on data and reporting, because this is something that retail media really represents, and what we want to give to the brands back is understanding of what the customers do and how they perceive the product with us. And finally this is going to be a technology development as well. We want to make it super efficient. So we're spending efforts also to make retail media a technology that brings efficiency and profitability contribution. And finally, some words about the new services. As also said before, this doesn't -- the new services don't just drive top line and bottom line, they also drive a lot of customer engagement and how customers -- how often they actually purchase from us. So customer loyalty. So with, for example, Tili, with our financing product, we can see that those customers buy much more than customers that don't use Tili, similar thing for fast deliveries. Again, those customers that use fast delivery, they buy 2x compared to the customers that don't use this new type of services. But the good thing is that we're becoming quite good also driving services. So looking at forward when we do new services, we can see similar adoption of these services. So the curve rate, how fast deliveries is developing is quite similar to the Tili, where we have been very successful. So good news for us. And, of course, we're learning all the time how to drive services in the company. So this, we really want to create this new norm for buying and owning. And what does that mean? You can look at it from 2 different perspectives. We really want to improve the core retail experience. So how the customer actually buys effortlessly, the effortless shopping experience, of course, the blazing fast deliveries, but also blazing fast installation services. So really creating the new norm there, the flexible payment options, as said, an important topic coming up in the future, buy now, pay later and then the easier option is also, if the customer has -- wants to have maintenance or if the customer has needs to return the product for a reason or another that is fully digitalized. So improving really the core experience. But then secondly, we want to build new winning concepts, new ways of really buying and owning. And that's related to, for example, we launched a trading service where customers can sell back their existing product to us. That's already there. We are expanding with new products and new categories to that area. We also have our pre-owned product line. So the used products, that's taken up really well by customers and we're expanding that also to new categories. And then the third point, we will look at new ways of owning devices. So device as a service, subscription models and also rentals. And finally, we also want to extend the lifetime of those great products that the customers have bought with relevant services like insurances, warranties and maintenance services for those existing products. So those are the 3 things that how we create the new norm for buying and owning. So key takeaways from my presentation would be that these adjacent services really drive profitability, differentiation and customer loyalty. We're well on our way with international expansion, gathering speed there, retail media will be a good and even better profitability driver going forward. And these new adjacent services transform really the ways of buying and owning. Thank you.

Thank you, Jyrki. Great presentation. Now we have time for a couple of questions. Maybe first one from here, from the online audience, regarding the international expansion, where do you see interesting markets outside of Finland?

So currently we're focusing mostly on the Nordics and Baltics. So that's where you've seen the high 82% growth numbers for last year. But really our coverage will extend to larger Europe, but at the moment it's in these close by regions as well.

Good. Then next question from the audience. Maria, please.

Yes. I had a question on the retail as a media, and I think you had the slide where you showed that you are going to double the profit from retail as a media by 2028. So the question is, is that Verkkokauppa figures and why the 2023 has an E at the end? And then if you could a little bit like, elaborate that, do we talk about hundreds of thousands or millions? So what's actually the base figure?

So I don't think we have disclosed that figure. How much we actually do profits or revenue from retail media. So that's not something that I could give out. The E part, I don't know at the moment. But yes, that's our retail media profitability or so.

Yes. It would be very helpful to get a little bit of sense that how much that would be in order to incorporate an estimate. But this is just a comment for future maybe.

Next, Rauli?

Rauli Juva from Inderes. Few questions on the international side. First of all, can you open up a bit of the profitability? I understand that generally the B2B profitability is quite low. So is there any kind of change in that in the international side? And secondly, what is the key reason for the European retailers to buy through you rather than kind of maybe more conventional sourcing channels?