Fnac Business Information, Profile, and History
History of Fnac
The FNAC chain of retail stores is France's leading purveyor of what the company refers to as "cultural goods." The largest part of FNAC's revenues comes from sales of books and recorded materials (principally compact discs, but including cassettes, vinyl records, and prerecorded videocassettes); in fact, FNAC has captured 24 percent of all music recording sales and 13 percent of all book sales (rising to 55 percent of book sales in Paris), excluding school and technical books, in its home country. In addition to books and recordings, the company also sells selections of cameras and equipment, televisions, VCRs, stereo and portable audio equipment, telecommunications products, and computers and related products and software, as well as services including film processing, travel planning, and ticket reservations and sales for some 21,000 events each year. With a total commercial surface space of 115,000 square meters, FNAC's 44 full-product stores in France, eight full-product stores in Belgium and Spain, three dedicated-product stores (two music stores and one computer products store), and 139 service stores generated FFr 10.6 billion in sales in 1996.
FNAC, originally established as a members-only discount buyers' club and long positioned as a consumer-oriented retailer, does more than simply sell products. The company operates a testing center, where it evaluates new products for technical quality, ease of use, price and the important (for the French consumer especially) "price/quality ratio," and makes comparisons among similar products. FNAC presents its findings to customers both in its store displays and through the chain's Contact member magazine. The company is quite willing to point out technical and other deficiencies in products, and is even willing to blacklist products it considers unsatisfactory from its stores. FNAC's sales staff do more than just sell products, they are expected to offer advice, counseling, and training in their product areas. FNAC club members, numbering approximately 600,000, receive additional benefits, including additional discounts, rewards for frequent purchases, subscriptions to the company's Contact magazine, and others.
FNAC stores also offers its customers--some 12 million per year--a comprehensive product choice, including more than 100,000 compact disc, cassette, vinyl, and videocassette titles; more than 150,000 book titles; and more than 5,000 software titles. These are sold at discounted prices, up to 20 percent for recordings, and five percent (the maximum allowed by law) for book titles; the company also maintains a lowest-price guarantee policy. In addition to its product sales, FNAC stores also feature 'cultural centers,' including gallery and auditorium space, hosting some 11,000 cultural and literary events per year.
Since 1994, FNAC has been majority owned by the French retailing giant Groupe Pinault-Printemps-Redoute, the country's largest non-food retailer--including such leading retail chains as Prisunic, Printemps, La Redoute, and Conforama, as well as distribution operations, and credit and financial services--with more than FFr 80 billion in annual sales. In the mid-1990s FNAC was led by Chairman François-Henri Pinault, son of the parent company's head François Pinault.
Retailing the Trotsky Way in the 1950s
André Essel and Max Théret made an unlikely pair of capitalists when they opened the first FNAC in Paris in 1954. Both had long affiliations with France's 'Young Socialists,' a militant, left-wing group that predated the Second World War. Essel, whose family were largely unsuccessful shopkeepers in the textile business, became politicized in the 1930s. Faced with the rise of the extreme right in France and in Europe, Essel turned to the extreme left, joining the SFIO--from which he was eventually excluded for his Trotskyist sympathies. Essel went underground during the Second World War, earning a living as a salesman or working during the summers for a tourism club organizing vacation packages. It was not until after the war that Essel would meet up with Max Théret, six years his senior.
By then, too, Max Théret had quite a full resume. Born in Paris in 1913, Théret's own political career was well under way by the time Trotsky was ousted by the Soviets in 1929. Before the rise of the extreme right, Théret, as a Trotskyist, was chiefly occupied with street battles against the French Stalinists. After joining the battle against Franco in the Spanish Civil War (although serving in the Spanish Republican army, rather than in the Communist-backed International Brigades), Théret returned to France, where he met up with the exiled Trotsky, forming part of an informal bodyguard to protect him. In the prewar years, Théret helped support the Young Socialists movements by contributing to its various money-raising activities, which included forging passports and dollars. Fighting in the French army during the Second World War, Théret joined the Resistance during the Occupation, distributing leftist newspapers.
While developing his political career, Théret had also been developing a career in photography, beginning in 1932. Later, hunted by the Gestapo, Théret left the Occupied Zone in 1942, moving to Grenoble, where he worked for a photographer, taking photos of weddings, balls, and banquets (and blowing up roads and bridges as part of his Resistance work in his free time). The war over, Théret trained as a photo laboratory technician, founded his own laboratory, and later constructed the first color processing machine in France. In the years just after the war, he also turned his photographic talents to, among other endeavors, taking "artistic nude" photographs. In 1951, while working for the PTT telephone company, Théret made his first venture into more commercial activities, founding Economie Nouvelle, a buying group that arranged discounts for members on products sold through participating merchants.
