The events in Japan will influence the electronics and IT markets

(interview with Adrian Olteanu, CEO of "Flanco")

Reporter: How have the market segments that "Flanco" is active on evolved lately?

Adrian Olteanu: The markets that we are present on have stabilized, meaning that we haven"t had a drop as big as we did in 2009, when the industries that we are involved suffered an excessive correction. The drop was smaller in 2010, of just 5-10%. January 2011 had a promising start, February was a little tepid, but we are now seeing signs of a recovery.

Reporter: Does this mean that there will be growth in this sector?

Adrian Olteanu: It is difficult to estimate how the market will evolve this year. For instance, the unpredictable events in Japan will affect the markets that we are present on to a degree, because many of the components of electronics and electric goods go through there. If the factories of Japan will be shut down for a few weeks, the market may feel the effects. Measures taken by the government can also affect the overall evolution of the market.

Reporter: How do customers react to the constant evolution of the market, when it comes to electric and household appliances, as well as to new IT products?

Adrian Olteanu: On the market for large household appliances - refrigerators, washing machines, cookers - customers mostly buy such products to replace the old ones, rather than for using them in a new home. Small household appliances - microwave ovens, ironing machines - are also being bought for replacement purposes mostly, but there are also purchases that are done for new homes, whereas small household appliances which are intended for personal consumption and for the kitchen - steam cookers, air purifiers- are for the most part being bought for the first time, and they represent a new market segment.

If we are referring to the IT and electronics segment, there is a TV and a radio in every household, but this is not the case when it comes to LCD TVs. Cassette players have been replaced by DVD players, and now mp3 or mp4 players are in high demand.

Reporter: Considering the period that we are going through, is there sufficient demand for the newly launched products?

Adrian Olteanu: Consumers want these products, the need is there, but the financial means to satisfy the need aren"t there. On a mature market, every one to two months, a family buys a new IT or electronic product. This isn"t happening in Romania, the market is underdeveloped.

Reporter: What is your market share among your other retailers?

Adrian Olteanu: We have a market share of 10%. Together with the other two specialized retailers - "Altex" and "Domo" - we have a combined market share of 40%. There isn"t a second level of distributors - a middle tier -, we just have the supermarkets and hypermarkets, which have about 30%. We also have the on-line sales segment, which is increasingly present, and which controls almost 20% of the total market, with smaller distributors accounting for the remaining 10%.

Reporter: Does "Flanco" sell online?

Adrian Olteanu: Yes. "Flanco" sells online too, but those sales only account for 5% of the total

Reporter: Are you considering any mergers or acquisitions?

Adrian Olteanu: At this moment, the market is rather balanced, and there are major players in the sector, so an acquisition or a merger is not out of the question, but is very unlikely to happen in the near future. The three major players have distanced themselves from the others, like I was saying, there are no more small or medium sized players, there a lot of independent players.

Reporter: Would there be room for one more?

Adrian Olteanu: There would be room for one less... It is a rather small market, and the supply is very big and quite varied.

Reporter: "Flanco" is a company that successfully emerged out of insolvency. What does the company look like after the restructuring?

Adrian Olteanu: We launched the insolvency procedure in December 2009 and we completed it last year. However, the restructuring process was initiated in 2008, when the business began to be affected. We asked for the insolvency because the level of debt was getting too high. We had about 60 million Euros in debt at the time, that we were unable to repay. Most of those debts have now been paid almost in full. If we hadn"t made the decision to enter insolvency, the business would have become deadlocked. The company"s structure hasn"t changed much. We haven"t closed any stores as part of the restructuring process. We have an ongoing process for growing the store chain. Between last year and now, we closed down two stores, but we opened five. Concerning the number of employees, there haven"t been any radical changes in that respect either. We now have about 620 employees, at the end of 2009 we had about 700. Their number hasn"t decreased significantly during the insolvency proceedings, but it did decrease significantly between 2008 and 2009. Of course, we have kept our relationships with our partners, after the reorganization.

Reporter: Concerning the reorganization of the store network. How many sales points will you open this year?

Adrian Olteanu: We currently have about 70 stores, and by the end of the year we will open ten more. We recently opened a store in Turnu Severin, and next month we will open three more, in Buzău, Suceava and Bucharest, and we are also relocating some stores, and there are also some for which we haven"t signed the contracts yet, and I can"t mention them. We already have eight locations in Bucharest.

Reporter: What is the investment in opening such a store?

Adrian Olteanu: The investment in setting up a store is about 200 Euros/square meter, not including inventory.

Reporter: What was your turnover last year?

Adrian Olteanu: We estimate an annualized turnover, meaning in the first six months of 2010 - after we exited insolvency - and in the first six months of this year, of about 80 million Euros. In 2009 we had a turnover of 75 million Euros.

Reporter: What was the beginning of this year like?

Adrian Olteanu: In January and February, our sales doubled over the similar period of 2010, but the first two months of 2010 are not that relevant. What is important is that, in the first year after the insolvency proceedings, the sales didn"t drop, the turnover has stabilized, but on the other hand we have cut costs significantly, which is why we are on an upward trend, when it comes to operating profit as well, because we no longer have operating losses.

Reporter: What are your expectations for this year?

Adrian Olteanu: In 2011 we expects sales of around 100-110 million Euros.

Reporter: What is the weight of the various types of products that you sell out of that total?

Adrian Olteanu: The market share and the sales of IT, electronics and household appliances are rather balanced, ranging between 32% and 37%.

Reporter: What are the most profitable periods of the year, in those markets?

Adrian Olteanu: The most profitable period is December, because of the Winter holidays, August, when Romanians who left to work abroad come home for the holidays, and when some of the Romanians redecorate their homes, and the Easter holidays. Moldavia usually posts a very nice growth in August. Household appliances sell quite well in summer.

Reporter: If you had the opportunity, what would you change in the markets that you are present on?

Adrian Olteanu: The legislative framework can"t be changed, but we can influence the market. On one hand, the legislation could be better, there is too much bureaucracy. On the other hand, lending to the population would encourage consumption. The responsibility for educating the consumer lies with us, the retailers. We need to inform the consumers and give them reasons to buy today. We have an active role in presenting products to them in a fair and attractive manner. That is why "Flanco" now offers services which are very well "packaged". Whereas 20 years one would sell boxes, now it"s services that are sold. In other words, apart from the product itself, we offer guarantees, complimentary products, delivery, installation and financial services etc. Price is no longer the defining element, it is important, but it is no longer the only criterion that consumers use for choosing a product.

Reporter: Thank you!