Will Decaux's Street Smarts Work in the U.S.?
Waiting for a bus in the Windy City is about to get a little less windy. By December, workers will begin installing more than 2,000 bus shelters along sidewalks throughout downtown Chicago. The sleek, glass-and-steel structures, known in industry parlance as "street furniture," are the handiwork of JCDecaux, a French outdoor-advertising company that signed a contract with the city government in July. Decaux will install the shelters at no charge, in exchange for the right to sell advertising space on them. The deal is expected to generate $850 million in ad revenue over the next 20 years.
Don't look now, but Americans are buying more from France these days than perfume and champagne. Decaux invented the concept of street-furniture advertising and has spread it across Europe during the past three decades. Now it's headed for North America. Besides Chicago, it has signed deals in Los Angeles and Vancouver in recent months that together are expected to generate more than $1 billion in advertising revenue. Now Decaux is gearing up to bid on an even bigger contract in New York for more than 3,500 bus shelters. Decaux offers cities package deals including bus shelters, informational kiosks, outdoor toilets, and other amenities that in the past would have been financed by the government or transit authority. In exchange, Decaux gets exclusive advertising rights. "It's a model we can export anywhere," says Jean-François Decaux, the company's co-chief executive.
Decaux already is a global contender. It's Europe's No. 1 outdoor advertising company, and, at $1.5 billion, its annual sales approach those of the industry leaders, the outdoor-advertising units of Clear Channel Communications Inc. and Viacom Inc. Like its rivals, Decaux has been hurt by the global ad downturn: Most analysts predict Decaux's revenues will rise no more than 1% this year, with earnings down 15%, to $25 million. But Clear Channel and Viacom are suffering steeper declines because they rely more heavily on other advertising venues, such as airports, that have been pummeled by the post-September 11 travel downturn. By contrast, there's been no decline in the pedestrian traffic that's the target of Decaux's street-furniture ads. Likewise, while Decaux's share price is down 20% since its initial public offering on the Paris stock exchange in June, 2001, Viacom and Clear Channel shares have done worse.
But Decaux is facing stiffer competition in its own backyard. San Antonio-based Clear Channel recently acquired outdoor-advertising companies in Britain and France and outbid Decaux for deals with the French national railway and with French retail giant Carrefour. "For a long time, Decaux had no competition on their home turf, but now their margins are being eroded," says Robert Thurner, group marketing director for Clear Channel International in London.
It all adds up to a big challenge for a family-run business that's competing against deeper-pocketed media companies. Even after the IPO, the Decaux family still holds 69% of the company. Founder Jean-Claude Decaux has handed off most management duties to sons Jean-Francois, 43, and Jean-Charles, 33, who share the job of CEO. But Decaux pere still roams the parking lot at corporate headquarters outside Paris, checking that trucks have been washed before setting out on their daily rounds.
The Decaux family has long confounded the skeptics. Jean-Claude is a self-made man who never set foot in the elite schools that are the training ground of most French business leaders. He started a billboard company in the 1950s, only to face near ruin in 1964 when the French government outlawed most billboard advertising. The dejected Decaux, walking down a Paris street on a rainy afternoon, was suddenly inspired when he saw people huddled under umbrellas at a bus stop. Why not offer to build a bus shelter in exchange for the right to put up advertising?
Paris city officials loved the idea--and so did local governments all across Europe. Moreover, by insisting on a classy look for his street furniture, hiring designers such as Philippe Starck and Mario Bellini, Decaux attracted advertisers willing to pay top dollar. "In Paris you can see Chanel and Louis Vuitton on bus shelters," says analyst Christophe Cherblanc of SG Securities. "Outdoor advertising used to be considered low-class, but Decaux has brought it up to a new level."
While expanding in the U.S., Decaux is also hunting for acquisitions in Europe. A likely target is DSM, a German outdoor advertising company jointly owned by a group of city governments. DSM could be privatized as early as next year. That would give Decaux, which already collaborates with DSM, plenty of room to expand in Europe's biggest economy. For Decaux, the signs still point to growth.
By Carol Matlack in Paris