Varusteleka's annual report 2023: Charlie Foxtrot

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The gold coins have been counted in the coffers, and as you might guess from the heading, things got fucked up. Here’s a bit of a gloomin’ troll report with a slight silver lining at the end.

Turnover decreased by nearly 12 percent

We charged towards the year optimistically armed with big plans. However, during the first quarter, we realized that our growth had stopped in mid-air. Primarily, the reasons can be found in the mirror, and we have been staring at it long and hard. However, also the following things did play their part in this:

  • The global economic situation worsened faster than we could anticipate. The interest rates, inflation, and the uncertainty of how they will affect people’s finances without a doubt weighed heavily when thinking whether you can afford the LVPC Hesco with U210 plates or whether you should save it for the rainy day that might come sooner than later.
  • People became numb to the war in Ukraine. In 2022, the war economy was heavily represented in our figures. There were large orders, military reservists were becoming more prepared, and organizations and private citizens ordered bigger batches to donate to Ukraine. In 2023, the situation changed completely, and the world returned to normal. This would, of course, have been a very good thing had the war ended, but Ukrainian people are still dying for our freedom. We had planned our purchases based on the expected high demand, but since things didn’t go according to expectations, our warehouse became bloated with unsold stuff.
Graph 1

The sudden decrease in the demand and too much money tied in the warehouse took us in a very typical downward spiral; we had to drastically cut our purchases, which resulted in poor availability of things that still sold well, which of course, affected the sales even more negatively

Expenses soared higher

Inflation didn’t treat us any nicer. The rent and other fixed costs followed the inflation graph pretty loyally, and simply put, everything became more expensive. Regarding our production, the factories that made our products were also struggling with the rising energy prices and salaries, which meant that products became a lot more expensive for us to buy.

Graph 2

Even though we managed to push our annual expenses a little bit below the previous year, the percentage was significantly higher when proportioned to the 2023 turnover.

Must is a good motivator

Crappier turnover, increased costs, shrinking profit margins, and too much money tied in the warehouse is a pretty gloomy combo. After the first quarter of 2023, we realized that hope is a very bad strategy, and we need heavier tactics to fix the situation.

We began improving our turnover with discount campaigns, which are atypical for us. The goal was to change as much of the overly large stock into cash as possible. We were pretty successful in this, and the second quarter looked already better. At the same time, we negotiated sensible financing solutions with our bank to ensure that our liquidity stays at an appropriate level.

We also attacked the costs on all fronts. The fact that sales had continued to go well for a long time had made us blind to a major problem with our cost structure. We began revitalizing the cost structure by going through all our business expenses with the goal of reducing the annual costs by 500,000 euros.

During this process, we unfortunately also had to go through change negotiations during the second quarter. This led to us having to terminate the contract of eight people, change the contract terms of six people, and lay off four people temporarily. The change negotiations went amicably with the employees. These decisions were very unfortunate and unpleasant but unavoidable for the future of the company and all the remaining employees.

Profitability plummeted

Despite all the corrective measures, it isn’t easy to turn a big ship that quickly. Most of the cost savings will be realized during 2024. Furthermore, many changes required pretty significant one-time costs, and the sales didn’t come easily in the latter part of the year either. As you might have guessed from this, our profitability plummeted, and the final result was -315,317.65 €.

Graph 3

However, Varusteleka is a well-established company, and our own financial capital could still withstand last year's major bumps well.

That famous silver lining

Even though we cannot boast of a great year, not everything was utter misery either. Despite the situation and operating environment being very challenging, we still managed to accomplish some cool stuff, such as:

  • Awesome War Flea Markets
  • Warm-hearted 20th anniversary party for our customers
  • Finnish Brutality was larger and more epic than ever before
  • Christmas party for our customers and partners

Furthermore, we managed to make our company stronger and more resilient for future battles. We learned a lot during this year and paid a very heavy price for it. Now, we will put all that to the test when we rise from the ashes like the Phoenix bird.

For the fact that we are on the right track and the company is in better shape than a year ago, we want to thank our amazing crew. Our staff has worked incredibly well through these hard times and gotten really cool stuff done with minimal resources. Huge thanks to the whole gang!

Also, many thanks to our loyal customers! We are doing this all for you, and because of you, we try to learn from our mistakes and improve our operations!

Big thanks also to our partners and our suppliers for being so understanding when we’ve had to change our plans.

Towards the Total World Domination

The route may sometimes be boobytrapped, but that won’t change our final destination. We are still moving towards the Total World Domination. In the near future, we will concentrate on the following important strategic waypoints:

  • Our products and product development are one of the most important competitive advantages. We have streamlined our product development and sourcing to provide even more awesome stuff for our customers. This is a natural continuation to our Project MEGA.
  • We will go through our whole product catalog with the idea of making it as good as possible for our customers. Some less popular products will die, but many new cool stuff will also take their place.
  • Our webstore is pretty old by now, so we plan to renew it fully this year - bring in more up-to-date technology and improve usability.
  • Our US volume is starting to be large enough so that our own American warehouse is soon needed. We have been preparing this for quite a while, and if the sales go well and our profitability improves, we will start our US operation within this or the next year.

There are good things ahead, so stay tuned!

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