Retail country in-focus: Finland

Finland's government criticised Microsoft, last week, after the software company announced it was further streamlining its smartphone hardware business, at the cost of up to 1,350 jobs at Microsoft Mobile in Finland and up to 500 additional jobs globally.

The country's finance minister, Alexander Stubb, said he was disappointed in the tech company's decision and pointed out that the promised opening of a Finnish data centre had not materialised either. Reuters reported the nation's employment minister, Jari Lindstrom, saying that ministers are working with the software business to help people who are set to lose their jobs as a result of what is effectively the signalling of the winding down of the Lumia mobile operations – the division formed out of Microsoft's acquisition of Nokia's devices business in 2014.

Employees working for Microsoft Oy, a separate Microsoft sales subsidiary based in Espoo, Finland, are not in scope for the planned reduction in jobs.

With attention focusing on Finland in recent days, Essential Retail has opted to assess the state of play in the country's retail technology sector and its wider retail industry. At first glance, with a number of agile tech firms materialising from the Nordic country in recent years, some of which have secured contracts with a selection of the UK's largest retail businesses in the process, the overall picture looks quite encouraging on an international scale.

In April, meanwhile, clearance was given for development to start at Kotka Old Port, representing another tick in the box for positive retail news in Finland. The area will be made into Finland's first waterfront premium brand outlet site, where top international fashion brands, hotels, restaurants, spas and other organisations are expected to open.

For so long in Finland, so much of the business landscape was dominated by one company, Nokia. At one stage, in 2000, official government figures showed that this one single organisation accounted for 4% of the nation's annual GDP.

With the growth in the popularity of the smartphone, and the market dominance of Apple and Samsung in that space, Nokia's relevance dwindled. Millions of its phones were still sold around the world at the time of Microsoft's acquisition, but as Nokia's influence shrunk, it has seemingly led to changes in Finland's business infrastructure as a whole.

The Nokia impact

Microsoft's consolidation of the Nokia business it acquired two years ago resulted in company-wide global redundancies of around 18,000 throughout 2016, with the majority (circa 12,500) impacting the Nokia devices division.

For Microsoft, the job cuts were expected to cost the organisation up to $1.6 billion, but for Nokia – and many workers in Finland – it meant a lot more: uncertainty, a challenging environment and the need to find new work.

Anecdotal evidence suggests the unprecedented filtering of tech expertise into Finland's job market as Nokia's mobile market dominance fell away has helped fuel something of an entrepreneurial renaissance in the country. As high profile examples of a wider trend, one can point to former Nokia CTO, Tero Ojanperä, who became chairman of ad tech start-up Kiosked, and ex-Nokia marketing executive, Pekka Rantala, who until six months ago was CEO of Angry Birds maker, Rovio.

Juha Mattsson, chief marketing officer at in-store analytics provider Walkbase, said the Nokia situation is likely to be one reason why a number of technology companies have been established in Finland over the last few years. The sudden availability of tech intelligence has led to a start-up boom, with many of them looking to target the largest markets such as retail.

Speaking to Essential Retail, before last week's Microsoft announcement, Mattsson commented: "With the discharge of Nokia's once massive mobile device business, a lot of knowhow and mindshare has been freed up for other entrepreneurial activity in Finland.

"We can see all this freshly made-available brainpower now heavily fuelling the domain of start-ups and growth companies. Finally, the European venture capital markets seem to be finally closing up to the maturity of that in the Americas, again paving a great platform for new tech companies to grow and reach out to make a dent in the world."

Retail tech state of play

This year's RBTE, Europe's largest end-to-end retail solutions event, saw six tech companies from Finland set up stands on the expo floor, with others such as Walkbase aligning themselves with larger partners at the show.

The businesses in question were: Frosmo – an eCommerce technology provider; Giosg – an online personalisation software company; Mapos – a software firm that develops in-store marketing management tools; Nordic ID – one of the growing number of global businesses to focus on RFID tech; VTT – a customer communications tech solutions provider; and Zoined – a specialist in data analytics. Between them, it can be argued they are looking to solve some of the retail industry's key pain points when it comes to providing a relevant customer experience.

Each of the tech firms are at different stages of their evolution, but they boast a range of local and international retail clients alike.

