PPR S.A.

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PPR S.A.

10, Avenue Hoche
75381 Paris
Cedex 08
France
Telephone: (33) 1 45 64 61 00
Fax: (33) 1 44 90 62 25
Web site: http://www.pprgroup.com

Public Company
Incorporated: 1972 as Au Printemps S.A.
Employees: 93,397
Sales: EUR 24.2 billion ($33 billion) (2004)
Stock Exchanges: Paris
Ticker Symbol: PP
NAIC: 452110 Department Stores; 454110 Electronic Shopping and Mail-Order Houses

PPR S.A., formerly known as Pinault-Printemps-Redoute S.A., is the third-largest luxury retail group in the world. The group went through a major reorganization in the early years of the new millennium, selling off its holdings in timber, electrical equipment, and consumer credit services. During this time, PPR increased its stake in the Gucci Group, eventually securing a99.4 percent interest in the luxury concern whose brands include Gucci, Yves Saint Laurent, Bottega Veneta, YSL Beaute, Boucheron, Sergio Rossi, Bedat & Co., Alexander McQueen, Stella McCartney, and Balenciaga. PPR's retail establishments include Printemps, Conforama, Redcats, Fnac, and CFAO. Francois Henri Pinault, the founder's son, took over as CEO in 2005.

Mid-19th Century Origins

In 1865, 31-year-old Jules Jaluzot, who had been a department head at Bon Marche, France's oldest department store, opened Au Printemps, a small store on the corner of boulevard Haussmann and rue du Havre in Paris. The store consisted of a basement for stock, a ground floor, and the mezzanine of a residential building, some 200 square meters in all. Au Printemps was a rapid success and Jaluzot purchased the upper floors of the building. By 1870 the staff had grown from 30 to 250. The acquisition of adjacent buildings followed, and the store soon occupied a whole block on boulevard Haussmann, between rue du Havre and rue Caumartin. As its reputation grew, Jaluzot began mail-order operations in France and other European countries, with catalogs in different languages.

In 1881 a fire destroyed two-thirds of the somewhat ramshackle store, which by then employed more than 700 people. Jaluzot decided to rebuild immediately, turning the business into a societe en commandite par actions—limited partnership—called Jaluzot & Cie. This form of company was common in France at the time, consisting of a managing partner (or partners) and shareholders who played no part in the management of the business. The managing partner, appointed for life, named his co-partners and successors and was guaranteed a fixed percentage of the profits—in this case, 18 percent. He was also entirely responsible for any debts incurred by the company. Jules Jaluzot provided about 35 percent of the capital of the new company, and the shareholders provided the rest. In 1882 the new department store was opened. It occupied a ground area of 2,900 square meters and had six floors, occupying the entire area between rue de Provence and rue Caumartin. Further commercial success followed, but Jaluzot, a Member of Parliament for his native Nievre and a prominent figure in Paris society, became involved in financial speculation of various sorts. In 1905 he speculated in sugar, using his own money and also in the name of and with capital from Au Printemps (Printemps), but this venture failed and he had to resign. His initials, JJ, can still be seen in the ceramic tiles on the facade of his 1882 store. His place as managing partner was taken by Gustave Laguionie, who had worked alongside Jaluzot at Au Printemps from 1867 to 1882, before leaving to become director of a wholesale business in piece goods. In 1907 Laguionie, then age 64, named his 23-year-old son Pierre as joint managing partner, and in the same year the foundation stone was laid for an adjacent store between rue Caumartin and rue Charras. The new building was opened in 1910. It was larger than the first store, occupying six floors, with a ground floor of 5,000 square meters.

Adopting Modern Management Strategies in the Early 20th Century

Gustave Laguionie died in 1920, leaving the business under the control of his son Pierre, alongside Alcide Poulet, named partner in 1920. In 1921 there was another disaster when the 1910 store partially burned down; rebuilding began immediately and the store was reopened in 1924. Adjacent buildings were acquired in rue du Havre and used for mail-order operations (then about 20 percent of total sales) and small stores were purchased in Le Havre, Rouen, and Lille in 1928 and 1929. Furthermore, some independent retailers became affiliated with Printemps for the purchase of merchandise. More important were the changes in management methods. Between 1926 and 1930 a number of innovations were introduced. Advertising and sales promotion formed an integral part of the selling activities of the firm, which adopted a strict budget. A house magazine was started in addition to training and research departments. In 1929 the functions of buying and selling were separated instead of being the responsibility of a single department head, and a separate buying company, the Societe Parisienne d'Achats en Commun (SAPAC), was founded. In 1930 a system of budgetary control was introduced, by which each major activity had a planned budget of expenditure and results. In 1928 Pierre Laguionie became a founding member of the International Association of Department Stores, a society for management research.

