Galeries Lafayette S.A. Business Information, Profile, and History

History of Galeries Lafayette S.A.

Galeries Lafayette S.A. is a holding company for four major retail chains, including Nouvelles Galeries, Bazar Hotel de Ville, and Monoprix. Its namesake chain of department stores boasts Europe's largest department store, the historic, ten-story flagship location in Paris. Known as "The Beautiful Lady," the 500,000 square-foot headquarters store generates well over a half-billion dollars in sales every year. Though its stock is publicly traded, descendants of the founding family continued to hold a controlling interest in the Galeries Lafayette group through the mid-1990s. In the 1990s the company struggled under the leadership of Georges Meyer to regain the profitability it had once enjoyed. Battered by recession, a misguided foray into the New York retail market, and a costly merger with the Nouvelles Galeries chain, the group's revenues declined from a high of FFr 33 billion in 1991 to less than FFr 29 billion in 1995. Net income also took a precipitous slide: after chalking up a FFr 301 million profit in 1991, the group broke even in 1993, then suffered a FFr 293 million loss in 1995. Although sales remained flat in 1996, Galeries Lafayette's profits rebounded to FFr 550 million that year.

Late 19th-Century Origins

The company's origins date to 1895, when Albert Kahn rented a shop in Paris at the corner of Chaussée-d'Antin and rue Lafayette to sell gloves, ribbons, veils, and other goods. The shop was small, but sales were good. It was eventually enlarged, and in 1898 Kahn was joined by his cousin, 34-year-old Théophile Bader. The partnership flourished and soon purchased the entire building along with adjacent buildings on the Chaussée-d'Antin. In 1905 a limited company was created, Société anonyme des Galeries Lafayette, with Bader as president. Kahn retired from active management and in 1912 sold his shares to Bader.

The company bought buildings on the other side of the Chaussée-d'Antin, on the corner of the boulevard Haussmann, and in 1906 it built a store bearing the name Aux Galeries Lafayette. By then, some 350 persons were employed in the various buildings. The company purchased more property along the boulevard Haussmann near rue Mogador, and Bader planned a completely new department store, which opened in 1912. The five-story building occupied around 3,000 square meters. The store had a giant glass dome, a sweeping monumental staircase rising up in the light well, and wrought-iron curved balconies overlooking the light well. By 1914 Galeries Lafayette employed over 1,000 people, and mail-order operations, begun in 1905, represented about a quarter of sales. In the Paris market, Galeries Lafayette was of equal importance to its near neighbor and competitor, the Printemps department store, which was some 30 years older. Both stores, however, lagged behind the Bon Marché and La Samaritaine stores.

Second Generation Advances in 1920s

In 1919 Bader brought Raoul Meyer, his 27-year-old son-in-law, into the management of the company. This was followed in 1926 by the appointment of Max Heilbronn, another son-in-law, aged 23. The three managed the group until 1935 when Bader became seriously ill, after which Meyer and Heilbronn directed the firm for another 35 years. During the 1920s the main store expanded gradually toward rue Mogador and rue de Provence. Expansion also took place outside Paris: in 1916 a store had been opened in Nice, followed by the purchase in 1919 of Les Grands Magasins des Cordeliers in Lyons. A store opened in Nantes in 1923 and another in Montpellier in 1926, and at the same time the mail-order operations were consolidated, with a network of agents throughout France. By 1930 Galeries Lafayette had become the second-largest department store group in France, overtaken only by La Samaritaine, but ahead of Printemps. Bon Marché, Paris's oldest department store, was now in fourth position.

An important development in Galeries Lafayette's commercial policy took place in 1931 and 1932, when variety-store operations started. At the end of 1931 a subsidiary company, La Nouvelle Maison, was formed, and two variety stores called Lanoma were opened in Paris, followed in 1932 by two others, called Monoprix and located in the provinces. The name Lanoma was quickly abandoned, and all stores became Monoprix, with the subsidiary company changing its name to Société anonyme des Monoprix. To buy merchandise for the new variety stores, Société Centrale d'Achats (SCA) was formed in 1932.

