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Whilst sales of luxury goods hit a new high during the third quarter of 2012, French luxury powerhouse Groupe PPR is waving goodbye to its retail outfit Fnac, which it will spin off in 2013. The retailer, Europe’s leading bookshop and media products chain, has suffered from declining sales since 2008, caused by depressed consumer confidence and the rising power of e-commerce competitors like Amazon, Apple and Cdiscount. For PPR, this is part of a long-term strategy of escaping mass market retailing and focusing on high-end luxury brands and sportswear. But, for Fnac, this could not happen at a worse time: the retail model desperately needs an overhaul and this will inevitably result in staff redundancies, which the once pampered unions will strongly oppose.
The digitalisation of media products is on its way in France and across Western Europe, just as in other developed regions. Books, DVDs and CDs are increasingly being bought online rather than in store, because of price and availability. Increasingly, store-based retailers are falling victim to showrooming: customers walk in to see, try and ask for advice on products but they walk out empty-handed and then buy them online. The good news is Fnac has a quite efficient e-commerce site, so it sees a share of online sales. But despite sales being expected to go up by 10% in 2012, this is not enough to compensate for its flagging store-based sales.
France is not the only country to suffer from showrooming and e-commerce competition. In the UK,Comet will close down all its stores before the end of the year and HMV can barely stand on its feet, whilst, in Germany, the Saturn superstores are struggling to shift enough plasma TVs and computers.
Source: Euromonitor International
Added to the equation is depressed consumer spending, due to an ever-deepening financial crisis and tough budget cuts being implemented by most governments in the Eurozone. The result is big ticket items selling less as consumers try to keep their old ones for longer. Furthermore, big grocery chains such as Tesco, Carrefour and Leclerc, are increasing their offer of media and technology goods, which is further choking specialist retailers.
Will Fnac follow the same fate as Surcouf, also a former PPR subsidiary, which filed for insolvency in October 2012? It seems unlikely, given that Fnac still makes profits and has a much larger footprint than Surcouf’s six stores. Moreover, the company has set up an ambitious cost-cutting plan until 2015, in order to get ready for next year’s demerger.
French consumers are genuinely attached to Fnac, which has always been an innovator and trendsetter since it opened its first store 60 years ago. The company has a respected concept, combining big box retail with cultural goods. Staff are knowledgeable and recruited based on their knowledge and areas of interest, ensuring that customers are given objective and informed advice. The company is trying to bring more flexibility and sales culture into this model, but there is a risk that this will lead to upsetting and demoralising of employees.
Fnac is also known for supporting writers and artists through lectures, book signings, concerts and conferences held at its stores. These need to remain in place going forward, but other areas of the business will need to evolve, such as:
As the holiday season approaches, Fnac seems to have got its act together with digital products: After failing to sell enough of its proprietary e-reader, the Fnacbook, launched in 2010, the company replaced it a year later with Kobo as it realised it made more sense to leave the hardware to a specialist and focus on the editorial content in French, which is more developed than Amazon’s. The same conclusion was drawn in the case of digital music; the company has just scrapped its Fnacmusic service – a proudly French response to iTunes – to actually enter into a partnership with its rival Apple’s iTunes. In both instances, the retailer learned from its mistakes and came up with an alternative.
So there are ways to turnaround the business, but they will come at a cost. In Western Europe, e-commerce will continue to take share from physical stores, which means fewer staff are needed on the sales floor. And, before emerging markets achieve critical mass, significant investments will be required to modernise the business in France. The question is, will the new management be bold enough to choose expansion over short-term profits?