A French Retailer Trips Up Global Heavyweights

In books, videos, and music, FNAC outretails the competition

When Richard Branson opened a Virgin Megastore on the Champs Elysées in 1988, he promised to take France by storm, with glitzy marketing and innovations such as Sunday hours. But now it's Branson who's in retreat. On July 26, he sold his 16 French book-and-music outlets to Groupe Lagardere. Five days later, German media giant Bertelsmann shut down its French books-and-music Web site. Amazon.com's local operation seems to be struggling, too.

Who's tripping up these heavyweights? Meet FNAC--rhymes with "knock." This Paris-based chain sells more than $2.7 billion a year worth of music, books, videos, and consumer electronics. And after nearly half a century of existence it boasts brand recognition that is the envy of foreign rivals.

But FNAC's home-court advantage doesn't end there: French law forbids discounting on books, so instead the retailer has used savvy marketing and customer-friendly store design to fend off challengers. Now it's marshalling those strengths to conquer new markets. "They're one of the best retailers in Europe, and one of the few that could be truly pan-European," says Bryan Roberts of London-based consulting group Retail Intelligence.

The FNAC formula is a blend of Borders, Tower Records, and Circuit City--served up in sleek superstores on prime center-city real estate. Its stores are usually thronged. That's because besides books and music, they feature extras such as photo processing and cafes that aren't in many competitors' stores. "They have everything here," says Maya Kandjy, a teenager browsing at FNAC's store on the Champs Elysées.

Founded in 1954 by a pair of French Trotskyites, FNAC started out as a buying cooperative for photo supplies. The business changed hands several times and was losing money when it was acquired in 1994 by the French retailing and luxury group Pinault-Printemps-Redoute. PPR cultivated a more youthful image by sponsoring music festivals and guest appearances at stores by hot musicians. FNAC also launched a counterattack against Virgin, opening a big store just a few blocks away from Virgin's flagship on the Champs Elysées, and spiffing up outlets in Lyon and Marseille, where Virgin often had less desirable locations and offered fewer services. "Virgin had the fireworks at first, but FNAC was always there," says Chief Executive Jean-Paul Giraud.

The French retailer seems to be thriving in cyberspace, as well. FNAC's French Web site gets 762,000 visitors a month, compared with only 369,000 for Amazon and 154,000 for Bertelsmann's French site before it shut down last month, according to Jupiter Media Metrix Inc., an Internet tracking firm. Georges Aoun, the head of Amazon's French operation, says the figures are misleading since they measure only visitors within France, while more than one-third of his customers are French-speakers from other countries. Aoun predicts Amazon will soon dominate in France, as it already does in Britain and Germany. Yet analysts say the U.S. e-tailer faces a big hurdle. "Amazon is a strong brand, but in the European market it hasn't encountered an incumbent competitor that is as good as FNAC," says Eithne O'Leary of ABN Amro in London.

Foreign expansion is FNAC's next big challenge. With sales growth levelling off in France at around 10% annually, the retailer has little choice but to look outward. It already dominates in Spain and Portugal and is now targeting Italy, Switzerland, Taiwan, and Brazil. These forays are cutting into operating margins, yet FNAC posted an $87 million operating income last year. It remains one of PPR group's most robust units, with sales up 13% in the first half of this year. It may not be what the Trotskyites had in mind, but it seems they may have cre- ated an international juggernaut after all.

By Carol Matlack with Christina White in Paris

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