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Galeries Lafayette Seeks Renaissance Amid Store Death

Photographer: Lucas Schifres/Bloomberg News.

A Christmas lighting display designed by Valerio Festi is seen on the facade of Galeries Lafayette department store in Paris, France during the launch ceremony in November 2002. Close

A Christmas lighting display designed by Valerio Festi is seen on the facade of... Read More

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Photographer: Lucas Schifres/Bloomberg News.

A Christmas lighting display designed by Valerio Festi is seen on the facade of Galeries Lafayette department store in Paris, France during the launch ceremony in November 2002.

Philippe Houzé knows a dinosaur when he sees one.

The chief executive officer of Paris-based department-store operator Groupe Galeries Lafayette is convinced that the format faces extinction. So he’s seeking to transform the 119-year-old retailer by buying brands in cosmetics and other categories to distribute alongside third-party labels like Ralph Lauren as demand weakens and e-commerce gains popularity with consumers.

“The department store is dead,” Houzé, 65, said over breakfast at Galeries Lafayette’s Paris flagship. “Long live the multi-specialist lifestyle retailer. That’s the strategy.”

Houzé is pushing for change ahead of a forecast decline in revenue this year after a “difficult” start to 2013. As well as looking at buying more brands, the executive has an eye on neighboring merchant Printemps with a view to consolidating share in France, and plans to accelerate expansion overseas.

The number of department stores in France has dwindled to 77 today from 220 in 1980 amid competition from other formats, according to Houzé. The advent of discount chains, specialist retailers, shopping malls, branded boutiques and e-commerce has revolutionized domestic shopping in the period, making traditional department stores seem like “dinosaurs,” he said.

Until now, the company, which has been owned by France’s Moulin family since 2009, has stayed relevant by maintaining a roster of luxury brands, focusing its offer around fashion, beauty and personal accessories and reorganizing its stores to cater to tourists. It’s also made forays overseas, opening outlets as far afield as Dubai, and moved online, while bolstering its ranks with Moulin family members. Galeries Lafayette yesterday named Houzé’s son Nicolas as head of its department store division.

Bigger, Stronger

Yet, after selling a stake in grocery retailer Monoprix in 2012 and amid the prolonged spending crunch, Galeries Lafayette has reached an impasse.

“To exist tomorrow in our profession, we are obliged to strengthen” our business, said Houzé, whose wife is a Moulin.

Areas the department-store operator may seek to bolster include jewelry, fashion, cosmetics, and watches, he said. It isn’t interested in Nocibe, the Villeneuve D’Ascq, France-based fragrance and cosmetics retailer that owner Charterhouse Capital Partners LLP is seeking to sell for about 600 million euros ($777 million), a spokeswoman said.

Galeries Lafayette plans to lift store revenue from labels it owns to 25 percent from 15 percent, Houzé said, declining to give a time frame. The aim is to build a house of brands under one roof that offers the best of French and international premium and luxury goods, he said.

Bananas, Watches

Reinvention isn’t new to Galeries Lafayette. Since its inception as a haberdashery in 1893, the company has diversified into and, in some cases, out of products from bananas to bed linen. Its current businesses include watchmakers Louis Pion and Royal Quartz; Bazar de l’Hôtel de Ville known as BHV, which sells everything from pet accessories to power tools, and jeweler Didier Guerin, which it acquired last year.

Owning brands “brings the benefits of higher margins,” John Mercer, an analyst at Mintel in London, said in a phone interview. It’s also “a competitive advantage because you’re offering a brand that can’t be bought from” rivals.

Galeries Lafayette revenue rose 7.6 percent to 3.2 billion euros in 2012, according to the company. At group level, sales climbed 5.6 percent to 3.7 billion euros.

Western European department-store sales gained 3.1 percent to 56.5 billion euros last year, rebounding after a 0.4 percent decline in 2011, according to Euromonitor International Plc. Even so, sales in the region still trail 2007 when they reached 61 billion euros, the researcher estimates.

Printemps

The biggest name on Houzé’s shopping list is Printemps, the 148-year-old retailer of products from Acqua di Parma perfume to Ermenegildo Zegna suits whose flagship store sits next door to Galeries Lafayette’s. Printemps has five outlets in France.

Combining with Printemps is “an opportunity to create a global player offering the art of French living,” Houzé said.

Since September, Galeries Lafayette has failed with two bids for Printemps, the second of which valued its Paris-based rival at 1.8 billion euros. Deutsche Bank AG (DBK)’s RREEF real estate investment unit entered exclusive talks in February to sell its 70 percent stake in Printemps to co-owner Borletti Group and investors from Qatar.

Houzé hasn’t given up on capturing Printemps. After lobbying government officials, including Benoit Hamon, junior minister for consumer affairs, and members of industry minister Arnaud Montebourg’s team, the executive said he met this month with the Qatari investors, aiming to persuade them to switch allegiance. A spokesman for Qatar Holding declined to comment.

International Push

If Houzé fails, he’ll seek another deal to secure Galeries Lafayette’s future, he said. The company raised 1.18 billion euros from the sale of its 50 percent stake in Monoprix and can expect more proceeds from disposing of its share of consumer credit business Laser.

Alongside creating “unassailable fortresses” in different categories, Houzé wants to expand internationally. This year, Galeries Lafayette will open stores in Jakarta and Beijing. By 2015, the retailer aims to add five to seven new stores, including in Istanbul. Galeries Lafayette has 62 stores in total, all but three of which are in France.

In China, luxury retailing is polarized between shopping malls and direct distribution by brands, which isn’t necessarily the best way of catering to customers’ needs, Houzé said. “I believe there is a place in-between,” he said.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

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

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