Industry Impact: Interest Rate Hikes and Weak Krone Exchange Rate Affecting Businesses in Norway

The many interest rate hikes and the weak krone exchange rate are now affecting industry after industry.

– It was as if someone turned on a switch, we immediately noticed that there was a change in consumers, says Andreas Holzweiler, day-to-day manager and founder of the Norwegian clothing brand of the same name.

He is talking about the time when interest rates really started to rise early in the autumn of 2022.

Although the clothing industry as a whole is experiencing growth into the new year, one can now see that several of those who make and sell goods in the “middle luxury” segment have been strongly affected.

– In Norway, consumers are more price sensitive than they have ever been before, says Holzweiler.

AT THE TOP: Holzweiler feels that you have to have a really good collection to succeed in today’s market.

Photo: Ragnhild Vartdal / NRK

He refers to the time the industry is now in as a long-lasting crisis.

– I think I have never experienced greater uncertainty in the industry than I do now, he says.

– Not surprisingly

In February, it became known that the clothing stores Tatler in Oslo, which sell brands such as Michael Kors and Parajumpers, are in serious financial trouble. The company is now negotiating with creditors, in the hope of avoiding bankruptcy, according to court documents from the Oslo District Court.

Høyer, which opened several new stores during the pandemic, has also seen five store owners file for auction and one store went bankrupt in the past six months.

– We now see an increased tendency where people try to find cheaper alternatives. When we see a deterioration in people’s financial situation, it is not surprising that they flee from this segment, says Robert Mueller, retail expert and partner in Varde Hartmark.

Mueller explains that the “middle luxury” segment grew rapidly during the pandemic, when interest rates were low, many had a little extra to spare and there were fewer trips and experiences to spend money on.

CORRECTION: Commodity trading expert Reidar Mueller believes that what we are now seeing is a correction in the market.

Photo: Ragnhild Vartdal / NRK

In the years 2018–2022, this segment had an annual growth of close to 12 per cent, well above the average for the clothing industry as a whole, which had an annual growth of 5.9 per cent, according to Mueller.

Continuous hall

During the boom, shops and brands ordered in loads of garments, which now that things have turned around, they are struggling to make money on.

– Now there are almost continuous sales and offers, and the size of the discounts is larger. To the benefit of the customers, says Mueller.

Ørnulf Høyer, clothing founder and head of the Høyer Group, confirms the challenges.

– The main reason is quite rightly a weaker economy in general among consumers, linked to the fact that the stores have had too large inventories, writes Høyer in an e-mail.

– A huge challenge

Holzweiler feels that customers are much more cautious and buy less on advance orders. But according to Holzweiler, they are experiencing surprisingly strong growth on their own channels and in their own stores.

– But you have to have a really good collection now to close, says Holzweiler

Holzweiler explains that they incurred a large currency loss in 2023, as a result of the devaluation of the krone.

– Our cost base is 70-80 per cent in dollars or euros, while large parts of the income come in kroner. And you cannot compensate for this with more expensive prices for the consumer, because they are not willing to pay for it. So we just have to put up with it and hope it turns around, says Holzweiler.

He explains that it is running on margins.

– In Norway, they are 10-15 per cent lower than they should have been. It is a huge challenge.

Despite the crisis the industry is currently in, Holzweiler has his foot on the gas pedal. They are working hard to expand even more abroad – also to compensate for the weak krone exchange rate.

– Abroad, our prices are perceived as good. And then it is important for us to get turnover in other currencies, and make money that way, he explains.

Believes in a new EU debate

Now he hopes the Norwegian krone will strengthen.

– But perhaps one just has to realize that this is the new normal. It is probably not long before the EU discussion starts again, rightly so, I think, says Holzweiler.

– Is a stronger krone exchange rate the most important change for Holzweiler?

– The krone rate is one element, but perhaps the most important thing is to do something so that the consumer is not so squeezed. It has become tougher for absolutely everyone, and in any case the government wanted it to be easier for them.

EU debate: Andreas Holzweiler believes that the weak krone exchange rate may force a new EU debate.

Photo: Ragnhild Vartdal / NRK

– But I’m starting to see an improvement, and that things are on the way up. So now I hope there will be an easing of interest rates. And then maybe the world just needs to become a slightly nicer place with everything that happens during the day, it affects everything, says Holzweiler.

2024-03-11 07:47:56


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