PARIS — Century-old family business Galeries Lafayette has been hit hard by the coronavirus crisis. Stores remain shut, tourists are not likely to return to the French capital anytime soon, consumption forecasts look dicey, sales are expected to drop by 50 percent this year — that’s 1 billion euros less — but the ship’s captain is keeping an even keel.
“You have to be optimistic in life,” said Galeries Lafayette chief executive officer Nicolas Houzé, who also recommends meditation for these challenging times.
The French government has announced the gradual reopening up of nonessential business, easing lockdown measures in place since mid-March, in a bid to get the country’s economic engines fired back up — domestic consumption has traditionally served as an important driver of France’s economy. The process kicks off May 11.
“After spending two months thinking about business scenarios for the company, we are now focused on our objective of opening on May 11,” Houzé said.
“It’s important to recognize that we are going through something entirely unprecedented, unheard of — extreme — and for a company like ours that has a long history and has gone through difficult times, I think we can officially say that the worst crisis Galeries Lafayette has ever experienced is to have our stores closed for two months,” he said.
“This has never happened to us in history, even in the worst moments that we’ve ever known — the Second World War, or other crises, we have always managed to keep business going, which hasn’t been the case today,” he continued.
The fabled Paris department store — best known for its historic, domed, Boulevard Haussmann flagship — has been working hard to reinvent the traditional shopping model, developing the entire neighborhood around its BHV Marais store, across from the city hall, bringing in Eataly restaurants to generate foot traffic, and, on the Avenue des Champs-Élysées, building a fashion-forward destination.
The recent flurry of activity came to an abrupt stop with the arrival of COVID-19 in Europe.
“On March 14, when the prime minister announced that the country would be locked down and nonessential commerce would be closed, we immediately closed our doors and made sure that our employees could return to their homes,” recalled Houzé.
“That was the easy part to manage,” he added, despite the range of administrative, technical and health-related measures this entailed.
“We quickly activated a plan for the return to business because we knew that one day, we’ll be getting back to business, and it’s a lot more complicated for a department store to reopen than to close,” said Houzé, citing discussions with employees and unions, and the need to reassure everyone, including clients, by sharing details of planned measures to ensure health and security.
Such measures are becoming standard for retailers across the globe.
“Making hand sanitizer available, requiring masks for employees as well as clients, installing Plexiglass in front of cash registers,” he noted, ticking off the list of efforts. The group will close off a number of cash registers, and is drawing up routes through the store to avoid contact between people, and maintain necessary distances.
Executives are also rethinking store hours, given constraints of public transport and worker availability — child care remains a challenge, as schools open gradually, with limited capacity. Store hours will likely be reduced both during the week and on weekends, and discussions with unions are ongoing.
The group is working to open nearly all of its Galeries Lafayette and BHV Marais stores, with the exception of flagships in shopping centers — French officials have said large shopping centers will remain closed for the first phase of easing restrictions, which will be revisited on June 2. With local and national authorities revisiting the issue every three weeks, Houzé is hoping that shopping centers will be allowed to reopen soon.
In the meantime, the economic impact has been “clearly dramatic,” in Houzé’s description.
“We revise our budget forecasts every week to try to get a picture of where we will be at the end of the year. Obviously we don’t have a crystal ball, but with the information we’ve been able to gather, we’re able to see things a bit more clearly — the decrease in business is very significant,” he said.
The executive doesn’t expect international visitors, which have accounted for a large proportion of business, to begin returning before the end of this year. He also doesn’t see a return to normal levels of business until the end of 2021.
The group has lost hundreds of millions of euros in sales — as much as a billion euros — estimates Houzé, who notes that the figure corresponds to around half the annual revenues of normal times.
“This means an impact on profitability, and in 2020 we will see a loss for one of the first times in our history, which will have an effect on the future of the company,” he said.
But, being privately owned, the group can maintain its focus on the long term.
“We are a family company, focused on the long run, and have built very strong fundamentals, which we will continue to lean on. But this will also lead us to rethink certain things and question some investments, reinvent our way of doing things, change our habits and adapt our company in the face of this unprecedented situation,” he said.
