PARIS — Give him a chance.

This story first appeared in the July 3, 2012 issue of WWD. Subscribe Today.

That appears to be the prevailing attitude in fashion and retail circles towards France’s new Socialist president François Hollande, who comforted his election win in May by sweeping to a majority in the National Assembly, France’s parliament, in separate legislative elections last month.

Hollande took over the top job at a time of sluggish domestic growth and widespread worries about the euro zone economy, and local bosses fear that rumored plans by his government to raise taxes and cut spending could penalize French companies and make the country less attractive to investors.

Leading French executives, designers and retail representatives, however, are prepared to let Hollande enjoy a short honeymoon before they pass judgment on his fiscal policies, which Prime Minister Jean-Marc Ayrault is expected to detail in a speech to parliament today.

“We’re waiting for the proof of the pudding,” said Jean-Marc Genis, executive president of the French Federation of Clothing Retailers.

The high street firms he represents are stuck in a slump. Sales of ready-to-wear in France fell 4 percent between January and April, following a 2.7 percent drop in 2011 as a whole, according to the most recent figures published by the French Fashion Institute, or IFM.

By contrast, the luxury sector continued to thrive in the first quarter, with LVMH Moët Hennessy Louis Vuitton, PPR and Hermès reporting first-quarter revenue increases of 25.4 percent, 15.4 percent and 21.9 percent, respectively.

Didier Grumbach, president of the Chambre Syndicale, French fashion’s governing body, said the industry overall was defying the gloomy economic climate. “Most of our brands are growing,” he said. “We are not crying for help.”

Grumbach said he would lobby the new government on the same subjects that have been at the forefront of his efforts in recent years: ensuring that fledgling brands have access to rolling financing and venture capital, and that institutions such as the IFM, which is both a school and an economic institute, receive adequate funding.

He shrugged off other issues that have been making headlines in recent weeks — among them, Hollande’s campaign pledge to raise income tax on those making more than 1 million euros, or $1.2 million, a year to 75 percent.

“Paris is experiencing a level of energy right now that will be difficult to rein in,” Grumbach explained.

“A lot of brands are growing between 20 and 40 percent per year, and it’s no longer a question of income, it’s a question of personal satisfaction. When you are lucky enough to work for a company that is growing 30 to 40 percent a year, you don’t leave, not even for a good salary,” he added.

Not everyone shared his confidence. Thierry Gillier, founder and owner of contemporary brand Zadig & Voltaire, said the planned income tax could affect the French fashion industry’s ability to attract top international talent.

“We are not going to keep talented designers, many of whom come from abroad, in France if we tax their salary at 75 percent,” he warned. “There is very little excellence in our field. It is obvious that very, very good designers are like very, very good racehorses. Competing at the top is an expensive sport.”

Laurence Parisot, president of the employers’ federation Medef, sounded an even more ominous note. She said many bosses were afraid the new government was oblivious to their concerns, at a time of collapsing margins, falling orders, extreme cash flow tensions, frozen hiring projects and canceled investments.

“We are deeply distressed and, fundamentally, we fear a systematic strangling,” she told a monthly press conference in mid-June. “Today, we are in survival mode.”

Business chiefs are due to share their worries in roundtable talks with government officials and labor representatives at a conference on July 9 and 10.

Items at the top of their agenda include plans for a 3 percent tax on dividends, aimed at encouraging firms to reinvest profits rather than paying them out to shareholders; proposed measures to make firing workers more expensive, and new rules forcing companies to sell off facilities instead of shutting them down.

“Let’s be careful not to transform our country into a kind of hyper-rigid enclave totally disconnected from the workings of the market economy as it exists everywhere else,” Parisot said.

Elisabeth Ponsolle des Portes, president of French luxury association Comité Colbert, said luxury leaders were closely monitoring the situation. “We will certainly make our voices heard if we feel that there is really a danger. For the time being, we are waiting for more specific announcements,” she said.

Comments from British Prime Minister David Cameron suggest the damage to France’s image overseas has already begun. Cameron irked French government officials at the recent G-20 summit in Mexico by saying Britain stood ready to “roll out the red carpet” for French companies if the millionaires’ tax went through.

