AHLENS STORE PICTURES

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The IADS travelled to Sweden last April to meet with the new CEO and owner, Mr Ayad al-Saffar, almost a year after his inception at Åhléns. The purpose was to discuss and understand his plans and vision for the century-old department store company.

After a first year spent reviewing the fundamentals of the company, Mr Al-Saffar started to operate significant and structural changes to the business model, and they might very well be a game-changer in this part of the world. Rather surprisingly given the fact that Åhléns already operates 47 stores in a country with 10.42m inhabitants and ranked second in Europe in terms of retail density (after Monaco), he also detailed his plans to open more stores in second and third-tier cities, thanks to his new approach to business.

We review our store visit below to understand to what extent Åhléns will revolutionize the Nordic market with its new approach.

Company history and background

Åhléns was founded as a mail order business in 1899 in Insjön, a small town north of Stockholm, by two associates, Johan Petter Åhlén and Erik Holm. Within 10 years, Åhléns was a 1.5m SEK business (€128k in today’s money) with 255 employees, and the founder decided it was time to move to Stockholm in a newly acquired 7-story building.

Diversification started in 1932 with the opening of a first department store chain, Tempo, promising the lowest prices possible to customers. The physical retail activity of the company grew consistently, leading to the closure of the mail order business during the ‘60s, the opening of Åhléns City, the current flagship store, in 1964, and the progressive conversion of Tempo stores into Åhléns until 1985.

In 1988, the Åhlén family sold the company to Axel Johnson AB, a Swedish family business specialized in trade and services in Europe and part of the Axel Johnson Group, a Swedish international conglomerate. Åhléns was the only department store business operated by Axel Johnson AB, which portfolio also included Kicks (an beauty & fragrance e-commerce pure player which mutualized purchases with Åhléns), Axfood (a 300-large grocery stores chain under various names), an investment company in retail businesses, a restaurant wholesaler and an IT reseller. At Åhléns, the owner focused on developing the brand portfolio (mainly through concession deals and private labels development), automating the operations with a new warehouse, developing an outlet offering, and pushing the e-commerce business. Investments were made in both existing stores (Åhléns city stores were refurbished in Stockholm and Gothenburg in 2018) as well as in expanding the network (including outlet stores).

Åhléns reached a total turnover of SEK 5,019 (€431m) in ‘19, compared to SEK 4,809m in ’18 (€412m) and posted a net loss of SEK -116m (-€10m), compared to SEK -131m in ’18 (€ -11.2m), with 1,806 employees at the time. Just before the pandemic, the main focus of the company was to expand the outlet stores network, push private labels, and, more importantly, continue its heavy investments in IT to support e-commerce and marketplace expansion, which explained at the time the losses posted. The Covid-19 pandemic took its toll on the company, which saw sales decrease -15%, and losses almost tripling, even though Sweden never went into a lockdown and stores never closed. These difficulties, combined with Axel Johnson AB’s strategic focus on turning away from consumer goods, led to the sale of Åhléns in ‘22 after 34 years of ownership to a group of investors led by Mr Ayad Al-Saffar.

Al-Saffar, a seasoned retailer, came from Lebanon as a refugee to Sweden in 1984. Incarnating the “Swedish dream”, he started as a salesman on markets, before founding a watch wholesale company in ‘91 and being offered to purchase loss-making Ur&Penn, a 40-store-wide watches and jewellery specialist then owned by the H&M group. Al Saffar managed to turn the company around in one year by reviewing the assortment and the price point, and the company grew to 100 stores today. Al Saffar achieved a similar turning-around performance with Dutch loss-making retailers Lucardi in 2006 and Kijkshop in 2007.

Today, Åhléns as a whole achieves a total turnover of SEK 4.7bn (€403m), with 47 stores and an e-commerce platform, operated by a total of 3,000 employees accommodating the needs of some 60m annual visitors (in a country with 10.43m inhabitants). It concentrates on fashion, beauty and homeware, and has a loyalty program (Åhléns club) with 2.5m members.

Åhléns positions itself as “the department store with a smart mix”, providing solutions for time-pressed customers to simplify their lives by mixing the right brands, including sustainable ones (Åhléns issues ESG reports in Swedish every year).

