French global luxury conglomerate PPR, owner and/or investor in a number of major fashion houses as well as retail and mail order outlets, has announced that it intends to sell off its lower-margin assets in order to slim down and concentrate on mid-priced and luxury retail.
From the Financial Times: "PPR, the French retail conglomerate headed by billionaire François-Henri Pinault, plans to dispose of retail businesses that generate 70 per cent of group sales to focus on clothing and accessories brands within its luxury Gucci Group and Puma, the sports wear company . . . The funds will initially be used to pay down net debt but will also form part of a war chest to buy international clothes and accessories brands to replace sales of the mature, low-margin retail businesses PPR is looking to sell."
PPR is the owner of Gucci Group, which includes the luxury brands Yves Saint Laurent, Sergio Rossi, Boucheron, Bottega Veneta and Balenciaga, as well as 50% investment stakes in Alexander McQueen and Stella McCartney. PPR also has a 65% stake in sportswear company Puma for which both Alexander McQueen and Sergio Rossi have contributed special edition designs.
Sergio Rossi for Puma
Top News UK notes that PPR will use funds from the sale of these assets to target and acquire big-name, multi-national, mid-tier fashion companies that can shore up its portfolio and contribute to a stronger bottom line due to a more mainstream accessible retail presence than its more exclusive high-end luxury brands presently afford:
"Analysts have shared the speculation, that if the PPR sales go ahead as planned, the company would target popular retail brands including Ralph Lauren, Levi Strauss & Co, Abercrombie & Fitch and Tommy Hilfiger. One major reason driving the sale, as has been confirmed by a company source, seems to be the fact the PPR now wants to get out of the only-luxury sector and look into the retail market, which is more profitable."
Vogue also tosses Lacoste and catalogue business La Redoute into the mix of potential acquisition targets.
But back in 2006, PPR was shedding its boring old retail assets for €1.075 billion, launching flagship Gucci stores in Tokyo and focusing heavily on expanding its luxury brand business where it was seeing profits soar as high as 70% year over year: "'Global demand for luxury is very strong,'' said Chris Tinker, head of equity research at ICAP Plc in London. '(CEO) Pinault has narrowed his focus to luxury brands.'''
Fast forward only three years and overall PPR earnings are declining, Gucci is rumored to be downsizing with profits in Japan alone plunging 20% in the first half of 2009, the maker of Gucci sunglasses is hurtling into default and company sources are whispering that "PPR now wants to get out of the only-luxury sector and look into the retail market, which is more profitable."
Not so profitable Balenciaga's Spring/Summer 2010 collection
In February of this year, PPR sold off Bédat & Co, a Swiss luxury timepiece brand amid news that the Swiss watch industry was suffering continued losses: "Jewelry and watches ... have performed worse than fashion and leather goods because so many buyers of timepieces and jewels work in the banking industry, according to Nomura analyst Kate Woolfoot. Swiss watch exports have dropped each month since November (of 2008) as job cuts have led bankers to reduce expenses."
PPR and Bédat & Co launched the first stand-alone Bédat & Co boutique in December of 2008 in Kuala Lumpur, just in time for the watch and jewelry market to collapse.
UPDATE (11/24/09):
The Wall Street Journal reports that Pinault plans to sell "the company's European retail divisions, including the popular electronics retailer Fnac and the Conforama discount furniture stores . . . Mr. Pinault wants to use that cash to shop for other apparel and accessories brands to create a new mass-market division mirroring PPR's luxury-goods unit."
Mr. Pinault notes that developing a retail presence is more globally difficult than developing the brands that go into the retail chains, and that the profit margin on PPR's retail business is about 5-8 times lower than its profit margins on luxury goods -- but luxury goods alone aren't high-volume enough to sustain an empire, so PPR is looking to go the mass-market lifestyle route, hence the rumored interest in companies like Lacoste, Abercrombie & Fitch, Ralph Lauren and Tommy Hilfiger.
There's also the desire to add an outdoor activities brand to the mostly indoor fashion roster (i.e. LL Bean, Eddie Bauer, REI, etc.):"To build its mass-market lifestyle brand, PPR could be interested in another label geared towards outdoor activities such as hiking, water sports, and street sports such as skateboarding, Mr. Pinault says."
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