The year 1931 saw Printemps involved in an entirely new form of retailing, the limited-price variety store. In that year the first Prisunic store opened in Paris, operated by Prisunic S.A., a wholly controlled subsidiary. A central buying company, SAPAC-Prisunic, was created in 1932, and by 1935 there were eight Prisunic stores in operation, four in Paris and four in the provinces, with another 30 stores operated by retailers affiliated with SAPAC. In 1932 one of the first groups to become a Prisunic affiliate was Maus Freres of Geneva, which opened Prisunic stores in eastern France with French associates, including Pierre Levy, the textile manufacturer. In 1936, however, a law was passed forbidding companies to open more one-price stores. This virtually brought to an end the expansion of Prisunic through new stores, but progress was made with affiliated stores, as in most cases these were establishments that did not necessarily carry the Prisunic name.

Wartime Difficulties Yielding to Postwar Growth

At the outbreak of World War II the Printemps group consisted of the Paris store and seven stores elsewhere in France, plus 20 stores affiliated with the SAPAC buying organization. The Prisunic division had ten stores of its own and 60 affiliated stores, which employed about 5,500 workers. The group was still a limited partnership, and after the death of Alcide Poulet in 1928, Pierre Laguionie appointed his two brothers-in-law, Georges Marindaz (who died in 1931) and Charles Vigneras, as co-partners. Both were married to daughters of Gustave Laguionie.

The war, the German occupation, and the postwar shortages of merchandise meant a period of survival rather than of growth. But with the economic recovery starting in the early 1950s expansion again gathered pace, in two overlapping phases. The first was vigorous growth of the Prisunic variety store chain from 1950 to 1965. The number of Prisunic stores owned by the group rose from 13 in 1950 to more than 80 in 1965, and in the same period the number of affiliated stores rose from 80 to more than 230. Affiliated stores were a very effective way of earning commission on sales and increasing the purchasing power of the central buying organization with virtually no investment in land, buildings, or stock. Furthermore, it was no secret that, for the Printemps group, the Prisunic operation was extremely profitable and provided capital for the subsequent growth of the department store division.

Starting in 1954, the buildings of the Paris department store were completely transformed. Although the facades were untouched, the interiors were changed beyond recognition. All nonselling activities were transferred to the outskirts of the city, the enormous lightwells were filled in to provide selling space, the buildings on the north side of rue du Havre became the large Brummell menswear and sporting goods store, new banks of escalators were installed, and in 1963 two additional sales floors were built on top of the 1882 building. Selling space in these units was increased from 32,000 square meters in 1950 to 45,000 in 1970. Apart from the main store, heavy investments were made in rebuilding, enlarging, and modernizing seven provincial stores between 1956 and 1964. In the latter years a completely new store was built in Paris at the Nation, and in 1969 the Printemps opened its first store in the Parly-2 regional shopping center near Paris.

Corporate Reorganization in the 1970s

The various activities of the group during these years were handled mostly by separate limited partnerships, which by the early 1970s numbered more than 120, including 50 separate Prisunic companies. This structure was adopted in part because the managing partners did not want to risk their personal wealth in other activities but also because of the effects of the La Patente tax, which, until it was reformed, increased in proportion to the number of people employed by each company. The slowing of Prisunic's profitable expansion from 1965 onward and the heavy capital expenditure by the department store division, which did not lead to immediate returns, led shareholders and the managing partners to realize that the limited partnership system was no longer an effective way of running a diversified business employing more than 13,000 people. Furthermore, Pierre Laguionie was by this time 87 years old and wanted to retire from active management. In 1971 the managing partners, Pierre Laguionie and his nephew Jean Vigneras, son of Charles Vigneras, who had died in 1970, agreed with the shareholders to consolidate the partnerships into a limited company, or societe anonyme.

