PARIS — In a bid to accelerate its digital offering, Galeries Lafayette revealed plans Thursday to snap up French clothing and home furnishing catalogue La Redoute.
The move comes as department stores battle for relevance amid growing online commerce and seek the right balance between physical stores and digital offerings.
“I think it is a good move for Galeries Lafayette for several reasons: in one swoop it acquires 750 million in annual sales, which brings a boost to growth, but, most important, gives the company the means to accelerate its omnichannel transformation,” said Marc-André Kamel, a partner at Bain & Company.
In a joint statement, the companies said that Galeries Lafayette Group’s holding company, Motier, intends to acquire a 51 percent stake in La Redoute with the goal of owning the entire business in the future. Financial terms were not disclosed.
The deal is expected to finalize in the next few months, the companies said, but remains subject to approval by regulatory authorities and La Redoute employee representative bodies.
La Redoute, which historically belonged to Kering, is a household name in France, selling a broad selection of clothing and furniture. Kering exited the business in 2014 as part of a broader strategy to focus on brands with global appeal, selling the company to La Redoute managers Nathalie Balla and Eric Courteille. The two will continue to head the business, the companies said.
“La Redoute has made a spectacular recovery that we wish to support over the long-term,” said Galeries Lafayette chief executive officer Nicolas Houzé, in a nod to the catalogue business’ restructuring in recent years. La Redoute generates 750 million euros in revenues a year, according to the statement.
After steadily losing clients for nearly the past two decades, La Redoute managed to generate an increase in client numbers in 2015, Balla said. The bulk of sales comes from business online, accounting for 90 percent of group sales, including around 30 percent through mobile devices, she explained.
“We are a major player in e-commerce in France,” Balla added.
Part of the overhaul included repositioning the apparel offering to be more upscale, renewing collections more often and selling items at better value-for-money, Balla explained.
“We seized on the digital opportunity,” noted Balla, who said that the shift from the catalogue to selling online allowed the company to improve its marketing, thanks to photos and more focused storytelling through social networks as well as adapting information according to clients.
Thanks to the tie-up, La Redoute will be able to sell clothes in Galeries Lafayette stores around France, meeting demand for less expensive clothing, Balla said.
Galeries Lafayette and La Redoute said their combination would create the biggest apparel company in France in terms of sales, and ahead of high street retailers H & M and Zara, which are strongly positioned in the country.
With the purchase, Galeries Lafayette will also gain a foothold in home furnishings. Rival Paris department store Printemps recently bulked up the home decor offering of a store on the eastern side of the French capital by granting space to the French company Maisons du Monde.
Combined, the companies seek to increase annual sales from a current level of around 4.5 billion euros to over 5.5 billion euros by 2020, with 75 percent of sales coming from fashion and 25 percent from home decor. Digital sales would account for 30 percent of revenues, and 70 percent from physical stores.
“I am certain we will see more and more of these types of moves. Local actors will not be able to stop Amazon or Alibaba; they are very large pure player machines that are developing in a number of countries,” said Kamel.
“Actors will be able to continue to perform and survive if they accept the idea that there will be Amazon, and they prepare themselves for the battle by using their force, their strengths as a means of competition,” Kamel added, noting that Galeries Lafayette has a “very strong brand and knows how to draw French and foreign clients.”
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