The company recently filed for government assistance, asking for hundreds of millions of euros, but is waiting to hear back from authorities and banks.
The French government has shown an understanding of the gravity of the situation, stepping in with measures of support for businesses, noted Houzé.
“The government has drawn up important and necessary measures to support the economy, with temporary unemployment from the start, which offered respite for companies in difficulty, as well as state-backed loans, which have also been helpful,” he said.
Still, large challenges are looming. An Opinionway poll for Fastmag issued last week showed that 45 percent of French people expect to reduce their spending on apparel after lockdown measures ease up, with most citing financial considerations as the reason. The Institut Français de la Mode, meanwhile, said French apparel sales fell 53 percent in March compared to the previous year.
“There was the lockdown period and now there will be the post-lockdown period, so at the moment we can’t fully assess how the assistance has been the most efficient. We are still in a period of flux and uncertainty — and waiting, too — to see what will happen after May 11,” he said.
“After May 11, reality will likely be much more painful,” he predicted.
With all of its stores closed, around 95 percent of store workers and 85 percent of employees at the head office are currently on temporary unemployment.
Executives braced for the current situation in February — they began to realize the gravity of the situation by observing their store in Beijing, and noticing the drop off in visitors from Asia coming to Paris. Cost-saving measures drawn up in February will remain in place throughout 2020, Houzé noted.
The group, which has invested considerably in a number of projects recently, will continue to work toward building its business for the future.
“It’s also important for us also to build the future and not call everything into question — we think that Galeries Lafayette will continue to play a major role, so it’s important to continue investing in the future,” he said, citing focus areas like digital services and refurbishing the Boulevard Haussmann flagship.
That said, the group has reduced investments by 30 percent this year.
“We’ll continue to work on our strategic pillars,” he said ticking off the group’s list: modernizing operations, expanding internationally, promoting a responsible approach to consumption, bulking up the digital side and simplifying operations. Now added to the list: profitability.
When it comes to the digital realm, the group has seen a return in activity in April of both Galeries Lafayette and its home decoration and apparel catalogue business La Redoute, following a drop in March when consumers were spooked by the uncertainty in the early stages of the lockdown. The addition of the La Redoute business continues to make sense for the group, noted Houzé.
“I’m convinced of complementarity of Galeries Lafayette, BHV and La Redoute,” he said, noting that the catalogue business adds an online dimension to the more physical activity of the department stores. The three entities have a number of common projects, including data management and the development of home decor and apparel products that will be displayed in the stores.
Digital consumption has increased in France, as elsewhere, during the lockdown period, as shown by a study published recently by Nielsen that saw an increase in market share of online commerce in the country rising from 7.4 percent in the pre-lockdown period to 9.5 percent while the lockdown was in place.
The current environment also calls for new forms of agility, noted Houzé.
When it comes to making purchases digitally or online, the crisis has brought down the barrier between the two, in Houzé’s view.
“It was a very fine line before the crisis that has now become blurred, so this is a nice opportunity to go ever further in this direction — which is very important for Galeries Lafayette,” he said.
Also gaining in importance are social and environmental issues, he noted, reflecting sentiment that has been expressed by many industry players since the crisis began.
“It’s very important, it’s one of the pillars we are building for our future, whether it’s engaging with society or sustainability, these are subjects that are really at the heart of our preoccupations. And we are seeing, in this complex time, that solidarity has become extremely important,” he said.
The group’s Go for Good initiative, which started in 2018 and showcases products with an ecological bent, was expanded last year with its “Fashioning Change” campaign — it will be further expanded in September.
“It has clearly become a big priority, and Galeries Lafayette sees this as something that is fundamental for the future,” he added.
While the COVID-19 crisis continues to cast uncertainty on the shape of future consumption habits, some are predicting a return of the larger stores that have fallen out of favor in recent years — as consumers seek to limit their shopping outings.
