[Interview, Part I] Przemysław Lutkiewicz, LPP: we are holding back the development of Mohito and Reserved stationary stores

The negotiations that we have completed concerned the year 2020. On the other hand, if Covid extends to 2021 and the turnover falls, we will sit down to the negotiating table again - in an interview with SCF News / Retailnet.pl says Przemyslaw Lutkiewicz, Vice President of the Board, LPP Group. On Monday, the second part of the interview and questions about development in the online channel. 

What is the impact of the second wave of the pandemic on LPP Group sales? 

Despite the increase in the number of cases, since the beginning of October we have recorded an increase in sales (the interview was held on 14 October). Today, I had a few hours' conference with the directors of our foreign companies and despite the tightened safety regulations, sales are going up. We have no reason to complain. Surely the weather helps us now - it's getting cold.

The process of renegotiation of LPP's lease conditions is considered successful. What is the measure of this success? 

This is the level of discounts obtained. Our goal was to exchange fixed rents for variable rents, i.e. a percentage of turnover. We did not quite manage to achieve this to the extent we hoped for. Instead, we obtained discounts in rents for this year.

What is the scale of these discounts?

We cannot share such information, because we are bound by the secret of negotiations. But we are satisfied with the conditions obtained.

The negotiations concerned about 650 shops. Meanwhile, you only signed 300 annexes. Does this mean that for about 350 agreements, which have not yet been formally finalised, you are just waiting for them to be signed?

The negotiation process has been completed. Only formal issues remain. We are waiting for the exchange of documents.

If the second wave of the epidemic continues to increase, which may result in a drop in sales, are you considering further renegotiations of lease agreements?

The negotiations we concluded were for 2020, but if Covid extends to 2021 and turnover falls, we will sit down again.

Despite the crisis, within the whole group, you have increased your ownership by 34 stores over the year. In Poland alone, however, there are 55 fewer stores. What does that mean?

We look at how many shops we have in a given country in terms of population and online sales penetration. The number of stationary shops of our brands has been decreasing in Poland for 3 years. There are too many of them. The market is saturated. By the way, this is typical for developed markets in Western Europe or the USA, where the number of shops is systematically falling.

In our case, on the Polish market, the process of slimming down the traditional network will take another year, maybe two years. But it will not be connected with any sudden movements. Where the contract will expire, we will look at the specific location and if we decide that the extension of the contract is not worth it, we will expire. 

In your plans for next year you are basically holding back the development of the high-end brands Reserved and Mohito, focusing on the expansion of Cropp, House and especially Sinsay. What are the reasons for this strategy?

Mohito and Reserved sell well in the online channel, so we will need fewer stationary stores. So this slowdown in development will mainly affect these brands.

What locations are at the centre of your attention in connection with the development of Cropp, House and Sinsay? What part of this expansion will focus on retail parks and what part on large traditional galleries?

We are almost everywhere in large shopping malls. Possible changes will concern the expansion of already existing stores. Cropp, House and Sinsay will develop especially in medium and smaller towns, mainly in retail parks or, to a lesser extent, in street locations.  

However, among these three brands there is a definite leader. This is the Sinsay brand, which is developing the fastest in a new, somewhat revolutionary concept. There are opinions that this is your answer to Primarka.

We wouldn't want to compare ourselves to any other concepts in this way. Primark opens huge stores in large cities, while we aim for smaller towns and smaller areas. This is a different approach to business.

In the plan for 2021, LPP predicts an increase in area in our country at the level of only 4 percent, while in Europe it will be 13 percent, and in Eastern Europe as much as 19 percent. Why these differences in the pace of development?

As I mentioned earlier, the key indicator for us is the share of online sales in total sales. If we assume that we should have a 20 percent share in an online channel, and in a given country this is much more, it means that there is too little fixed-line sales network in such a market. This is the situation in Romania, for example, where the share of online sales is much higher than in other countries.

How does the profitability of your stores in Poland look like compared to foreign countries?

In Poland we have medium-high profitability. The further to the east, the higher it is. Good markets are the Baltic States, Russia and Ukraine. After them is Poland, followed by countries to the south of us, i.e. the Czech Republic, Slovakia and Hungary.

Interviewer: Radosław Rybiński