Carrefour to Push Price Cuts

New Carrefour ceo Lars Olofsson sets out three-year plan for growth.

PARIS — Carrefour’s chief executive, Lars Olofsson, on Tuesday disclosed a three-year plan to overhaul the world’s second-largest retailer, achieve sizable savings and improve its image, which consumers have come to perceive as an expensive brand compared with competitors.

This story first appeared in the July 1, 2009 issue of WWD.  Subscribe Today.

By 2012, the company expects to achieve savings of 4.5 billion euros, or $6.32 billion at current exchange rates, by improving the efficiency of its operations to generate higher margins, mainly in France, Italy, Spain and Belgium.

The gains will consist of 3.1 billion euros, or $4.35 billion, by cutting operating costs and improving purchasing practices, and 1.4 billion euros, or $1.96 billion, of further gains from reducing inventory times by seven days.

The transformation will require an investment of 500 million euros, or $702 million, and will entail one-off expenses of around 1 billion euros, or $1.4 billion, between 2009 and 2012.

“The large cost savings and efficiency gains resulting from these initiatives will give us greater resources to pursue our ambitions,” stated Olofsson.

The company also underscored its resilience against the sharp economic downturn by disclosing first-half sales excluding gasoline should be slightly higher compared with the same period last year, and the increase in the second quarter of 2009 should be above that of the first quarter.

Carrefour expects to focus on promoting its prices using advertising campaigns with clear price messages and price comparisons in a bid to attract more budget-conscious shoppers in the current downturn, according to the company.

The retailer has already tested the strategy in Spain with success, logging market share gains and improving its image among consumers, Olofsson said.

As a result, the company is rolling it out in France in September 2009. Taking a cue from U.K. supermarket chains, which have boosted their business with city-center stores to lessen their reliance on hypermarkets, Olofsson said the rollout of the Carrefour City convenience stores will continue, after test stores showed a growth of 30 percent after they were converted into this format. Carrefour expects to have 50 Carrefour City and Carrefour Contact stores, which are located in smaller towns, open by yearend.

There was no specific mention about the firm’s strategy for apparel, health and beauty products and other nonfood categories.

The world’s second-largest retailer behind Wal-Mart, Carrefour operates about 15,000 stores under several banners — including Carrefour hypermarkets, Champion supermarkets, Shopi and Marché Plus convenience stores, and discount stores Dia and Ed — in about 30 countries in Europe, Latin America, and Asia. France accounts for about 45 percent of its sales.

Carrefour is also reshuffling its business in Italy, where it has closed two hypermarkets, by refocusing on the more profitable northern regions. As a result, it will sell four hypermarkets it owns in southern Italy, Olofsson said.

Swedish-born Olofsson joined the company Jan. 1, replacing José Luis Duran, who had been under pressure to improve the company’s financial performance and limping stock price from its largest shareholder, Blue Capital Group, the investment consortium of LVMH Moët Hennessy Louis Vuitton chief Bernard Arnault and investment firm Colony Capital.

Shares closed down 3 percent at 30.42 euros, or $42.73, before Carrefour disclosed its current trading and cost-savings plans.