Darty Plc (DRTY), the owner of France’s largest consumer-electronics chain, plans to increase its market share by about a third in four years by adding stores in smaller towns.
The retailer is seeking to boost its share of French spending on products including washing machines and televisions to about 20 percent, Chief Executive Officer Regis Schultz said in an interview yesterday at Bloomberg’s London office.
The current take of about 15 percent is “definitively too low for a market leader,” Schultz said, noting that the country’s biggest home-improvement chains each account for about a third of spending in their part of the industry.
“One of the things we are doing is trying to grow this market share by going into small towns,” he said. “Our market share is about 20 (percent) in big towns, but we have no presence in small towns and we tend not to be in those type of catchment areas.”
About 30 percent of French consumers are unable to get to a Darty store within a 30-minute drive, according to the company. That’s restricting sales at a business whose revenue has shrunk almost 40 percent in the past five years as it has exited markets such as Italy, Spain, the U.K. and Turkey to concentrate on France, the Netherlands and Belgium, countries where it either has leadership or ranks No. 2.
The retailer will open as many as 150 “mom and pop” stores in small French towns by turning local independent businesses into franchisees, Schultz said. Four such outlets are now open after the first started business last month, he said.
While the electronic-goods market in France is showing signs of returning to growth after years of decline, the main risk to business is falling prices as growing numbers of shoppers choose to buy cheaper products, Schultz said.
About 29 percent of washing-machine purchases now fall into the lowest price category of less than 250 euros ($345), compared with 19 percent five years ago, according to the executive.
“What is really difficult in our markets is deflation,” Schultz said. “It’s for us to find ways to be more efficient in order to be able to absorb this pressure on price.”
Declining prices and increasing competition are weighing on Darty’s profitability, with gross margins in France narrowing by 110 basis points in the most recent quarter. That’s something that’s likely to continue, Schultz said.
Darty arranged a 250 million-euro loan in February to refinance the business. Schultz ruled out raising additional funds by selling property.
“As a full board, we decided that it was not the appropriate way of financing the company,” he said.
The board includes Eric Knight, the founder of Knight Vinke, which owns 25 percent of Darty and has campaigned for changes including a share repurchase funded by a partial sale and leaseback of property. Knight Vinke exercised a right to install a representative on the board in February last year after Darty said profit would miss estimates. Schultz became CEO a year ago, passing his first anniversary last week.
“We believe we should keep our property because it gives us great assets in terms of flexibility,” Schultz said, describing relations with Knight Vinke as “normal.”
David Trenchard, vice chairman of Knight Vinke, declined to comment. Two years ago, the investor presented an eight-point plan for Darty including the appointment of a new CEO, a 20 million-euro cost-savings goal and the elimination of money-losing businesses. Most of the demands have been met.
The CEO said Darty plans to retain its London listing, even though it now has no business in the U.K. The cost of moving the listing to Paris would be too expensive, he said.
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