Embattled Danish jewelry brand Pandora is on a mission to regain its luster as it sets in motion a two-year turnaround roadmap geared at driving sustainable growth and reigniting brand heat.
The charm specialist on Tuesday said its financial outlook will be significantly impacted by the actions outlined in its Programme NOW initiative launched in November after revenues declined in both the fourth quarter and the full year on a like-for-like basis. Organic growth in 2019 is expected to fall by between 3 percent and 7 percent, year-on-year, including a one-off negative impact of 3 to 5 percentage points related to the brand’s commercial reset, Pandora said.
Facets of the program will include a revision of the brand’s network expansion strategy, a tightening of its product assortment and progressive reduction of stockkeeping units, as well as stripping of promotions outside of the major promotional periods.
Restructuring costs over the 2019 and 2020 period are expected to represent a total of 2.5 billion Danish kronor, or $382 million at current exchange rates. The unknown potential financial impact of Brexit is also hanging over the company’s operations in the U.K.
“We have to reinvent this brand, we’ve got to be disruptive,” chief operating officer Jeremy Schwartz said during a conference call with investors. He revealed Pandora is working on a “strategic but also disruptive” new visual identity and communication and social engagement plan that will be implemented in late 2019.
Schwartz, who is manning the ship alongside chief financial officer Anders Boyer following the departure in late August of Anders Colding Friis, with the search for Colding Friis’ successor still on, also flagged a shift — “in terms of the way we’re going to build consumption of the new products that we launch” — to a marketing and business model geared on collectability.
“The concept of collectability is at the very core of why Pandora is the largest and most well-known jewelry brand in the world. Fifteen percent of our consumers own 20 or more charms. The average consumption for rings may be two times per year but when it comes to charms, it’s four to six. It’s fundamental to why we are where we are, and that’s why we’re going to drive it again but with more deliberation and a greater forensic approach,” Schwartz said.
“Yes, things are about a new product, but it’s in the context of getting more people to buy it and collect it as part of a behavior,” he continued, adding that the primary focus will be on bracelets and necklaces. “The collectability and style of wearing multiple necklaces is growing. We will also continue to focus on rings because, again, from a stylistic point of view, the multiple wearing of rings is hot.”
Both incremental improvements and “big substantial changes” on the brand’s e-commerce and omnichannel strategies will include click-and-collect and endless aisle mobile checkout functions, focusing on America as a “beacon” country for rolling out concepts. “Pandora is behind the curve, but we’re going as quickly as we can to catch up,” Schwartz said.
The company has also created a new global marketing function, he said, and chief creative officer Stephen Fairchild is now fully responsible for the company’s global brand execution alongside his role leading product development. Part of the cost reduction program has involved the laying off of around 700 Pandora employees based in Thailand, where it operates plants.
The Copenhagen-based firm reported revenues in the fourth quarter totaled 7.89 billion Danish kronor, representing a 7 percent decrease year-on-year.
For the full year, total like-for-like revenues slid 4 percent to 22.8 billion Danish kronor, in line with analysts’ expectations. Forty-nine percent of revenues were generated in Europe and the Middle East; 30 percent in the Americas, including a flat like-for-like performance in the U.S., which showed a slight improvement, and 21 percent in the Asia-Pacific region. In 2018, net financials amounted to 5.04 billion Danish kroner versus 5.76 billion Danish kronor in 2017. Ten percent of total sales were generated online.
Among plans laid out for the coming year, the company expects to add around 75 concept stores to its network, mainly in Latin America and China, marking a 75 percent reduction in net openings year-on-year. “We are, by country, looking at our network and at tactics where we believe we’ve got over availability within a town,” Schwartz said.
The earnings before interest, taxes, depreciation and amortization, or EBITDA, margin stood at 32.5 percent, down from 37.3 percent in the previous year.
In terms of categories, bracelets, necklaces and pendants saw double-digit growth in 2018, led by bracelets. The brand’s charms business continues to be impacted by a shift in buying habits related to the Pandora Moments line, with consumers typically wearing fewer charms on the same bracelet, the brand said.
Piral Dadhania, analyst at RBC Capital Markets, said the fourth-quarter results were better than expected, but gave an “underperform” rating for the brand. Key issues cited included declining footfall trends into the Pandora store base, attributed to “brand desirability, product and pricing proposition, which is not working for its target demographic.”
“We believe executing to the 2022 strategy and attempting to protect the P&L profile is unlikely to return the business to underlying volume growth,” Dadhania said.