Visiting a Tier II location

The first Åhléns store visited is located in Östermalmstorg, a posh neighbourhood 500m away from Birger Jarlsgatan, an avenue planted with luxury and fashion free-standing stores, from Chanel, Louis Vuitton and Prada, to Zadig & Voltaire, Max Mara and Zara, and faces a square with significant traffic in terms of local customers (this is not a touristy place).

By European standards when looking at a city centre unit, the store is disconcerting: windows are not fully utilized, as it was chosen instead to allow customers to see through them and see the store, and the small size of the store appears at first sight when entering (1,500 sqm).

The ground floor is dedicated to cosmetics, displayed with standard brand fixtures and name reminders, while fragrances are presented behind a closed glass wall, forcing customers to ask an operator to access them. The floor also displays summer wear and accessories (all with generic, middle-priced, local brands) and a para pharmacy section. The cash desk does not offer additional services.

The basement is connected to the subway system, and the entrance is also equipped with Post Nord pickup stations, allowing customers to retrieve parcels and click & collect items, not far from the cash desk. The floor displays kids wear and toys, as well as the home category, rather well-staged. However, overall, the experience lacks inspiration, and each retail space has a visible reference number, likely to help retail operators and brands to locate where they should set up their stores but instead impacts the customer experience.

The upper floor is mainly dedicated to women’s fashion and lingerie, with a mix of generic concepts and branded shop-in-shops. For fashion brands, shop-in-shops are more detailed and immersive than for lingerie brands where in reality they are only dedicated and delimited spaces with a brand reminder on the walls. A section is dedicated to activewear with brands such as Esprit, Levi’s and the Åhléns private label, and there is also a tiny men’s underwear section.

During the visit, the clientele was exclusively composed of middle-aged women.

Even though the visit was, somehow, disappointing, when discussing with Mr Al-Saffar, it appeared that this store, which was to be refurbished and modernized, was profitable, just like 100% of the 47 stores currently operated in the country.

Visiting a flagship location

The second store visited was the massive Åhléns City store, right in the centre of the city, at the same distance from the Royal House, the museum island, the train station, the Culture house and the high street. Talk about a flagship: the department store, built in 1964 and now rented from a real estate company, occupies an entire block of 40,000 sqm, and represents 20% of the company’s total revenue (125m€) thanks to very significant traffic for such a small country: 15m people visit the location every year (more than the Stockholm train station and airport).

The massive façade is windowless in red bricks as the initial objective was to make sure it would be easily recognizable and become a landmark. Åhléns uses this space to advertise collections and brands.

The ground floor is dedicated to cosmetics, fragrances, shoes and accessories. However, the plan is to move the shoe section and increase the space allocated to bags. The CEO explained that the first year of his tenure was dedicated to stabilizing and structuring operations (especially in terms of brand supplies) and that the new zoning of the store was next on the plan.

The luxury usual suspects (Dior, Byredo, Chanel) are operated in concession, in a high-traffic section at the entrance of the store (in semi-personalized spaces) with the purpose to increase the brand portfolio there. A Joe & the Juice bar, still present at the time of the visit, is planned to be removed and replaced with a watches section, in order to not interfere with the fragrance space. The rest of the product offer is a mix of private labels (such as Carin Wester, a private label developed by the previous management with a local designer celebrity, which Al-Saffar has repositioned both in terms of image and price point, and decided to design internally), and foreign brands operating in consignment, with good margin rates for Åhléns (more than 60%).

An upscale café completes the experience, which is overall very nice, as the store, in spite of its huge dimensions, is airy and the sight gives an impression of unconstrained space.

The first floor is dedicated to women’s fashion (luxury, contemporary, denim and activewear) as well as lingerie. The fashion section is mostly an alignment of shop-in-shop with each brand’s concept, with the exception of Åhléns Studio, a multi-brand section right in the middle of the floor (similar to the SKP-S multi-brand sections at SKP in Beijing) with a specific in-house concept. Most of the floor is operated in wholesale terms, which allows for negotiating discounts against immediate payments, with the exception of a few brands (Tiger of Sweden, Filipa K and others). This has been one of Al-Saffar’s main points of focus in the past 12 months as his goal was to reduce the number of brands operating in concessions, in order to regain control of the assortment and increase the operating margin, by reverting to a 90% rate of brands operated in wholesale.