Company Perspectives:

PPR's goal is to be one of the world's most admired companies for its capacity to seduce and surprise its customers, its outstanding products and services, its constant drive to improve performance and its corporate ethics.

The process was not a simple one. Capital had to be found for the managing partners, and some interested parties were more concerned with the group's real estate value than its commercial activities. Eventually an agreement was reached with the Swiss retail group, Maus-Nordmann of Geneva. MausNordmann, a private family company, operated a chain of more than 60 department stores in Switzerland and owned a store chain, P.A. Bergner, in the United States. They were also familiar with the French retail industry since they had important shareholdings in the department store groups Nouvelles Galeries Reunies (SFNGR) and Bazar de l'Hotel de Ville (BHV). Perhaps most important, the Maus-Nordman group had become an affiliate of Prisunic as early as 1932. By 1970 its company, Societe Alsacienne de Magasins S.A. (SAMAG), had 45 affiliated Prisunic stores in eastern France. In a series of complicated transactions that involved the transfer of the assets of SAMAG to Printemps, the withdrawal of Maus-Nordmann from its holdings in SFNGR and BHV, and the compensation of the managing partners, a new company—Au Printemps S.A.—came into being in 1972. The Maus-Nordmann group owned 34 percent of the share capital, a figure that increased to 42.7 percent 20 years later, while the next largest shareholder held 6 percent. Pierre Laguionie was made honorary president, and Jean Vigneras continued for a while as president director general. But Laguionie died in 1978 and Vigneras withdrew in the same year, thus ending some 70 years of control and management by the Laguionie family.

The first five years of the new company were not easy. The French economy was in recession following the oil crisis, the profits of the company fell, and the new management was faced with commitments that had been entered into by the previous management, such as opening new stores in shopping centers in the Paris area. These included stores in Velizy, opened in 1972; Creteil, opened in 1974; and Galaxie in Paris, opened in 1976. These new stores were not very profitable. Eventually the Creteil store was closed, and a contract to open a store in the Defense shopping center was canceled.

The Prisunic variety store division, though profitable, was no longer expanding. Competition from hypermarkets (combined grocery and general merchandise stores) and specialty shops had reduced the general appeal of variety stores, and emphasis was placed on the development of supermarkets and increasing food sales in the downtown locations of most of the stores. As a result of the stagnation of the variety stores, an attempt was made to develop the Escale chain of hypermarkets. The first of these opened in 1969, and by 1972 there were five in operation. Printemps realized that it did not have the expertise to start up a new hypermarket chain, and by 1976 its Escale stores had been transferred to the established Euromarche group of hypermarkets, with Printemps acquiring a 26 percent share in Euromarche S.A.

New Management, New Direction Beginning in the Late 1970s

The years from 1977, however, were to see the beginning of a transformation in the activities of the Printemps group that was possibly more important than the opening of the Prisunic variety stores in the 1930s. Responsible for this change were Jean-Jacques Delort, who was appointed managing director in 1978 and had joined the group 18 months earlier, and his president, Bertrand Maus. Commercial strategy consisted of four main policies. First was the recognition that well-managed department stores and variety stores could, provided with the necessary investments, continue to be profitable. These methods of retailing, however, did not constitute important areas of expansion and growth. Second, commercial activities in the food sector offered growth prospects, particularly in more modern forms such as supermarkets, hypermarkets, and affiliated food stores. Third, specialty stores and home shopping, including mail order and shopping by telephone, were growing retail sectors. Fourth, when opportunities occurred or could be created, the export of know-how and merchandise was to be pursued vigorously. These policies dominated the activities of Printemps beginning in 1978.