The early years of the Monoprix variety stores were difficult, and they operated at a loss. Max Heilbronn traveled fortnightly to London to get inspiration from two well-established variety store groups, Woolworth and Marks & Spencer; he eventually received advice from Simon Marks himself. By 1935 the situation improved, and Monoprix continued to expand up to 1938, when a French law banning the opening of new one-price stores slowed down the development of owned stores; other retailers, though, were encouraged to join the SCA central buying organization. In 1938 there were 38 Monoprix stores. Twelve were owned stores and the rest were affiliates.

World War II and German Occupation

World War II was a troubled period for the Galeries Lafayette, and, being under Jewish management, it suffered severely during the German occupation of France. The leadership was disbanded, and the business landed in the hands of French collaborateurs--those who collaborated with the Germans. Raoul Meyer went into hiding in unoccupied territory. Max Heilbronn, after serving in the French army, took part in the Résistance and was caught in 1943 and sent to Buchenwald concentration camp. Bader, the company's founder, died in 1942.

At the end of the war Meyer and Heilbronn, who together owned 80 percent of Galeries Lafayette, began to rebuild the company. In 1947 they were joined by Etienne Moulin, aged 35, who had helped to save Max Heilbronn's life in Buchenwald and had subsequently married his daughter.

Their main efforts in the postwar years were directed toward the expansion of the Monoprix variety stores. By 1950 there were 60 Monoprix stores in France, half of which were owned and half of which were affiliates. Ten years later there were 200 Monoprix stores, and by 1965, there were 235-85 owned and 150 affiliated--with 200,000 square meters of selling space. Of the affiliated stores, 44 were linked directly or indirectly with the department store group Nouvelles Galeries Réunies. These affiliated stores had joined the SCA in 1952, when Galeries Lafayette, through Monoprix, acquired a 14 percent share in the company.

Acquisition of Inno-France in 1960s

For Monoprix and Galeries Lafayette, the early 1960s were marked by what can be called the Inno-France interlude. In 1960 Innovation S.A., a Belgian department store group, created in France a company called the Société des Grandes Entreprises de Distribution, Inno-France. The aim of this company was to establish large self-service units in France, selling food and other merchandise. These were similar to hypermarkets, but were situated in downtown locations without parking facilities rather than in outlying areas. Before the first Inno-France store opened, Galeries Lafayette reacted vigorously, buying shares in the La Bourse department store group in Belgium, a competitor of Innovation.

The first Inno-France store opened in Paris in 1962, followed by five more by 1964. All the Inno-France stores lost money, and in 1964 Galeries Lafayette made an agreement with Innovation to buy a stake--first 25 percent, then 33 percent--in Inno-France and to manage non-food buying for the group. The following year all six Inno-France stores, with 2,200 employees, came under the direct management of the Monoprix organization and within four years became profitable. In 1971 Galeries Lafayette acquired the outstanding shares of Inno-France for a symbolic one franc. The company became part of the Monoprix organization, and the investment made by Galeries Lafayette in La Bourse of Belgium was written off.

Two other developments marked the Galeries Lafayette group in the 1960s, one a failure, the other a success. The former were related to the mail-order operations, which had continued somewhat sleepily since Bader had started them in 1905. Mail order was beginning to be a growing business in France, and Galeries Lafayette decided to revitalize and modernize its operations. In 1966 an entirely new, mechanized and computerized distribution center, with more than 300 employees, was opened at Châlons-sur-Marne near Paris. It was not a success, due to troubles with the new systems and an inadequate network of agents throughout France, composed mainly of local drapers. The main competitors, Les Trois Suisses and La Redoute, were highly professional, specialized mail order organizations. It was decided therefore to cut the losses, and in 1970 Galeries Lafayette's mail-order operations were closed.