This is why, for instance, the denim section was under construction at the time of the visit, as the new brand assortment (a mix of labels already in Sweden and exclusive ones) was being finalized. Switching from a concession business to a wholesale business obviously requires acquiring the needed savoir-faire (buying team), which means time in terms of recruitment and training.

The second floor is dedicated to home and kids. The Home section is rather beautifully staged with a very Nordic taste, and both this section and the kids one (apparel and toys) offer a selection of international and local brands, completed with private labels either developed by Al-Saffar or redeployed (such as the Rikiki kids line). A family room is available for customers willing either to relax from the shopping heist with their families or have their kids under supervision while they are in the store. The family room is astutely located near a café and the toys section.

The third floor is dedicated to menswear, services, such as a barber, and personal shopping services. Just like for women, menswear is a mix of international, local and private labels, and the target is to increase the number of brands operated in wholesale terms. The barber is quite well-executed, albeit not really visible from the floor and only customers in the know might find it easily.

The personal shopping service space is very welcoming and spacious, dotted with products in double exposure in order to entice shopping. The space can be booked in advance and is connected with the club membership program, with a system developed in-house and based on purchase value, with 3 different membership levels. The software developed by Åhléns teams also includes a system in which customer feedback received via email is collected, compiled and reviewed with the adequate teams on a daily basis.

The fourth floor is currently rented by Muji but the plan is to replace them with a new offer that remains to be defined. It could be either an extension of the Gourmet section which already occupies a side of the building, or a new upscale F&B section taking full advantage of the terrace, or a flex office space based on what Saks Fifth Avenue has developed in New York with WeWork at the time.

Interestingly, there are also many questions about the corporate offices, which are also on that floor, with offices enjoying incomparable views and a huge private terrace which is completely underused while avoiding demotivating employees who have been used to these offices since the 60s.

The Åhléns project is a work in motion, and the visit came at the right time to fully grasp the size of the transformation Mr Al-Saffar has started for the company.

What’s next for Åhléns?

Al-Saffar's most important plan is to review the way the department store company has worked with suppliers so far.

Historically, and for various reasons (non-aligned seasons, high import duties, different currencies), retailers in Nordic countries have always relied on third parties acting as importers and distributors to bring in brands and operate them. We already reviewed what it implied with NK, also in Stockholm: until the pandemic, NK was acting as a mall and leased spaces to brands and operators. When one of those operators went bankrupt in 2021, NK had no choice but to purchase its operations and learn how to operate fashion instead of simply managing real estate. Al-Saffar, a seasoned retailer, wants to go much further than that, and this is why he spend the past year cancelling concession agreements and reverting to a 90% wholesale model.

*While such a model theoretically allows to keep a much tighter control on the product selection and therefore the store positioning, Al-Saffar also states that it allows him to take a greater share of the pie, as he does not share the margin with anyone. This is also the reason why he wants to expand the private label business from 20% today to 35%, and his approach is very simple:

-    Either source products in Asia and label them adequately,

-    Or negotiate with foreign brands the exclusive rights of distribution in the whole of Sweden (the 47 stores fleet is an argument in that kind of conversation), as exemplified with the cosmetics brand Inglot

-    Or purchase the rights of an individual and build a brand accordingly. For instance, he made a deal with a Swedish chef to be able to use his name and face on a new line of kitchen accessories he will develop and sell in his stores.*

This approach allows him not only to consider keeping all 47 stores, which are all profitable but to plan expansions, including in second and third-tier cities and smaller ones, where the new stores will present 65% of private labels in their product offer.

That new approach, in which third parties are eliminated from the equation, is quite new in Sweden and in the Nordics in general and might very well be a game-changer for Åhléns and the region. While it is some kind of normalization as this move would make the Nordics more in line with usual business practices in the rest of Europe, it might also contribute to a more general movement for brands to see Scandinavia as a new market, as they could expand there with fewer constraints than in the past. As a consequence, the hype we noted last year when visiting the region could be very well fuelled by a new gold rush for brands looking for European pockets of growth.

Credits: IADS (Selvane Mohandas du Ménil)