Carrefour's imposing presence becomes a hard sell

London: Carrefour is at a crossroads, according to the well-worn witticism. A more pertinent point for the beleaguered French retailer is whether it is going off its trolley.

Lars Olofsson's removal as chairman and chief executive leaves Carrefour with a toxic combination of restive shareholders, demoralised employees, dissatisfied customers and a broken business model.

True, it looks like a smart move to replace Olofsson with Georges Plassat, who has spent a decade transforming Vivarte, a Paris-based retailer, from a clumpy shoe shop into a stylish clothes, footwear and accessories group.

A self-made millionaire, Plassat is not your typical French chief executive. No alumnus of a grand public administration institute, or even of a Paris business school, he displayed a spirit of adventure as a young man by attending a Swiss hospitality management college and Cornell University in New York state.

Plassat's prior experience at Carrefour will help him; he managed its Spanish operations in the late 1990s. At 62, he may not look a long-term appointment but he has time to make an impact.

This is cause for concern because, in recent times, senior executives have come and gone at Carrefour like harried shoppers in a hypermarket. It passed almost unnoticed that in addition last week to showing the door to Olofsson, Carrefour dispensed with the services of Pierre Bouchut as head of its growth markets division. Six months ago he was the company's chief financial officer.

Carrefour shares some troubles with other retailers specialising in the cavernous boxes known as out-of-town superstores.

In January Tesco, the UK market leader, issued its first profit warning in living memory. Walmart of the US is breaking with a 30-year-old tradition by moving its ‘greeters', as ubiquitous as they are amiable, from store entrances to help customers in aisles and at check-out points. Radical steps for radical times.

Like Walmart and Tesco, Carrefour has belatedly grasped that bigger hypermarkets and more branches no longer translate into greater profits. Increasingly, consumers shop online and, in these troubled economic times, at discount stores. If they go to a supermarket, they want it to be smaller, more conveniently located and sufficiently price-competitive to be worth the visit.

Revamp folly

Olofsson completely misread this trend. He bet the bank on a €1.5 billion (Dh7.24 billion) revamp of his hypermarkets known as Carrefour Planet. All it did was to make customers think that Carrefour's products were overpriced. Doubtless Plassat will put this particular planet out of its misery by declaring it a black hole.

In one sense, Carrefour is the author of its misfortunes but its difficulties should not be blamed exclusively on Olofsson. The trouble began 13 years ago when Daniel Bernard, chief executive and chairman from 1992 to 2005, acquired the rival Promodes group.

Ambition and fear inspired this deal: ambition to seal Carrefour's domination of the French and Spanish retail markets and fear of Walmart's global challenge. In this mix of motives lie the origins of Carrefour's grim struggle to maintain market share.

Carrefour found it hard to absorb a chain of relatively small Promodes supermarkets that stretched from the Mediterranean to South America and Asia. Once loyal Promodes customers deserted in droves after Bernard remodelled their favourite stores and product lines.

These days Carrefour's sprawling structure is more apparent than ever. It has 470,000 employees at 16,000 stores in 32 countries. Its operations are a macedoine of formats and brand names and management of its international operations has suffered as a result.

No one has more riding on the fortunes of Carrefour than Blue Capital, the retailer's main shareholder. Blue Capital unites Colony Capital, the US private equity group, and Groupe Arnault, the investment arm of Bernard Arnault, the luxury goods tycoon said to be France's richest man.

Desperate shareholder

They bought into Carrefour in 2007 when the share price was two-and-a-half times today's level of about €18. To call them frustrated is an understatement.

Any explanation of Carrefour's mercurial business schemes, not to mention the merry-go-round in its boardroom, must incorporate Blue Capital's desperate quest to salvage a return on its money.

Plassat is a chief capable of reinvigorating the company and standing up to meddlesome shareholders. It will take time to produce results. For 2012, however, Carrefour's motto should be ‘Let Plassat be Plassat!'

— Financial Times