Carrefour to invest $2 billion to reinvent hypermarket(70015)

Carrefour to spend $2b to revive superstore model in western Europe

Carrefour SA, the world s second- largest retailer, will invest about 1.5 billion euros ($2 billion) over 2 1/2 years to revive its superstore format in western Europe, Chief Executive Officer Lars Olofsson said.

The Paris-based retailer plans to convert 245 of its 500 superstores to the Carrefour Planet model, starting in the second quarter of 2011, Olofsson said today at a presentation in Lyon, southeast France. Each conversion will cost about 4.2 million euros, or about 50 percent of the cost of a pilot store that opened last month in the Lyon suburb of Ecully.

The remaining 255 superstores, which are smaller and account for about 30 percent of divisional revenue, will be updated in the spirit of Carrefour Planet and feature similar merchandise, while remaining under the Carrefour banner, Olofsson said. Each of the smaller outlets will cost less than 2 million euros to refurbish, the CEO said.

By reinventing the hypermarket, we reinvent Carrefour, Olofsson said. The superstores account for 40 percent of total sales, he said, adding that the conversion program will boost revenue and profitability.

Carrefour is reworking the superstore format as part of a strategy to cut prices, sell more of its own products and invest in discounts and advertising to boost market share. Revenue growth at the retailer s European superstores has stagnated as consumers buy groceries closer to home or opt for department and specialty stores for apparel and beauty products.

More Aisle Space

Carrefour plans to convert most of the 500 superstores in France, Belgium, Spain, Italy and Greece to the new format by the end of 2012 and all by early 2013, Olofsson said.

Sales at Carrefour s French hypermarkets open at least a year increased 0.8 percent in the second quarter, the company said in July. That lagged behind a 2.6 percent gain in the retailer s overall same-store sales in the country. Excluding France, which accounts for 43 percent of total revenue, Carrefour s same-store sales in western Europe fell 4.9 percent.

The new stores have more aisle space, clearly delineated product zones and more floor space for categories like frozen and organic foods, beauty and fashion. French pilot stores that opened Aug. 25 in the Lyon suburbs of Ecully and Venussieux are seeing sales growth of at least 10 percent, Olofsson said.

Carrefour forecasts that the conversions will generate incremental sales growth of 18 percent by 2015, or an average annual increase of 3.4 percent. The overhaul will lift so-called activity contribution before depreciation and amortization, a measure of operating profit, by 315 million euros by 2013 and 650 million euros by 2015, Carrefour said.

Transformation Plan

The superstore conversions are part of the retailer s transformation plan through 2012, which Carrefour said it expects to yield gains of 4.5 billion euros. That consists of 3.1 billion euros of cost savings and 1.4 billion euros of gains from reducing inventory by seven days, Carrefour said.

The French retailer expects sales, excluding petrol, to reach 105 billion euros by 2013 and 120 billion euros by 2015. That compares with 79 billion euros in 2009.

Activity contribution will reach 5.2 billion euros by 2013 and 6.4 billion euros by 2015, from 2.7 billion euros in 2009, Carrefour estimated. Activity contribution margin will widen to 4.9 percent in 2013 and reach 5.3 percent by 2015, from 3.5 percent in 2009. Capital spending will average at 3.2 billion euros a year through 2015, the retailer said.

Make Me An Offer

Carrefour, which operates in 34 countries, is shifting its international focus to markets where it can be a leader, such as Latin America and China, Olofsson told shareholders in May.

Where Carrefour can t be a leader or a strong number two -- like Thailand -- if someone is ready to make me an offer, I m ready to look at it, Olofsson said today.

The retailer plans to exit Singapore, Malaysia and Thailand and is seeking offers for its operations in the southeast Asian countries, four people familiar with the matter said in July. The operations may fetch $800 million to $1 billion, they said.

I m not in a hurry, I don t need the money, Olofsson said. I m concentrating on reinventing the hypermarkets and on Europe, which is the biggest opportunity that exists.

Olofsson also said he s open to looking at acquisitions and doesn t exclude selling shares in Carrefour s real-estate unit to the public to help the retailer s development.

If one day, I needed to finance an acquisition, I would be ready to examine it, Olofsson said, repeating comments he made in February. However, he ruled out ever ceding control, which he defined as 51 percent.

Carrefour to invest $2 billion to reinvent hypermarket

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