No great change took place in the number of owned department and variety stores. Some smaller stores were closed, a few new stores were acquired or built, and investments continued to be made in existing stores. In the case of Prisunic, emphasis continued to be placed on increasing food sales and by 1980 food accounted for 58 percent of Prisunic's total sales. At the same time the concept of exporting department and variety store expertise and merchandise gathered strength. In 1979 an important agreement was made with Japan's Daiei retailing group to open Printemps department stores in Japan. Printemps provided the expertise and Daiei the building, so Printemps's capital investment was negligible. Daiei opened several such stores in Japan and similar agreements were made in other countries, including Portugal. By the early 1980s there were 11 stores outside France carrying the Printemps name, and a larger number affiliated with Printemps for supplies of merchandise. Prisunic followed a similar policy, and soon there were Prisunic or Escale (large supermarket) stores in French territories overseas and in Greece and Portugal. Specialty nonfood retailing was developed in the menswear market. In 1974 the Printemps group had opened a specialty menswear store called Brummell in Toulouse. But perhaps the most important step forward took place in 1980 when Printemps bought a 40 percent share in Magasins Armand Thiery et Sigrand (ATS), an existing mens-wear chain. This shareholding was increased to 80 percent in 1981 and 87.4 percent by the early 1980s.

Key Dates:

1865:: Jules Jaluzot opens Au Printemps.
1881:: A fire destroys two-thirds of the store; Jaluzot turns the business into a limited partnership called Jaluzot & Cie.
1931:: The first Prisunic store opens in Paris.
1972:: Au Printemps S.A. is established.
1987:: The company launches its bid for La Redoute S.A.
1992:: Francois Pinault's Groupe Pinault acquires a controlling (two-thirds) stake in Printemps.
1994:: The companies merge as Pinault-Printemps-Redoute S.A. after Printemps acquires the remaining 46 percent of Redoute.
1995:: Serge Weinberg takes over as CEO.
2000:: A 42 percent stake in Gucci Group N.V. is acquired. 2004: The company's stake in Gucci increases to 99.4 percent.
2005:: Francois Henri Pinault is named Weinberg's successor; the company changes its name to PPR S.A.

In 1984 an entirely different type of move was made with the purchase of 51 percent of Disco S.A., a food wholesaling group, and 99 percent of a related company called Discol S.A. In association with seven other wholesalers, Disco, the second largest food wholesaler in France, supplied more than 1,500 affiliated food retailers. Discol acted as a food wholesaler to restaurants, schools, and hospitals, and was France's second largest firm in this sector. Together Disco and Discol owned and operated 18 food distribution centers and their associated firms had a further 38. These acquisitions, along with the significant food sales of Prisunic stores, afforded Printemps a strong presence in France's food industry.

Acquisition of La Redoute in the Late 1980s

Printemps's most dramatic acquisition took place in 1987–88, when first 15 percent, then 20 percent, then 32 percent, and finally, on an agreed bid, 54.7 percent of the shares of La Redoute S.A., the largest mail-order company in France, passed to its control. Founded in 1831, La Redoute owned not only two smaller mail-order firms in France, Vert Baudet and Maison de Valerie, but also controlled Vestro, the second largest mail-order company in Italy, and the Prenatal chain of stores, which boasted more than 325 branches in Italy, Spain, Austria, Germany, and Portugal. Since Printemps took control, mail-order selling was developed in the Benelux countries and Portugal and an agreement was made with Sears Canada. La Redoute's 25 percent share of Empire Stores, the fifth largest mail-order firm in the United Kingdom, was increased in 1991 to virtually complete control at 98.9 percent.

In the hypermarket retail sector, the Printemps group had acquired a 25 percent interest in the Euromarche hypermarket company in 1975. Through crossholdings in Viniprix S.A., this share rose to 43.5 percent by 1986. The profits of Euromarche fell, however, in 1987 and 1988, and in 1989 the firm incurred a heavy loss, with only a marginal improvement in 1990. Unable to control the management of Euromarche, Printemps disposed of its share in 1991, selling it at a profit to the hypermarket group Carrefour.

Another, but less important, change occurred in 1991 when the Printemps group sold the Disco food wholesale company. In effect, however, this made little difference to the commitment of the Printemps group to food wholesaling. While giving up the day-to-day operation of wholesale depots, Printemps, through its Prisunic buying organization, remained the chief source of supply for the 1,775 franchised retailers of Disco.

In December 1992, Francois Pinault's Groupe Pinault, which had itself only just gone public in 1988, acquired a controlling (two-thirds) stake in Printemps. Since the 1960s, Pinault had expanded his business from a small timber company into a FRF 40 billion conglomerate with interests in distribution and retailing. The companies merged as Pinault-PrintempsRedoute S.A. (PPR) in 1994 after Printemps acquired the 46 percent of Redoute it did not already own. Over the first half of the 1990s, the conglomerate's sales increased from FRF 31.3 billion ($5.6 billion) in 1991 to FRF 77.8 billion ($15.4 billion) in 1995.