“Having a large store with everything under the same roof, it’s a way for clients to return to stores to bring back clients with a bit of serenity and security. At Galeries Lafayette and BHV, we can manage visitor flows so clients won’t be on top of each other, this will be important for people getting out for a bit of enjoyment,” Houzé said.
When it comes to international expansion, Houzé expects the group will add more stores in China, which are operated through a local partnership, but noted that the crisis may affect plans for a new store in Milan, part of a shopping center development that had been originally scheduled for the end of 2021.
Asked about insight from the situation in China, the executive noted a gradual resumption of activity.
“What we are seeing in China is that the return to business is fairly slow,” he said.
“Over two months after reopening and we are seeing that activity remains lower than last year’s levels, but week after week, the performance is improving and perhaps after three, four or five months, we’ll return to the trends we saw in 2019,” added Houzé, who expects it will be similar in France with local clients, but even more challenged when it comes to international customers, who represent half of the shoppers at the Boulevard Haussmann flagship.
“It will be more complicated for international clients — they will likely find it difficult to start traveling again, there will likely be a certain amount of apprehension, and tourism will probably not be a priority in 2020,” he predicted.
Ever the optimist, he noted that when such activity does resume, the group is well positioned.
“I am convinced that Paris and France — leading destinations for world travel, will quickly resume their position and that in this context, Galeries Lafayette will return to its role as a flagship for global commerce,” he said.
While the group is looking at ways to adapt to the near-term shift to a mainly domestic clientele, French consumers have continued to hold an important place for the group, he said.
“We are looking at this, but the French clientele has always remained the leading client for the group wherever we are — we have never neglected our French clientele over the years. We have implemented a large number of services and are rethinking our loyalty programs, rethinking spaces dedicated to these clients,” he said, citing, for example, the group’s spaces for handling duty-free services, clearing space for local clientele in the main store.
“I am very proud of the strategy we put into place a decade ago to attract an international clientele, but French clients have always been a priority clientele and we’ve never neglected them,” he noted.
As the group thinks about the return of international consumers, executives will also consider ways to welcome them back, too, he added.
“As we emerge from this crisis, I think there will be even more of a need to take extra care that we are also here for enjoyment—to help put this complicated period behind us a bit,” he suggested.
Asked about the retailer’s role in supporting smaller, independent labels, the executive stressed the group sees this continuing.
“It has always been the role of Galeries Lafayette — it’s even part of the DNA as a department store with various brands and ranges of products, from accessible to upscale, for us, this has always been very important — to introduce as diverse a selection of brands as possible to our clients,” he said, noting that the company’s buying teams are very conscious of this role.
“It’s extremely difficult for them — even for us, as a group that’s over a century old with around 2 billion euros in annual sales — this crisis has had a major impact on us, so I imagine for them it’s even more difficult. We will do everything we can, and stay with them to help ensure they are as well-known as possible and manage to generate enough sales to overcome this complex stage,” he added.
As executives lay the groundwork with local authorities to reopen stores, other, recent crises come to mind. The terrorist attacks in Paris brought tourism to a standstill in 2015, while the yellow vest protests turned the Avenue des Champs-Élysées into a battle zone — just as the retailer opened its new flagship there in 2019 — and last year’s pension reform protests disrupted business during the crucial holiday season.
“Whether there is a threat linked to terrorism or hostile crowds or health, for us it’s clear we don’t play around with this. It is fundamental to guarantee the security of everyone we welcome into our stores — from employees to clients; we’ll never stray from this rule,” Houzé said.
His advice for weathering the storm?
“First of all, meditation is fundamental to stay level-headed and maintain optimism,” he said.
“Above all, during these periods of crisis, we need to have a captain at the helm of the ship who can guarantee the wellbeing of a company, even when activity is on pause. It’s important to have someone who can give guidance to get through this crisis period,” he said, noting that decisions need to be made and adopted by everyone.
He also emphasized the need for optimism.
“We need to imagine better days, because they will return — while you have to be realistic. It’s an extremely difficult and painful period that we are going through,” he said.