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PPR Sees Plenty of Room for Growth

The company spies a broader world as demographics and economic development promise to deliver young and affluent consumers from emerging nations.

PARIS — For the past 50 years, the fashion business directed most of its efforts towards some 800 million consumers in the wealthiest regions of the world: the U.S., Western Europe and Japan.

This story first appeared in the October 5, 2012 issue of WWD.  Subscribe Today.

Training its sights on the next half a century, PPR spies a broader world as demographics and economic development promise to deliver some 3 billion young and affluent consumers from such emerging nations as China, Indonesia, Mexico, Brazil and Russia.

So says PPR chairman and chief executive officer François-Henri Pinault, who hosted a press day on Thursday with his top managers to elaborate on the French group’s transformation from a retail-to-luxury conglomerate to an integrated firm focused on apparel and accessories in the luxury and sport-and-lifestyle segments.

“What is at stake in the longer-term, that is to say over the next 50 years or so, is absolutely huge and without precedent in human history,” Pinault said.

This means that PPR has plenty of potential to grow sales, even without acquisitions. In 2011 as a whole, PPR recorded sales of 12.23 billion euros, or $17.03 billion, up 11.1 percent on the previous year. Pinault hopes to triple the size of its core luxury and sport & lifestyle divisions by 2020 and increase revenues to 24 billion euros, or $31.1 billion at current exchange.

He reiterated that the group would look to buy mainly small and medium-sized firms with strong growth potential, saying that one of the areas it was interested in expanding was the outdoor segment.

“Of course, acquisitions are not going to disappear,” Pinault said. “But they will make a very minor contribution to the group’s growth.”

Group managing director Jean-François Palus noted that Balenciaga has multiplied in size by 11 times since it was acquired in 2000, with Alexander McQueen growing by a factor of 12 since a majority stake in the London-based fashion firm was purchased later that same year.

PPR will continue to make strategic acquisitions in segments where it is not present — or to achieve a certain business objective, Palus said. To wit: Puma’s 2010 acquisition of the California golf equipment brand Cobra Golf was partly to help the German activewear brand penetrate pro shops, an exclusive yet vital distribution channel in North America, he noted.

“We don’t need acquisitions, so it’s perfectly possible we won’t make any for 10 years. It doesn’t matter,” Palus said. “We would like to consummate acquisitions to speed up our expansion and growth, but if we don’t, we will still deliver growth.”

Questioned about whether PPR might be interested in Lacoste SA, which is embroiled in a family dispute following the surprise nomination last week of Sophie Lacoste Dournel as president of its non-executive board, Palus demurred.

“We don’t get involved in family conflicts,” he said. “Lacoste is a fantastic brand, but it is a bit constrained by its license model.” Palus noted that PPR does not grant licenses for any category of products that it has the know-how to produce in-house. “Certainly, we could take Lacoste. We would be interested if we could have [full control of] everything,” he said.

Todd Hymel, chief operating officer of PPR’s sport and lifestyle division, said Puma currently generates 95 percent of that pole’s revenues, which in 2011 totaled 3.2 billion euros, or $4.5 billion at average exchange rates.

While noting he sees “enormous opportunities for growth in China” for Puma, he accentuated initiatives at its smaller action-sports brands, showing off the first prototypes for Volcom sneakers, which have soles in contrasting colors. The brand recently opened its first stores in Madrid and Barcelona, and will unveil another in the French ski resort of Chamonix later this month.

PPR has recruited a new chief executive officer to drive growth at Tretorn, and should reveal the name later this month, Hymel said, noting the Swedish heritage brand would maintain its focus on rubber-based footwear and guard its tennis roots.

“Tretorn is nowhere near its potential,” he said.

Meanwhile, Electric, a specialist in snow goggles and eyewear, is to unveil a line of helmets for mountain sports, keeping its focus on “premium technical accessories,” Hymel noted.

Palus said PPR was working to fix declining profitability at Puma, saying it would not sacrifice profits to achieve its target of sales of 4 billion euros, or $5.16 billion at current exchange rates, by 2015.

“We are not fanatics,” he said. “In 2015, we won’t be posting higher revenues with lower profits. We will have higher sales with higher profits.”