The success of the 1960s was a major increase in the size of the flagship store on the boulevard Haussmann, no mean feat in the crowded center of Paris. Two additional floors were constructed on top of the original 1912 building. In 1961 an important extension to the store was made on the rue Mogador and boulevard Haussmann, and in 1969 a new store, Galeries Lafayette 2, was opened on the other side of the rue Mogador, linked by a bridge to the older store. A new Monoprix store was also opened in the new complex and, important in a period of growing automobile use, an underground car park was added. At the end of 1969 a do-it-yourself (DIY) store of some 1,000 square meters was opened on the corner of rue Lafayette and Chaussée d'Antin, where Kahn and Bader had opened their little shop nearly 75 years earlier. The DIY merchandise did not, however, sell as well as the ribbons and veils of the original store. In some ten years, the size of the flagship store had been increased by one-third to more than 44,000 square meters, making it one of the five largest department stores in Europe.

Third Generation Advances in 1970s

In 1971 a change in management took place. Raoul Meyer had died in 1970, and in 1971 Max Heilbronn became honorary president, while Etienne Moulin became president and Georges Meyer was named vice-president. Georges Meyer had married the daughter of Raoul Meyer and had joined the management staff in 1965 at the age of 35. The business was still controlled by the family.

With the completion of the extension to the flagship store, the next phase of expansion was the opening of department stores in regional shopping centers. Stores were opened in the Belle-Epine center near Paris in 1971; the Maine-Montparnasse center in Paris in 1973; the Part-Dieu center in Lyons in 1975; and the Polygone center in Montpellier in 1975. The stores in shopping centers were not all an immediate success, but after many changes and improvements, they finally became profitable. After 1975, however, Galeries Lafayette stopped opening stores in shopping centers, and the Belle-Epine store closed in 1985.

The oil crisis of the early 1970s, heavy capital expenditures on enlarging the main store, expansion into shopping centers, and losses on the mail-order operations led to difficult years for the company. No dividends were paid between 1974 and 1979, but by 1980 most of the investments were beginning to show good returns.

The other main subsidiary of the Galeries Lafayette group, the Monoprix variety stores, continued to be profitable, but expansion in terms of number of stores was limited. New forms of retailing--for example 200 new hypermarkets--were opened in France between 1970 and 1980, and changes in the shopping habits of customers had altered variety stores' growth prospects. On the other hand, by doubling the average size of Monoprix stores and achieving very strong food sales in the supermarkets--food accounted for more than 50 percent of sales--the Monoprix management made the stores attractive in their given, local, markets. At the same time, cautious moves were made into the hypermarket sector by opening a small chain of Super M stores.

Chainwide Remodeling Begins in 1980s

In the 1980s, many observers were beginning to question the viability of the department store and the variety store as modern forms of retailing. Department stores had first emerged more than a century earlier in France, and large department stores were seen by some as a rather inefficient relic of the past. Executives of the Galeries Lafayette were, however, convinced of the future of such stores. They argued that a store big enough to carry under one roof a very large assortment of attractive merchandise, including textiles and clothing, leisure goods, and decoration for the home, was appealing to customers. Furthermore, rapidly emerging techniques in stock control, logistics, and credit would resolve many of the past inefficiencies.

In 1987 a change was made in the top management. Etienne Moulin stepped down as president of the company, while Georges Meyer rose to the helm. This change did not affect the founding family's 61.9 percent holding in the company.

Galeries Lafayette's belief in the future of department stores was reflected in the 1980s by heavy investments in remodeling and the enhanced presentation of merchandise in all stores. France's department stores, including Galeries Lafayette, had long been distinguished by their efforts to carry virtually every item at virtually every price point. Galeries Lafayette began to turn away from this strategy, which often resulted in a cluttered presentation, in favor of a more open store layout featuring boutiques. These investments were accompanied by expenditure on computers, point-of-sale terminals, and customer credit promotion.

