Sunday, February 21, 2016

Category Management Series: Fnac's Business Case In Diversification

Alexandre Bompard has been the CEO of la Fnac for several years, and is right now in a great position:

  • He has been able to grow its sales despite technology markets plumetting
  • He has launched a merger with French competitor Darty to create a leading European retailer
  • He has been able to set back up profitability of its company despite tough competition, especially from Amazon.
Alexandre Bompard was invited by French TV channel BFM TV, to discuss mostly about Sunday openings (a law has recently passed in France allowing retailers to open on sunday in specific touristic locations, if an agreement with the union has been set).

Alexandre Bompard actually explain that with the Internet competition, he has no other choices but to open on sundays, as Amazon or Cdiscount never closes, and customers are eager to shop on sundays.

But what I really wanted to highlight in this video, is how Alexandre Bompard has been able to leverage Fnac's brand in order to open new categories, in order to find alternatives to declining markets.

The two historical markets of the Fnac where going in limbo:
  • Cultural goods, with digitalization of  music (with online streaming services like Deezer), videos (with video on demand services like Netflix), and books (with e-books like Kindle, even though standard book remains the larger part of the market)
  • Hi-fi equipment with a maturing marketing which declines in sales and innovation, and is getting tough price competition with E-retailers.
Alexandre Bompard announced it in its interview: The new categories launched now generates 15% of its sales and growing. I let you imagine how the situation would have been without such a move by the company (in 2015, Fnac has kept its overal sales steady).

Indeed, those categories (scrap booking, cooking, drones among others) represents offers that don't canibalize previous one, so you can say that they are 100% incremental.

Moreover, what is interesting to see, is that Alexandre Bompard actually leverages the brand Fnac, something very few retailers do. La Fnac, it is a lifestyle, it is a store concept, it is a customer experience. If you consider that and work on it, then you may add new categories that are related to this lifestyle instead of setting up for your historical product range.

Fnac consider itself, further than the cultural aspect, as an entertainment retailer. By doing so, obviously you can go way further in terms of categories to propose to your customers. And its probably because of these new categories that la Fnac is able to grow its margins even though sales are steady.

Also, Fnac announces that 45% of the sales are linked with both brick & mortar and online activities. Fnac is to me the retailer that has been able to merge both activities by providing better customer experience through both channels.

Nevertheless, one information that did not convince me: Alexandre Bompard explains that they have an edge on Amazon because they are going to have downtown warehouses thanks to their store network, in order to propose 2 hours delivery for their online store. But I believe Amazon is going to work on this plan, and actually are going to invest massively in such warehouses in cities in a near future.

 A lot of food for thoughts.