Carrefour bets on store bosses in French revamp

Tue Mar 12, 2013 6:16am EDT

* More autonomy for store managers

* Decentralisation vital to winning back customers - CEO

* Non-food goods remain a challenge

By Dominique Vidalon and Pascale Denis

PARIS, March 12 (Reuters) - A cultural shift is underway at Europe's largest retailer, Carrefour, as bosses at its French stores get more freedom after years of control from headquarters near Paris.

Empowering local managers is part of retail veteran Georges Plassat's 10-month old effort to revive the monolithic retailer, under siege from more agile competitors such as Leclerc and Intermarche.

Last week Carrefour reported results which showed the first fruits of his turnaround efforts, and said more could be achieved as he now had the cash to renovate stores.

His vision is on display at Carrefour's 12,000 square metre Bercy hypermarket in Charenton Le Pont, an affluent eastern Paris suburb, where decisions on ordering and displaying merchandise are now up to manager Thierry Excoffier.

Departing from past practice, when top bosses mandated how much floor space would be devoted to products such as TV sets, Excoffier now can scale back to just the best-selling models on offer to cut down on unsold stocks and costs.

"There is a change in culture," Excoffier told Reuters during a visit to the store, which was renovated last summer.

"We have specialists in the store who know what is selling," he said, explaining that top management was now listening to store staff best-placed to know which items were in demand.

When Plassat took over as CEO in May, his diagnosis was that Carrefour, which has 220 hypermarkets in France and 524 elsewhere in Europe, suffered from "excess centralisation preventing it from delivering results".

He made handing back power to store managers in France a key component of his plan to revive the fortunes of the world's No 2 retailer after Wal-Mart.

He wants to push the idea throughout the group but is starting in France because that is the largest market and one where local managers have found their autonomy particularly restricted.

Plassat, whose French revival also relies on cost cutting and lower prices, has said he needs three years to turn Carrefour around and most analysts are expecting a long and gradual recovery amid a tough economic climate in Europe.

But they say the former top executive at Carrefour's top listed rival Casino, has already made a difference,

"The results demonstrate how CEO Plassat's initiatives - empowerment of local management, cost reduction, more targeted advertising spend, change in assortment (the range) - have already started to pay off," Morgan Stanley analysts said in a note.

Despite a sprawling empire spanning from Brazil to China, domestic hypermarkets still accounted for about a quarter of Carrefour's 86.6 billion euros ($113 billion) of group sales last year, and investors are eager to see whether their overhaul can be replicated elsewhere.

In Britain, Tesco, the world's third-largest retailer, has also been engaged in a revival plan in its home market, investing in more staff, revamped food ranges and smartened stores that give more space to food..

LOCAL COMPETITION

Plassat has said that restoring power to store managers was vital to winning back clients from unlisted rivals like Leclerc or Systeme U, which operate as cooperatives of independent store owners who are in control of their day-to-day operations.

"We have to deal with local competitors who have a closer relationship with customers, who are often very much decentralised," Plassat said.

Carrefour is battling years of underperformance in its main European markets, where hypermarkets have been hit by competition from specialist stores like Zara and Decathlon as well as inroads by online shopping.

The solid growth of these rivals spotlights the benefits of granting managers more autonomy, analysts say, although the differences are not always completely clear cut.

Leclerc's price policy is decided at national level and negotiations with national suppliers, advertising and IT budgets are also centralised at Systeme U.

Last year, Carrefour underperformed its local rivals with a 1.5 percent French sales decline against a 0.8 percent drop for Casino. Leclerc grew sales by 7 percent, Intermarche by 7.4 percent and Systeme U by 3.5 percent.

LOWER PRICES

Giving managers more flexibility is only "part of the solution" because Carrefour's hypermarket problems are deeper, said PlanetRetail analyst Gildas Aitamer.

Lower prices are still the most important factor in winning over shoppers with smaller budgets in an economic slump. Reducing the price of essential goods has also been part of Plassat's success.

At the entrance of the Bercy store, there are two trolleys containing 40 staples such as yoghurt, shampoo or detergent with a sign guaranteeing that its prices are below those of nearby rival Auchan.

The price gap is of about 9 euros in favour of the Carrefour trolley worth, a significant difference for French consumers.

"My main criteria is price, that's what I watch out for. Since it was renovated the store has sushi bar and feels more spacious but I don't really care about that. I want to do my shopping as fast as possible," said Malek Mabrouk, 56, a communication executive.

But non-food products such as electronics, which comprise 30 percent of revenue, remain a trouble spot for the company as shoppers cut spending on all but essential goods or go to more specialised stores.

"We need to see more evidence of improvement in the non-food offer to be comfortable that management can retain overall hypermarket attraction and footfall," said Exane BNP analyst John Kershaw in a note on Friday.