By  on December 7, 2006

Carrefour Group is making a billion-dollar bet in the mass-to-class game, and it has lined up BCBG to place it.

Carrefour and BCBG Max Azria Group are expected to reveal today that they have inked a deal for the apparel firm to showcase a new collection in the women's ready-to-wear category at Carrefour hypermarkets in France, Greece, Spain, Belgium, Italy and Portugal. The new line, still unnamed, is set for a fall-winter 2007 launch.

"This is a fantastic challenge. It is a wonderful thing to know that we are going to dress millions and millions of women who cannot afford BCBG. The collection is very extensive. We will have 300 styles every quarter [under] this agreement," Max Azria, chairman, designer and chief executive officer of BCBG Max Azria Group, told WWD exclusively.

Terms of the deal were not immediately available. Industry sources familiar with the arrangement said that the deal, which ends Dec. 31, 2011, has a minimum guaranteed volume of 1 billion euros, or about $1.3 billion, over the course of the contract, plus escalation per season.

A source close to Carrefour said about 450 of its hypermarkets initially will sell the line. The six countries named make up the bulk of the Carrefour operation, but the expectation is that after a year the line will be expanded to other Carrefour doors in different markets, the same source said. Carrefour is the world's second-largest retailer after Wal-Mart.

"This collaboration with an internationally renowned fashion company is integral to the Carrefour Group strategy to further develop its sales in the nonfood sector," Jose Luis Duran, chairman of Carrefour's board, said in a statement.

According to Azria, the two companies began working on the project a year ago, and the designs for the 2007 fall-winter launch are already completed.

Ben Malka, president of BCBG Max Azria Group, observed, "Carrefour is number one in food because it gives incredible choice, and great product at great prices. It is the best place to go to buy food. We see that the idea of low price is not [necessarily] the favored format in retail. We are looking at offering the best value at the best price."Azria said the deal allows his firm to have a greater say in the management of the soon-to-be named brand, from color to design and even marketing. Carrefour is responsible by law for setting the prices.

One industry source said the BCBG/Carrefour deal is the "one to watch" because of the category management business model that underlies the agreement between the two parties. "This is possibly the first time where you have centralized category management with one decision-maker in the center. It will give Carrefour the power to compete with a lot of very good companies," the source said, adding that the business model could very well shape how retailers and manufacturers structure future deals.

About 150 BCBG employees in Paris and Spain are working on the new line, which is expected to provide a bit of "Hollywood glitz" to Europe.

So far, according to Malka, the working tag line for the deal — "Designed in L.A.; Made for the world" — typifies Azria's belief that "all women have the right to have the chance at beauty. Nowhere is better than Hollywood to represent beauty and dreams. Los Angeles is viewed not as an American city but as a city of the planet. When you go to Paris, or anywhere, they talk of Hollywood as belonging to them."

"This is exciting news because it again shows the interest that manufacturers have in opening new doors and in entering new arenas with specially produced merchandise. Think of what J.C. Penney did with Sephora and Bisou Bisou. This is the trend, and we'll see other mass merchants embrace fashion designers," said Walter Loeb, a retail consultant of the firm that bears his name.

"For Carrefour, this is a great deal because it helps them update their lines and create apparel for younger shoppers. The retailer has apparel now, but not designer brands. I would expect them to do more, and enter other areas such as men's, children's and even babies'," Loeb added.

The deal allows Carrefour to provide high-end fashion at value price points, a sort of H&M at the hypermarket. Wal-Mart, on the other hand, is delving deeper into fashion by developing its own brands. Although Wal-Mart is Carrefour's closest competitor, the store bases of the two don't really overlap."I think that [Carrefour] will want to distinguish themselves from Wal-Mart by having this kind of distinguished name and the quality that they didn't have before," Loeb said.

The timing of the Carrefour deal comes after Wal-Mart acknowledged that it was a bit too aggressive with the launch of its Metro 7 sportswear line. The retailer had rolled out the label to most of its stores in the midst of other strategic initiatives and remodeling that some observers said may have repelled shoppers. Same-store sales at Wal-Mart's discount stores fell 0.5 percent in November and 0.3 percent in October.

Carrefour, in contrast, is seeing a renaissance under new management after struggling for several years. In September, the retailer said first-half net profits rose 10.8 percent, to 706 million euros, or $868.1 million, on aggressive price reductions and store openings.

The results exceeded most analysts' expectations and signaled improved trading in the firm's important home market of France, where sales grew 6.3 percent, to 17.94 billion euros, or $22.06 billion.

Overall, sales in the first six months through June 30 gained 8.8 percent, to 37.29 billion euros, or $45.85 billion. Currency conversions were made at average exchange rates for the period.

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