PARIS — Consolidation has hit the European department store sector.

PPR, parent of Gucci Group, said on Tuesday that it has entered into exclusive talks to sell its 17 Printemps department stores to RREEF, the fund that oversees the real estate portfolio of Italy’s La Rinascente department stores, and the Borletti Group, controlled by La Rinascente’s chairman, Maurizio Borletti. The proposed sale price is 1.08 billion euros, or $1.33 billion at current exchange.

The deal will be submitted to European competition authorities as well as to Printemps employee representatives, PPR said.

If the deal goes through, it will create a new European department store giant with 32 stores in France and Italy and sales of more than 1 billion euros, or $1.25 billion. The management structure of the new group was not revealed Tuesday. Borletti last year recruited Vittorio Radice, formerly of Selfridges and Marks & Spencer in London, to oversee a transformation of La Rinascente as chief executive officer.

“RREEF’s project provides Printemps with substantial guarantees at the social, operational and financial levels,” said PPR chairman François-Henri Pinault. “PPR remains committed to developing its activities in its two core businesses: luxury goods and retail.”

Borletti said he and his partners planned to develop Printemps further.

“We have a lot of faith in the potential of this retail format, which increasingly turns shopping into entertainment,” he said in a statement. “We want Printemps and its employees to be part of a new surge in development as we continue the repositioning and brand improvement that was launched several years ago.”

Speculation has swirled for about a year that PPR was seeking to divest itself of Printemps because the company’s margins were too low in comparison with its other businesses, particularly its luxury holdings. Printemps, which employs some 5,200 people, reported operating income last year of 26 million euros, or $32.5 million, on sales of 752 million euros, or $940 million.

Markets reacted favorably to the growing rumors of a sale over the last week here, sending PPR’s shares up almost 9 percent in the last five days of trading on the Paris Bourse.

This story first appeared in the June 21, 2006 issue of WWD. Subscribe Today.

The deal would include the Citadium sports apparel and equipment megastore in Paris that PPR inaugurated in 2000, as well as 24 Made in Sport stores, the Madelios men’s emporium in Paris and a Printemps Design unit at the Pompidou Museum in Paris.

A spokesman for PPR said the firm was not shopping around its other retailing activities, including the Fnac book and music chain and the Conforama furniture business.

“We will keep all of our businesses that are in line with our strategy for organic growth and international expansion,” he said. “Printemps was a marginal, small part of our overall business.”

Founded in 1865, Printemps is best known for its Art Nouveau Paris flagship on Boulevard Hausmann here, which is a perennial tourist destination. The flagship’s image had sunk in the late Nineties, though, prompting management to launch massive renovations, including the addition of a so-called luxury floor and new beauty, home and shoe departments. The designer sportswear area also has been revamped.

Meanwhile, Printemps has been rolling out more sophisticated merchandize to its stores in the French provinces as it faces stiffer competition from fast-fashion retailers such as Zara and Hennes & Mauritz.

Galeries Lafayette, one of Printemps’ main competitors, was said to be among the bidders for the business, but it was said to have fallen out of the bidding processes over the weekend.

This is not the first time Borletti has teamed up with RREEF. The two partnered last year to buy La Rinascente, bringing Borletti back to the store his family founded in 1917.

Radice last December outlined an ambitious new plan for La Rinascente, including a goal of doubling its sales in the next seven years, to 605 million euros, or $756.2 million, in 2012. As he did in transforming Selfridges, Radice is aiming to introduce more product categories to the Italian department store, including more accessories from high-end designer brands, electronics and media and food. The ceo also wants to invest 110 million euros, or $137.5 million, to remodel La Rinascente’s existing 15 stores, with plans to open five new stores in cities such as Bologna and Venice.

RREEF’s purchase of Printemps marks a rare cross-border deal in retailing in Europe, where, in general, larger stores focus on their domestic markets. While fast-fashion retailers have successfully expanded throughout the continent, there are few department stores operating in more than one European country. Among the exceptions are Marks & Spencer — which operates both in the U.K. and Ireland, although past efforts to expand into France and Germany failed — and the Weston family, who own both Selfridges in the U.K. and Brown Thomas in Dublin.

But European department stores face many of the same pressures as their U.S. counterparts, including greater competition from specialty chains, spiraling rents, a more demanding consumer and brands opening their own freestanding units. Such pressures contributed to the decline of May Department Stores in the U.S., which last year was acquired by Federated Department Stores.

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