PARIS — François-Henri Pinault, chairman and chief executive officer of PPR SA, is reconfiguring one of France’s biggest fashion and retail conglomerates in plain sight.

On Thursday, he said it might take two or three years to shed the retail holdings Fnac, Conforama and Redcats, but he is determined to do it, with strategic acquisitions to come later to build a mass market pole around Puma that echoes the constellation of luxury brands in Gucci Group.

He also did not rule out “tactical” small or medium-size acquisitions in the interim, citing as an example Puma’s 2009 purchase of a majority stake in Dobotex, its licensee for socks and bodywear.

That said, “The main priority is and will remain our existing brands. The organic growth potential remains very high,” Pinault declared in an exclusive interview with WWD after disclosing PPR’s fourth-quarter and full-year results.

He noted that since establishing its luxury stable, the turnover of Gucci has multiplied by 2.5 times, Balenciaga seven times, and Bottega Veneta “almost eight times.”

A soft-spoken, but direct executive, Pinault said growing the size and accelerating the profitability of Puma is a key focus for the coming years. “The strategy is really to develop the brand, because the potential is there,” he said.

He noted that Jochen Zeitz, ceo of Puma, is poised to head up what will ultimately be a group of global consumer brands, leveraging worldwide logistics and sourcing. “There’s a high level of synergies that could be developed in the consumer goods arena,” he said.

In a wide-ranging conversation, Pinault touched on changing consumer values, the potential in emerging markets and prospects for an economic rebound. Here’s what he had to say.


WWD: How might PPR benefit from a rebound this year, and how confident are you that the economy will continue to improve?
François-Henri Pinault: We saw a distinct recovery in the fourth quarter, in retail and in luxury, although not yet at Puma because there is a time lag with its [wholesale-dependent] business model. Its recovery is coming at the beginning of this year.

What is also certain is that the important cost savings that were put in place in 2009 will have a positive impact this year. We’ve also activated very important commercial initiatives; there’s a very important Internet offensive everywhere, and there I think we’re going to go a lot further. In luxury in particular, there’s a big focus on emerging countries, which accounted for 33 percent of revenues in 2009, up from 28 percent the prior year. Today, we seem to be one of the groups that matters most to emerging countries, in particular Greater China. We’re going to focus on emerging markets where we’re already very strong. Almost 30 percent of our business is in wholesale, and there we’re still suffering a bit from weak activity. It’s true that retail is doing better than wholesale.

WWD: What are your views on the U.S. market and Gucci Group’s prospects there? Are you pulling back to focus more on emerging markets?
F.H.P.: No. We’re accelerating more in emerging countries, but we’re continuing to invest in the U.S. and Western Europe. We have a potential that we’re exploiting in second- and third-tier cities. Don’t forget: Gucci almost filed voluntary liquidation in the early Nineties, so we have a brand that’s been reconstructed over the past 15 years, and one that’s not on the same level of maturity in terms of retail development as some of our competitors.

WWD: How do you see consumer spending and mind-sets changing after the dust settles from the recession?
F.H.P.: The recession accelerated a tendency to put the price-value equation at the forefront. People want to get the right price-value, and it’s not a question of a low price: People expect a level of quality commensurate with the price. This is as true in the mass market as it is in luxury goods. There are brands with products where there’s a disconnect, with a high price linked more to the high visibility of a brand than the intrinsic value of the product.

Also, during periods of crisis, people gravitate toward more traditional products, which are more reassuring. They give less credence to perpetual newness. For a brand like Gucci, it’s products like the New Jackie or the New Bamboo, which are revisited classics, that attracted customers in 2009.

WWD: Some argue the future is going to be a low-cost game. Do you plan to shift the group focus to less-affluent consumers?
F.H.P.: Not at all. Our brands will maintain their positioning, whether we are in periods of growth or periods of crisis. There is no brand in our group that, because of the downturn, decided to slide toward low-cost or discount.



One of the difficulties we had at the end of 2008 and beginning of 2009 was the deep discounts made at American department stores, which were disastrous for designer brands. To sell a product at 70 percent off when it is at full price in boutiques is tantamount to telling the consumer, “The product isn’t worth the price we’re asking.” Department stores must be extremely vigilant about sales periods to be coherent and consistent during the rebound that is coming.

WWD: Last year, you stated plans to off-load retail businesses to focus on luxury brands and consumer goods. Should we expect any big transactions — disposals, listings or acquisitions — in 2010?
F.H.P.: In principle, no, because the market for mergers and acquisitions is completely subdued. What is certain is that in the next two or three years, we will sell our retail businesses. However, it is out of the question that we do it in a hurry and sell them at a cut-rate price because — whether we are talking about Conforama, Fnac or Redcats — these are large-scale businesses that are among the European leaders in their sectors and with levels of profitability that are very attractive at Fnac and steadily improving at Conforama and Redcats. The problem in the short term is financing for possible acquirers. Meanwhile, we are concentrated on the development of our businesses and improving their profitability. What’s important to know is that I won’t do any strategic acquisition before having sold our retail operations. By strategic, I mean significant in size and price. That’s a financial discipline I really want to respect.

WWD: What are the key trouble spots for PPR to fix in 2010? And the biggest opportunity?
F.H.P.: In luxury, we still need to work on Yves Saint Laurent, and we are addressing this. Last year, we closed certain stores in mature markets where the break-even point was too far away. We will open more YSL stores in 2010 than we did in the past, most of them in Asia to have a better balance with emerging markets. Also, we still have some work to be done at Sergio Rossi. We need to improve the operations.

WWD: You’re coming up on your five-year anniversary as ceo of PPR. Where do you see PPR five years from now?
F.H.P.: Hopefully, the group will no longer be seen as a conglomerate, but as an integrated group with branded, personal goods — mostly apparel and accessories — in different segments. In terms of turnover, the broader, mass market segment will be bigger than the luxury segment. It’s really a matter of having a good balance between the two segments in terms of profitability. The vision is very clear; Now we have to deliver.

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