This policy of developing the department stores received a boost when in 1985 Galeries Lafayette took over stores of the Paris-France group. Paris-France had been founded in 1898 and had slowly built up a chain of department stores in the French provinces. Most of the stores were called Dames de France. Paris-France was a family business, the stores were somewhat old-fashioned, and the group ran into financial difficulties when faced with competition from specialty boutiques and hypermarkets. The Galeries Lafayette took over 12 well-located Paris-France stores with more than 2,000 employees, and thus more than doubled the number of its stores in the French provinces. Nineteen of Paris-France's Parunis variety stores were acquired at the same time and were integrated into the Monoprix variety store organization.

Further investments were made in the Paris-France stores to bring them up to Galeries Lafayette's standards. In 1989 a 50.1 percent majority shareholding was taken in Télemarket, a small but successful home-shopping operation in the greater Paris area, which was supported by Monoprix expertise. A lease was signed to open a Galeries Lafayette store in New York late in 1991. Galeries Lafayette was also involved in a major reconstruction project in the former East Berlin and was considering opening a store in that city in 1993.

Acquiring Nouvelles Galeries in Early 1990s

A landmark in the development of Galeries Lafayette, and evidence of the management's belief in department stores, was the decision in the early part of 1991 to bid for majority control of the department store group Société Fran&ccedilse des Nouvelles Galeries Réunies (Nouvelles Galeries). Since 1952 Galeries Lafayette had held shares in the Nouvelles Galeries through its subsidiary Monoprix, whose initial investment of 14 percent gradually rose to 22 percent. By 1990 the sales and net income of Nouvelles Galeries exceeded those of Galeries Lafayette; FFr 19 billion vs. FFr 16.5 billion sales, and FFr 169 million net vs. FFr 144 million net, respectively.

Early in 1991 a Swedish investment group, Proventus, which had built up a shareholding of 25.6 percent in Nouvelles Galeries, decided to sell its holding. Galeries Lafayette bought some of the shares, increasing its stake to 39.2 percent, but at the same time stressing that it did not wish to change control or management of Nouvelles Galeries. The French stock exchange commission, however, ruled that once the Galeries Lafayette had a share of more than one-third of Nouvelles Galeries, it must bid for control. Galeries Lafayette could have sold part of its stake and withdrawn, but it went ahead and eventually took full ownership of Nouvelles Galeries.

The well-managed and profitable Nouvelles Galeries group owned the largest chain of provincial department stores in France, with 56 stores, two diversified chains, 31 Home and Garden Centers, and 43 Vetland discount clothing stores. It also controlled Cofinoga, one of the most important private consumer-credit organizations in France. Nouvelles Galeries also had an 85 percent majority shareholding in the Uniprix chain of 60 variety stores and a 50.04 percent majority holding in the Bazar de l'Hotel de Ville department store group. Nouvelles Galeries and its subsidiaries boasted nearly 18,500 employees.

The merger proved very poorly timed, as the global retail industry and department stores in particular suffered greatly in the early 1990s. To make matters worse, Galeries Lafayette embarked on a bold global expansion that planted new stores in Singapore, Moscow, and, most disastrously, New York City. According to a 1994 article in the Daily News Record, the New York outlet, which opened in Trump Tower in 1991, "never achieved its sales goals and could not overcome burdensome rent ($8 million per year) and other expenses to generate profits." Burdened by recession, unprofitable stores, and merger costs, sales at Galeries Lafayette declined from FFr 33 billion in 1991 to less than FFr 29 billion in 1995. The group netted FFr 301 million in 1991, broke even in 1993, and endured a FFr 293 million loss in 1995. Having rid itself of unprofitable outlets throughout France as well as the New York and Singapore stores, Galeries Lafayette made a FFr 550 million profit on essentially flat sales in 1996.

Principal Subsidiaries: Bazar de l'Hotel de Ville (50.4%); Grand Magasins Galeries Lafayette; Societe Parisienne d'Achats et de Manutention; Societe Fran&ccedils de Manutention et de Vente; Galfa Restauration; Galfa Voyages; Monoprix S.A. (94.7%); Lafayette Services-Laser.