Christophe Girard, an adviser for the fashion brands division of LVMH, played down the significance of Cameron’s remark. “It’s a provocation, and I don’t think there is any need to overinterpret this statement,” he said.

Girard, who is also the Socialist deputy mayor of Paris in charge of culture, said Hollande had outlined a number of initiatives designed to boost the economy, including the creation of the newly dubbed Ministry for Industrial Renewal, in charge of policies governing the fashion sector, among others.

“We are in a market economy, and François Hollande and the prime minister have no intention whatsoever of compounding the difficulties we face, but fully intend to help French manufacturing and exports,” he said.

Hollande, who defeated incumbent conservative President Nicolas Sarkozy, benefits from a comfortable parliamentary majority, which ensures he won’t have to rely on the far left to push through his program. The Socialists and their allies won 314 seats in the second round of the election on June 17, exceeding the 289 needed for an absolute majority.

But the president must balance his pledge to boost growth with his commitment to reducing France’s budget deficit to 3 percent of gross domestic product in 2013 from a forecast 4.5 percent in 2012.

Recent statistics highlight the scale of the task.

The French economy is set to grow just 0.4 percent in 2012, according to the latest quarterly economic report from statistics institute Insee, which revised down its earlier prediction of 0.5 percent growth. Meanwhile, the purchasing power of French consumers is forecast to fall 1.2 percent this year, the biggest drop since 1984, after a decrease of 0.1 percent in 2011 and a rise of 0.2 percent in 2010.

France has already lost its luster for some foreign investors. In 2011, it slid from second to third place behind the U.K. and Germany in the table of most attractive countries in Europe for investment, according to the annual European Attractiveness Survey published by Ernst & Young last month.

“Successive governments have destroyed France’s manufacturing base,” said Gillier at Zadig & Voltaire. “To rebuild a textile manufacturing base takes years, and I believe that retraining workers and technicians in a country like ours is practically impossible.”

He bemoaned the fact that French culture does not foster entrepreneurship.

“The problem in France today is that entrepreneurs and creators are stigmatized. They are criticized for winning. That is what should not be happening, because we are the ones creating jobs,” he said. “We are the ones getting things done, not the governments, because I don’t think the previous government was any good either.”

Genis at the French Federation of Clothing Retailers said lack of public support for entrepreneurs was compounded by flip-flops on legislation. “There is no continuity. We are asking investors to come and invest for the long term, when we can’t even give them any guarantees in the short term,” he said.

He criticized both political camps for pandering to public revolt against high-paid executives during the French presidential election campaign.

“Both right and left have steadily increased taxes on stock options, yet they still say they want to attract global talent. Global talent will go where it is well paid,” he said. “If people do the job and there is a return on investment, you have to pay them.”

Going forward, retailers will be vigilant regarding any policies that affect consumer spending, the traditional driver of French growth, and employment. Genis is particularly worried that the government could lift existing employer rebates on low salaries. “If the cost of labor increases too much, then certain investments in technology start to become profitable,” he said.

The government has already irked both unions and employers by raising the minimum wage by more than inflation for the first time since 2006. On July 1, the minimum salary went up 2 percent to 9.40 euros, or $11.75, an hour — too little for labor representatives, and too much for company bosses, who say the measure will destroy jobs.

Designer Agnès Troublé, better known as agnès b., said she had no problem with a 2 percent rise in the minimum wage. “Everyone is paid much more than that in my company anyway,” she noted.

A staunch Socialist supporter, Troublé is also critical of tax exiles. “Not paying taxes is immoral,” she said. “It’s a question of political trust, and it’s also a question of working for your country. I think in the 21st century, we won’t have any choice but to share.”

Nonetheless, she said it was vital to lower the cost of manufacturing in France. Troublé produces 40 percent of her collections domestically, making her the French clothing manufacturing industry’s largest single client.

“We need to reduce employer social contributions in order to be more competitive. We need to provide incentives to manufacture in France,” she said.

The designer is confident that Hollande can deliver. “I hope he will be understood and supported. It’s very important for us, because we had a right-wing government for a long time, and change is good,” she said.


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