Having guided a successful reorganization of France's Le Bon Marche, Philippe Vendry returned to Printemps in 1995 to guide a revitalization of the chain. Vendry had advanced to the post of managing director of Printemps during his 22-year career at the chain before leaving in 1987 to serve as president of Le Bon Marche. According to Katherine Weisman of WWD magazine, he earned a reputation as "France's Dr. Retail" in the intervening years. His multifaceted prescription for Printemps included limiting its merchandise to five key categories: women's apparel, men's apparel, home furnishings, cosmetics, and leisure goods. Store remodelings reorganized goods into product "universes," as contrasted with traditional "bazaar-style" displays. Vendry also hoped to improve customer service, which he himself admitted was "lousy." Strategies to improve back-office operations included development of computer automation, centralization of purchasing, and market research. Whether these changes would improve Printemps's sagging operations [the chain suffered a FRF 34 million ($6.7 million) loss in 1995] remained to be seen.

Despite Printemps's poor showing, the group as a whole achieved a FRF 1.5 billion net income, nearly triple the pro forma profit of FRF .5 billion of 1993. At this time, management felt that the company's broad diversification protected it from negative economic forces and positioned it well to take advantage of upturns.

Changes in the Late 1990s and Beyond

During the remainder of the 1990s, PPR significantly expanded its holdings. Through its subsidiaries, PPR added French-based music and book retailer Fnac and SCOA, a West African pharmaceuticals supplier, to its arsenal. Its electrical equipment supplier, Rexel, also grew by making a variety of strategic purchases. Meanwhile, PPR launched a new women's lingerie chain, Orcanta, in 1996. During 1998, the company purchased Guilbert, Europe's largest office supply and equipment concern, as well as a 49.9 percent interest in Brylane, a large mail-order company based in the United States. It acquired the remaining shares of Brylane in 1999. In 2000, France's largest computer retailer, Surcouf, was added to PPR's holdings.

PPR made its move into the luxury goods sector of the retail market that year when it set its sights on Gucci Group N.V. It secured a 42 percent interest in the firm, which set off a bitter battle with competitor LVMH Moët Hennessy Louis Vuitton S.A. At the time of PPR's purchase, LVMH was making a hostile play to acquire Gucci. PPR stepped in as a white knight, made its purchase, and destroyed any chance that LVMH had to acquire the Italian company. PPR and LVHM battled it out in courts for over two years and finally came to an agreement in September 2001. As part of the deal, PPR agreed to acquire 8.6 million Gucci shares from LVMH for $812 million. The purchase raised its stake in Gucci to 53.2 percent. During that year, Gucci acquired Bottega Veneta and Balenciaga and also inked signed partnership agreements with Stella McCartney and Alexander McQueen.

Under the direction of Serge Weinberg, PPR transformed itself from an unwieldy conglomerate into a luxury retail group in the early years of the new millennium. Starting in 2002, PPR began the process of restructuring. It increased its stake in Gucci to 54.4 percent, sold the Guilbert mail-order business to Staples Inc., and began selling off its credit and financial services business. During 2003, its stake in Gucci increased to 67.6 percent. It also sold its timber arm, Pinault Bois & Materiaux, to U.K.-based Wolseley PLC and sold Guilbert's contract business to Office Depot. Rexel, its electrical equipment subsidiary, was sold in 2004.

The pièce de résistance in PPR's strategy was gaining a majority control of the Gucci empire, and in 2004, its stake was raised to 99.4 percent. With the restructuring complete, Weinberg stepped down to start his own investment business in 2005. Francois Henri Pinault, son of PPR's founder, took over in March. The company officially adopted the PPR S.A. corporate moniker that year. Pinault commented on his strategy for the future in an April 2005 WWD article, claiming, "The approach we have is to be in the right business at the right time. It's the approach of an investor. I don't want to put all my eggs in one basket. I'm really here to build something and to keep on building a group." Indeed, as the third largest luxury group in the world, PPR appeared to be well positioned for future growth. Only time would tell, however, if its venture into luxury retail would pay off.