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Analyst scratching head over Art Foundation's €5.5m investment in Stockmann

An analyst wonders why the Art Foundation bought €5.5 million of shares in retailer Stockmann, stock which lost almost 60 percent of its value in the past year.

File photo of Stockmann department store in Helsinki. Image: Henrietta Hassinen / Yle

Föreningen Konstsamfundet (roughly: the Art Foundation Association), which supports cultural efforts of Finland's Swedish-speaking minority, bought more than three million shares in Finnish retailer Stockmann on Thursday, to the tune of about 5.5 million euros.

The shares previously belonged to the Åbo Akademi University Foundation which dumped them, citing Stockmann's weak dividend returns. The educational foundation was Stockmann's sixth-largest owner at the end of November, with a 4.2 percent share of the company.

The company's department stores have become landmarks in cities across Finland, most notably in the heart of downtown Helsinki. The rotating clock, which hangs over the entrance to the company's flagship store built in 1930, has been a meeting place for capital residents and others for generations.

It's Turku store featured the country's first escalators and the upscale retailer offered shoppers quality products and good customer service at premium prices for decades.

Story continues after photo.

File photo of Stockmann department store taken in 1950s. Image: Museovirasto/Erkki Voutilainen

Internet competition

But times have changed and, like many brick-and-mortar retailers, Stockmann is struggling. Over the past year its stock market value has dropped by nearly 60 percent.

Market analyst Sauli Vilén, from Finnish equity analytics firm Inderes, said on Thursday that he's unsure the art foundation's multi-million euro investment will pay off in the long run.

He said that Stockmann's suffering retail division is its biggest problem.

"Sales should be increasing, but the company hasn't been able to do that. I can't say what measures that should be taken, but clearly they should be comprehensive ones. We are very worried about the situation. Stockmann's retail division is in crisis," Vilén said.

These days the company is made up of three divisions: its Stockmann-branded department stores, apparel retailer Lindex and its real estate properties.

Over the past few years, the company has sold off all three of its department outlets in Russia and closed its store in the western city of Oulu, as well as its high-end grocery division, its electronics and home appliances department, its mail order firm Hobby Hall and its bookstore. The company also hires out areas of its stores to various companies and brands for use as pop-up shops.

Vilén said that Lindex is in better shape than its parent company, but that its future doesn't look good, either.

"It'll certainly be able to make a fair return over the next few years, but there won't be a return to the company's peak year. [Lindex's] value today is much lower than what Stockmann paid for it," Vilén said.

Real estate 'biggest asset'

The company's three department store properties are another of the firm's assets, but the Helsinki building is the only one of significant value, he said.

Stockmann's department stores and Lindex are fighting back competition from continually-growing internet retailers as well. Vilén said the companies' struggle can be seen in sales campaigns this Christmas shopping season.

"Another problem is that customers question the role of its department stores. It's a global phenomenon. Department stores are feeling the pinch of online retailers as well as speciality shops. Consumers are becoming increasingly less prepared to pay more for the services offered at a pricey, premium department store like Stockmann," Vilén said.

After this stock purchase, the art foundation will hold a total of 13.63 percent of the company's stock, carrying some 21.83 percent of shareholder voting heft.

The foundation's CEO Stefan Björkman said the organisation has the patience to wait for better results at Stockmann.

"We already were a major shareholder and then made an additional investment of five million, so in the larger scheme of things, it isn't that we've become a significantly larger owner. But of course, we have invested more [in the company]," Björkman said.

When asked whether foundation members believe that has a better chance than other brick-and-mortar retailers, Björkman said they are more patient than other investors.

"We believe that Stockmann is [actually] worth more than what its market value says," he said.