Essel and Théret met during this period and conceived the idea of forming a new buyers club, one that would serve members from both the commercial and consumer sides, offering discounted photographic equipment through a magazine called Contact. By slashing the standard retail markup on its products, from up to 50 percent markups down to as low as 15 percent, the pair remained true to their socialist convictions, making products more affordable and thereby increasing the purchasing power of the worker. The new organization was called Federation Nationale d'Achats des Cadres; however, this 'national federation' remained decidedly local, starting up shop in a sublet, second-floor apartment on the rue de Sebastopol in Paris on July 31, 1954.
While there were other buyers' clubs, and many other discount operations, FNAC, as the store quickly became known, offered a difference. For one, salespeople received training in their product categories, purchases were guaranteed for one year, all products were tested before being sold in the store, and the company set up a separate, independent testing operation to provide comparisons among products, with results published in the free Contact members' magazine. The FNAC formula proved successful; by the end of its first full year of operation in 1955, the company saw revenues of 50 million old francs (or 500,000 modern francs). In 1957, FNAC added televisions to its stores, quickly followed by hi-fi and recording equipment, radios, and records. The company also began its blacklisting of certain products it considered unfit for sale to its customers.
In 1966, FNAC opened its store to non-member purchases and soon thereafter began to expand, opening a second store in Paris on the avenue de Wagram, near the Arc de Triomphe. By 1969, the company counted 580 employees. At the start of the 1970s, the company was poised to begin an even wider expansion, which included opening stores in the provinces, and a third Paris store, which would chiefly sell books, the company's newest product. In order to raise the capital for FNAC's expansion, Théret and Essel sold 40 percent of the company to insurance firm Union Des Assurances, which in turn sold 16 percent of its shares to investment bank Banque de Paris et des Pays Bas, later known as Banque Paribas, in 1972. By then, the company's sales were worth some $70 million, generating net profits of $2.2 million. FNAC was also making its presence felt in the French market, capturing four percent of all record sales in the country, eight percent of sound equipment sales, and ten percent of photo equipment sales.
Dominating the Book Trade in the 1970s
The company looked to make similar inroads into the book market. In 1974, it began offering books at 80 percent off the listed price, sparking protests from publishers, writers, and independent booksellers alike. FNAC continued its discounting policy, however, until 1982, when the so-called 'anti-fnac' law was signed, limiting discounts on books to a maximum of five percent. By then, however, FNAC had already established itself as the premier bookseller in France. Meanwhile, the chain had continued to expand, building to 12 stores in Paris and other cities through the French provinces. In 1977, in need of more capital, Essel and Théret sold their shares of the company to the Société Génerale des Cooperatives de Consommation (SGCC), the financial arm of the then-powerful Coop retailing group. Essel remained as head of FNAC until 1983. Théret, now a billionaire, who had continued to support leftist causes during his FNAC career, went on to purchase a newspaper before losing most of his fortune in the 1980s and being convicted as part of an insider-trading scandal in 1988.
FNAC entered the Paris stock exchange in 1980 when Paribas and other investors offered 25 percent of the company to the public. SGCC, however, maintained a 51 percent controlling in the company, which by then employed more than 2,700 and was posting turnover of FFr 2.2 billion. In 1981, FNAC spread to Belgium, opening a store in Brussels, which was placed under management by Sodal, a joint-venture between FNAC (40 percent) and the GIB Group (60 percent). The Belgium affiliate would eventually add three more stores in the mid-1980s, in Gent, Antwerp, and Liege.
In 1983, after Essel's retirement (Coop rules required retirement at the age of 65), SGCC president Roger Kerinec took over FNAC's leadership. Two years later, as the Coop chain struggled to compete with the growing strength of the French hypermarket and deep-discount chains, such as Carrefour and Le Clerc, SGCC sold its majority stake in FNAC to the insurance group Garantie Mutuelle des Fonctionnaires (GMF). Michael Baroin, GMF's president and director general, took these positions at FNAC as well. When Baroin disappeared in an airplane accident in 1987, Jean-Louis Periat was named to lead both GMF and FNAC.
Petriat had ambitious plans for FNAC. Goaded by the arrival of the first French Virgin Megastore in Paris in 1988, Petriat announced a FFr 1.5 billion plan to add 15 new stores to the 31-store chain and double the company's gross revenues. The company was also preparing to expand internationally, with plans to open a store in newly reunited Berlin. By then, sales of compact discs and other recordings had joined books as the company's most important sources of revenue. Together, FNAC's stores had captured some 20 percent of the recordings market, making it the largest player in the country. At the same time, Petriat led FNAC in new directions, adding a music distribution division with the purchase of Wotre Music Distribution (WMD), and then bringing the company into the recording business itself with the formation of FNAC Music in January 1991. With FNAC Music, Petriat hoped to build the first French multinational record company, with plans to capture as much as five percent of the market.