Zoined UK general manager Merrick Edwards, who took on the role of overseeing the company's operations in the British market in 2015, said RBTE gave the organisation an opportunity to showcase its offering to a suitable audience as a standalone proposition but also in partnership with larger international vendors such as Star Micronics, Zebra Technologies and Panasonic.

"We found that visitors to our stand were surprised by how quickly Zoined's analytics can take mountains of data from a variety of sources and rapidly display it in an easy to interpret graphical form, one that can help them to see the wood for the trees," he blogged, in the immediate aftermath of the show.

The Body Shop and Intersport are examples of companies operating in the Nordics that are tapping into Zoined's capabilities.

Pushing Finnish trade

This publication has twice been invited to the London-based Finnish Ambassador's Residence (FAR) during the last nine months, to hear from two tech companies from the Nordic nation looking to make their mark on the international retail world. One of those is the aforementioned Walkbase, which has secured key partnerships with the likes of shoe retailer Dune to help measure in-store customer analytics. The other company hosting Essential Retail at the FAR was supply chain tech company, Relex, which is working with retailers such as, Booths supermarkets and Wyevale Garden Centres to help them manage their respective back-end systems through the provision of flexible software.

So is there a particular boom in retail technology deriving from Finland, right now? Mikko Kärkkäinen, group CEO of Relex, told Essential Retail: "Finns are big on tech. The country also commands long distances and high minimum wages.

"The combination makes them eager to develop and implement technologies that can help supply chain optimisation and efficiencies."

Walkbase's Mattsson said, in general, there are a number of "born global tech companies" emerging from the country but they are appearing in multiple sectors.

"I believe it's about the sheer size of the start-up activity in general, rather than any particular boom in the domain of retail technology," he commented.

"Naturally there's always the classic 'bandwagon effect' or cluster formation when a few companies become successful in a domain."

Mattsson added: "This development is clear if you observe Finland's gaming industry the past 20 years – the world's top computer/mobile games have been originating from Finland for several years now. Who knows, successes such as Walkbase, Relex and [material handing business] K-Hartwall [may] spark the formation of another cluster in retail tech as well in the future!"

Meanwhile, like Walkbase and Relex, RBTE 2016 exhibitor Mapos is looking towards the UK retail sector as an area for growth, and it opened up a dedicated London office in April 2016, looking to add to its existing client base which is predominantly made up of manufacturers such as Electrolux, Fiskars and Ford.

In terms of how Finnish consumer interacts with retail technology, Edward Bickel, an analyst at retail intelligence firm Research Farm, identified Finland as a country that has been quick to adopt mobile payments. Digital wallets and carrier billing reportedly accounted for 6.8% of the total value of eCommerce sales in 2014, he noted. He also highlighted the nation's relatively high take-up of the Digital Foodie software, which was developed and launched in Finland in 2009 to help grocery retailers – including the largest supermarket business in the country, S Group – launch online food delivery, which is a channel that has been slow to gain traction in Finland compared to the likes of the the UK, US and Asian markets.

“Its SaaS platform provides the tools a retailer needs to run online, click & collect services and home deliveries,” explained Bickel.

“Digital Foodie also serves consumers providing an online shopping service assisting in sending highly personalised recommendations. The company has 2.4 million users in Finland out of a total population of 5.5 million.”

Retailing in Finland

The shopping and leisure complex at Kotka Old Port, which will be the first destination retail development of its type when it opens in early 2018, is viewed as a key component of Finland's overall retail offering of the future.

The first phase of the new shopping hub, which in April was given the go-ahead to be built following the withdrawal of an appeal against the plans, will host 100 outlet stores. When complete, the centre is expected to feature double that number of stores, two hotels, restaurants and a marina. It will be marketed as a cruise ship destination, thus ensuring international visitors.

Property partners involved in the project include Milligan, Kitebrook Partners, DEA, Property Capital Partners Europe, DTZ Finland and AHR architectural practices, alongside main developer, GVA Sawyer. Cameron Sawyer, CEO of GVA, said of the development: "It is much more than a collection of top international fashion outlet brands.

"Soon we can publish a list of hotel, restaurant, spa, cruise and other companies, that will breathe new life to the Old Port, Finland's first premium brand outlet site on a waterfront."

A retail market snapshot from commercial property company, Cushman & Wakefield, shows that demand for prime retail space in Finland remained stable in the first quarter of 2016, with rents remaining unchanged across all retail segments. Prime high streets and dominant shopping centres in Helsinki continued to attract potential retailers and vacancy rates remained at a minimal level, but vacancy rates in smaller cities in secondary markets are reportedly on the rise.

