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Metro Gets Online a Decade Late to Stem Electronics Loss: Retail

For Metro AG (MEO), Germany’s largest retailer, showing up 10 years late for the online party is better than not turning up at all.

A decade after Amazon.com Inc. (AMZN) started selling televisions and cameras to Germans, Metro’s Saturn stores followed this week, to be joined in January by its Media Markt chain. The decision will help Metro post sales growth at the division of 4.4 percent in 2012, the average of five analyst estimates shows, returning the traditionally fastest-growing business to expansion after its first loss in at least 10 years.

The resumption of growth “will not happen without Web sales,” said Sebastian Frericks, a Frankfurt-based analyst at Bankhaus Metzler. “Media Saturn is not competitive compared with online businesses and that’s why e-commerce is very important to stop the electronics business from bleeding.”

Whether the unit can restore sales growth to a five-year historic average of 9.4 percent may also depend on it cutting store prices that can be more than 10 percent higher than at online competitors. Metro, searching for a successor to Chief Executive Officer Eckhard Cordes, must reduce the amount it charges Saturn and Media Markt customers by 5 percent on average, according to Peter Steiner, an analyst at BHF-Bank AG.

After 20 years of being Metro’s growth driver, Media-Saturn has contributed to a 40 percent decline in the company’s share price this year as delays getting online meant losing sales to cheaper rivals. The Dusseldorf-based retailer also faces a domestic retail market where sales declined the most in more than four years in August, as concern about the impact of Europe’s sovereign debt crisis weighs on consumer spending.

‘Very Ambitious’

Media-Saturn, which acquired Web retailer Redcoon GmbH in July, is targeting 5 billion euros ($6.9 billion) in online sales by 2015, a goal which is “very ambitious, but feasible,” said Thomas Effler, an analyst at WestLB in Frankfurt. By then, the company will be under new leadership. Cordes said this week that he won’t renew his contract beyond next year, citing media speculation of opposition on the company’s board.

“There are lots of challenges for the future CEO,” said Christoph Schlienkamp, an analyst at Bankhaus Lampe in Dusseldorf. These include deciding on the future of Kaufhof department stores and the Real supermarket chain, which Metro has said it may sell or find partners for.

Metro reported second-quarter profit that missed analysts’ estimates in August, weighed down by an operating loss of 44 million euros at the consumer-electronics division, which accounts for almost a third of group revenue.

The retailer’s online pricing is expected to be “quite aggressive” to compete with the likes of Amazon.de, said Robert Greil, an analyst at Merck Finck & Co. in Munich.

Simpsons DVD

The Saturn.de website offers a Canon digital camera at 175 euros and a DVD of the latest series of The Simpsons for 43.99 euros, matching prices on Amazon’s German site, while a De Longhi coffee machine is cheaper than at its competitor.

“They’re late to join the party, but are making an effort to bring down prices to a level similar to the Internet,” said Mark Josefson, an analyst at Silvia Quandt Research GmbH.

Media-Saturn last year began online operations in the Netherlands and Austria, where its prices are “much closer to a competitive level,” Charles Allen, global food retail analyst at Bloomberg Industries, said in a phone interview.

Still, prices at Saturn stores can be more expensive than online. A Bosch washing machine could be found on the Web more than 10 percent cheaper than its price in a Frankfurt Saturn shop on Oct. 8, including the cost of delivery, while a Samsung fridge could also be bought for almost 10 percent less online.

Multichannel Approach

Saturn’s website went live in Germany on Oct. 10, giving customers the option to pick up or exchange goods in a store. The retailer has 144 Saturn stores and 237 Media-Market outlets in Germany. Worldwide, the chains have 862 stores combined.

“Being able to pick up an item in a store and take it back to a store is a big advantage,” Josefson said.

Saturn charges as much as 39.90 euros for home delivery of “large goods” on purchases made through its website.

PPR SA, the French owner of the Gucci luxury-goods brand, and Dixons Retail Plc, Europe’s second-largest electronics retailer behind Metro, are among businesses that have benefited from a multichannel approach combining stores and the Web.

Online sales at Fnac, PPR’s French electronics and media chain, rose 17 percent to 185 million euros in the first half, and represented 9.9 percent of the unit’s revenue. Overall, Fnac sales dropped 3.2 percent on a like-for-like basis.

‘A Big Plus’

Dixons (DXNS) started its online platform more than a decade ago and had Web sales of more than 1 billion pounds ($1.6 billion) in its last fiscal year ended April 30. Online revenue at the U.K. owner of the Currys and PC World chains now represents 14 percent of sales, up from about 10 percent five years ago.

“Having an online business plus shops bringing image, logistics and service is a big plus,” said Marc Renaud, Paris-based founder of Mandarine Gestion, which has about 2 billion euros under management and holds Metro shares in its 840 million-euro Mandarine Valeur fund. “That’s the reason why they could succeed in spite of being late,” he said of Metro.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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