At that time, FNAC found its 25-year recording dominance challenged not only by the growing strength of the hypermarkets in the recordings market, but also by a new group of startups, including the arrival in France of leading British music retailers HMV and Virgin. FNAC responded ferociously, cutting its prices and stepping up the competition, which forced HMV to exit France after only six months. Virgin hung on, however, opening two more of its 'megastores,' in addition to its original store in FNAC's home city of Paris. In response to that store, FNAC spent some $23 million (approximately FFr 130 million) to build its own megastore, at 97,000 square feet more than twice the size of the Virgin store, which became known as "the Cathedral" and emerged as one of the most-visited sites in Paris. Petriat stepped up his feud with Virgin, opening its first international FNAC in Berlin in 1991, near a Virgin store which had opened there a few months earlier.
Berlin was not to prove as accepting of the FNAC formula as France, however, and the company pulled out of that market in 1995. Instead, on the foreign front, the company looked to its Belgium affiliate's stores, which were becoming profitable after years of losses, as well as to opening its first store in Spain, in Madrid, in 1993. Elsewhere, FNAC faced other disappointments: its FNAC Music subsidiary, while posting some successes, failed to live up to the company's expectations and was unable to gain more than a two percent market share. The company eventually sold off the distribution arm WMD and shut down FNAC Music in 1994. Another venture, the opening of a FNAC Librairie Internationale, which featured books in languages other than French, was equally disappointing; closed after only a year, that store was converted to a computer products-only concept, called FNAC Micro, which proved more successful. Meanwhile, as the company's pace of new store openings continued to boost revenues, profits began to slip in the early 1990s, hampered both by the company's ambitious growth plans and by the shrinking economy as France moved into its prolonged economic crisis of the first half of the decade. In 1991 the company recorded gross sales of FFr 7.4 billion, while profits fell approximately FFr 55 million, to FFr 159.5 million. The following year, despite a rise in revenues to FFr 8.9 billion, the company's net income dropped to just FFr 31.9 million.
Changing Hands in the 1990s
By then, FNAC parent, GMF, which had increased its ownership of FNAC to more than 80 percent, was having its own financial difficulties, attracting the interest of a variety of investors, including the Pinault-Printemps-Redoute group and Germany's Bertelsmann group. In need of capital, GMF agreed to its stake in FNAC in July 1993 to Altus Finances, a subsidiary of government-owned Credit Lyonnais, and Phenix, a property group owned by French waterworks company Generale des Eaux, for FFr 2.4 billion. The deal, which initially came under scrutiny by the Commission des Operations des Bourse (COB), the French equivalent of the Securities Exchange Commission, was allowed to proceed in September 1993. Credit Lyonnais became the majority shareholder, with 64 percent of shares, while Generale des Eaux held 34 percent. The remaining two percent of shares continued to be publicly owned.
Less than a year later, FNAC was put up for sale again. This time, Credit Lyonnais, heavily burdened by debt, announced its intention to sell its 64 percent of the company as part of a FFr 20 billion asset-reduction plan. In July 1994, the Altus Finances subsidiary agreed to sell the majority stake in FNAC for FFr 1.9 billion to François Pinault, the largest shareholder in and architect of Pinault-Printemps-Redoute, whose leveraged buyout deals had earned him the nickname as "the capital-less capitalist." Indeed, Pinault was one of Altus' and Credit Lyonnais's principal debtors--a position that resulted in his being appointed to Credit Lyonnais's board of directors.
Under Pinault, FNAC dropped its WMD and FNAC Music subsidiaries, closed its Berlin store, and instead concentrated on further expansion of its retail chain. In 1995, the company added its 45th French store, while a second Spanish store, in Barcelona, was opened in 1996. After acquiring full control of its Belgium affiliate in October 1996, the company announced plans to double the number of its Belgium stores, beginning with the opening of a fifth store in Belgium in 1997. In March of that year, after Pinault's son, François-Henri, was named chairman of FNAC, the company announced plans for two more Paris stores. By then, the company was feeling the pressure from the hypermarkets, particularly Le Clerc, which had made strong inroads in the French compact disc market, grabbing 57 percent of sales by the middle of the decade. Nonetheless, FNAC, with revenues passing FFr 10 billion in 1996, and net earnings rebounding to FFr 200 million, appeared confident for its future--particularly with the backing of its powerful retailing parent.
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