The report said that following three years of recession the Finnish economy finished 2015 with 0.5% GDP growth, primarily driven by growing private consumption and exports. Unemployment was up from 8.2% in October 2015 to 9.3% in January 2016, but consumer confidence rose and retail sales edged up by 2.3% year-on-year in January.

Finland has a very different market to the UK. In grocery, for example, the Finnish market is defined by an oligopoly dominated by K-Group's Kesko and S-Group's SOK, with German discounter Lidl a rare non-native retailer that has been able to take share away from the big two.

"This market setting means that the nature of competition is very much trench warfare between the giants with no-one daring to move an inch," explained Mattsson.

"Generally, it's very different compared to UK or many other markets where we've seen intense competition sparking a lot of innovation and leapfrogs. This doesn't mean the Finnish retailers aren't innovative, though, they do adopt and test a lot of new technology when there's proven value in it."

One example of a Finnish retailer showing a desire to invest in technology to take its business forward is the homeware and hardware specialist, Lepistö-Group. The company opened its first Hintakaari store in 1996, and the chain has now grown to six shops with annual revenue of circa €10 million.

Working with Zoined, Hintakaari says it has increased the pace at which business intelligence is filtered into the organisation and subsequently used to make operational decisions – either from head office or at store level.

Lepistö-Group's project manager, Sami Lepistö, said: "It's so easy to ask a question about business performance, and quick to get the data back to answer it, that we use it numerous times throughout the day.

"Earlier the reporting took a lot of time, but now we get the reports in seconds, so we save a lot of time and can make decisions that will make a difference. We can follow the daily, monthly and yearly sales trends far more effectively, and Zoined’s flexibility means we can call off specific time periods – for example when we had a promotion running – and run reports at numerous levels for example by store, supplier, product range or by individual item."

Meanwhile, textiles manufacturer and retailer, Finlayson, has also recently invested in new capability and systems to enhance its internal operations. It too has utilised Zoined's technology to extract data from its legacy ERP system, cash registers and online operation to give its design and sales teams real-time analytics that can help them with their everyday processes.

Finlayson has also deployed Walkbase's in-store analytics to measure outside potential and visitor conversion in physical stores to help plan and gauge the effectiveness of marketing campaigns. The tools are also used to evaluate new potential store locations by measuring consumer footfall near a would-be store site.

The future

Relex and consultancy group Martec International conducted research into global supply chain challenges, which was published in the spring. It found that the top issue for Nordics-based retailers was increasing availability without increasing stock holding, which was consistent with executives from other nations.

Handling promotions effectively was the number two issue, however, and this was not such a high priority for retailers in other regions. This ties up with the finding that 84% of Nordics retailers cite forecasting effectively for promotions and promotional lift as a key challenge – more so than other countries, on average. The complete study was based on interviews with 126 retailers of which 19% were from leading players in Denmark, Finland, Norway and Sweden.

Relex's Kärkkäinen said: "Finland faces the normal challenges of mostly declining or stable demand.

"This puts pressure on cost optimisation and availability as no-one wishes to lose any of the scarce sales due to out-of-stocks."

Such a comment could be said of many retail markets around the world, right now, as established businesses continue to embark on their digital adoption journeys, battling high growth online players such as Amazon, Alibaba, Zalando and Allegro that continue to absorb market share in their respective territories. Surveys show that the cost of fulfilling the needs of modern customers, who often demand short delivery windows and are increasingly likely to return items they have purchased online, is a growing concern for CEOs and CFOs around the globe.

In Finland, with more tech talent set to find itself out of the job market in the wake of Microsoft's most recent mobile business announcement, there might be new start-up companies to emerge promising to solve some of these operational issues. Who knows? We could be seeing even more businesses from Finland setting up their stands at RBTE, next spring.

Research Farm's Bickel said Finland is renowned for its innovative outlook in business.

"Ever since the Pisa [Programme for International Student Assessment] tests Finland has gained a reputation for scientific excellence," he noted.

"The confluence of a high number of scientists on a per capita level and the fallout and job losses from the Nokia decline means that Finland's start-up scene and entrepreneurs have seen a massive boost, and some of this has filtered through into the retail and retail sector as well."