PPR transforms portfolio

03 May 2011

PARIS: PPR, the French conglomerate, is rationalising its brand portfolio, dispensing of several assets to focus on the luxury and lifestyle sectors.

François-Henri Pinault, the firm's chief executive, has recently assumed overall responsibility for its Luxury Business Group, which incorporates Gucci, and now sits alongside a Sports and Lifestyle Group, led by Puma.

Some primary objectives of Pinault's reorganisation scheme are deriving the maximum benefits from the organisation's scale, reducing duplication and achieving greater integration.

It will also see PPR advance from simply being a holding company to playing a considerably more active role at the corporate level.

"The luxury brands represent two-thirds of the profit of the group and I want to be directly involved in that business," Pinault told the Financial Times.

"In the new PPR, the mother company of all the brands will be PPR, instead of the super-mother."

This initiative marks the latest stage of a long-term streamlining process for PPR, which began life in the timber industry around four decades ago before expanding its scope rapidly.

In 2006, PPR sold the Printemps department store network to the Borletti Group, and South Africa's Steinhoff International purchased furniture retailer Conforama in January 2011.

Among the further units available are music and book chain FNAC and catalogue arm Redcats, while PPR has also floated 51% of CFAO, its African distribution wing.

In 2009, the point when PPR decided to dispose of its slate of retailing enterprises, it was effectively offloading divisions delivering 70% of revenues.

During the last seven years, the Luxury Business Group has doubled turnover and tripled operating profits, fuelling optimism about the future.

"I won't give any guidance, but ... its growth potential is huge," said Pinault.

Other offerings in PPR's stable include Alexander McQueen, Bottega Veneta and Balenciaga, and it intends to snap up promising smaller brands going forward.

Pinault revealed possible targets will typically be generating between €50m and €300m in sales per year, rather than making major buys, as was the case with LVMH's €3.7bn takeover of Bulgari.

"If you buy something that is already big, it is very difficult to offset the acquisition premium," Pinault said.

"When we bought Bottega Veneta in 2001, it had €30m to €35m of turnover. Last year turnover was €511m."

"This is where you create a lot of value - if we had bought a €500m brand, it would have been much more difficult."

In demonstration of its ambitions, PPR has made a bid to acquire Volcom, a US expert in surfing and winter sports, for $607.5m

To avoid falling into the trap of fostering another diversified collection of brands, Pinault argued a rigorous model would be required.

"Luxury is not a business to me, it's a market segment," he said.

"There is luxury in sports, in hotels, and so you can build a conglomerate in luxury - this is not my vision. We are talking about a strong specialised business - apparel and accessories."

"It's not been done yet in apparel and accessories."

Data sourced from Financial Times; additional content by Warc staff