Icelandic outerwear brands say that they are in reasonable shape one year after the Nordic country’s economy collapsed as the leading three banks of Iceland went into receivership in late September/early October of 2008. All of them, Kaupþing, Landsbanki and Glitnir were subsequently nationalized by the government of this very small country. Some observers say that one major reason for the trouble was the government’s adoption of a neo-liberal laissez-faire policy during the 1990ies. In 2001, banks were deregulated in Iceland. This set the stage for banks to upload debts when foreign companies were accumulated. The crisis unfolded when banks became unable to refinance their debts. It is estimated that the three major banks hold foreign debt in excess of €50 billion, or about €160,000 per Icelandic resident, compared with Iceland’s gross domestic product of €8.5 billion.
It was not obvious that Iceland’s outdoor brands, notably 66° Norður (66° North), Cintamani and Zo-on, are doing actually okay. The surprise comes from the fact that the macro-economic key figures have not been promising: At the end of the first half of 2008, Iceland’s external debt was at some €50 billion, 80 percent due to the banks’ operations. This figure should be compared to a GDP of €8.5 billion in 2007. It is, therefore, no surprise that the government did not know how to handle the situation. In the autumn of 2008, the government, which actually collapsed in late January, warned that the entire country might go bankrupt. Unemployment increased from almost full employment (around 3 percent) in the autumn of 2008 to some 9 percent for 2009. The local currency, the Icelandic króna, lost around 50 percent of its value compared with the euro during the last 12 months. One result was massive inflation of some 16 percent.
The outdoor brands report strong, double-digit growth in their sales in this small island, which is just a great outdoor arena with its glaciers and volcanoes. It may be up by 20 percent for 66° North this year. The other brands agree that growth has been solid during the last 12 months of financial crisis. Various factors explain this development: Inflation may have helped the turnover figures to soar, especially because those brands are also strong in own retail operations. 66° North has some ten corporate stores, Zo-on one and is planning to open another one in the capital, Reykjavík, before the end of 2009. Furthermore, 66° North has also found new distributors in foreign markets like Italy, Spain and some South American countries over the past few months.
Retail in the country, which is dominated by the brands’ own stores as well as by Intersport Íslands and Útilíf, a specialty outdoor chain, could actually take advantage of the fall of the króna. The same as London stores that benefited from shoppers coming from the European continent to take advantage of the recent low pound sterling, a similar development can be seen in Reykjavík where the retail prices used to be unaffordable for Continental Europeans. This is no longer the case. The number of tourists has significantly grown due to currency effects. One tour operator from the Continent says that the number of foreign visitors, notably from Spain, France and Germany, has increased by some 50 percent this year (while the number of guests from the U.K. has fallen).
The weakness of the króna and inflation had two results: Icelanders want now the euro and are asking who is actually going to pay for inflation. In July 2009, the government formally applied for full membership in the EU. This may realisticcally happen as soon as 2011, with the adoption of the euro at a later stage.
At the moment, it seems as if the major burden of the crisis is being carried by consumers and retailers. With a hefty inflation rate ofsome 16 percent over the past year, the consumer is being asked to pay his or her share of the outcome of the crisis. One brand told us, however, that retailers also carry the cost of the crisis, at least partially. In the past, generous mark-ups of some 2.5 were not exceptional, these retailers now face a mark-up rate at some 2.2 or 2.3.
Even though the debate on the adoption of the euro is very controversial (especially because of issues like fishing), the brands would be very happy about it in order to escape the volatility of a currency that is only used by 313,000 Icelanders. The possible adoption of the euro and full membership for Iceland may also pave the way for inroads by foreign brands into the country.