PARIS, France — Fnac, the French DVD, books and video-games chain, is seen falling after being spun off this week from Gucci owner PPR SA as investors who hold PPR for luxury brands such as Gucci sell stock in the retailer.

“It is often the case that the immediate reaction of shareholders receiving shares, after a spinoff of this kind, is to sell the shares,” said Luca Solca, an analyst at Exane BNP Paribas. “Hence shares tend to decline, as a first step. It is only later that the new entity finds its new natural holders.”

Fnac faces a “difficult” economic climate, particularly in France and southern Europe, Matthieu Malige, the retailer’s finance director, said in an interview today. Competition from online retailers such as Amazon.com Inc. is also hurting sales. Fnac’s revenue has declined every year since 2008.

“The prospects for physical media and electronics retailers are tough,” said Solca, who rates PPR market perform.

PPR investors are due to vote on the spinoff, which sees them receive one Fnac share for every eight PPR shares they hold, at tomorrow’s annual meeting of the Paris-based company. Trading is due to start June 20.

In addition to spinning off Fnac, PPR plans to sell online and mail-order fashion retailer La Redoute this year to focus on luxury and sporting goods, which are more profitable and have better growth prospects. The owner of brands including Puma SE, maker of $100 Bioweb Elite running shoes, will ask investors tomorrow to vote on renaming it Kering to signal the change.

Turnaround Plan

PPR, which trades at a discount to luxury peers because of its retail units, is seeking a valuation of about 400 million euros ($530 million) for Fnac, people with knowledge of the process have said. The price will be set after tomorrow’s meeting. Artemis Group, through which billionaire Francois-Henri Pinault controls PPR, will retain a 38.9 percent stake.

Fnac is midway through a turnaround plan to “stabilize” sales and profitability by 2016 as Europe’s debt crisis weighs on demand in the region and shopping for books, music, film, video games and computer hardware shifts online, Malige said.

According to a prospectus for the distributor of Johnny Hallyday CDs and Samsung Galaxy S4 mobile phones, the spinoff will increase Fnac’s “visibility, build on its strengths and reinforce its competitive position.”

Still, while more aggressive pricing, new products such as children’s toys and smaller franchised stores in medium-sized cities are helping boost Fnac’s market share, the business is fighting an uphill battle, particularly against online competitors such as Amazon.com, according to Solca.

“Whether a national or multi-local player can win online against global players like Amazon is a big question mark,” said Solca.

No Debt

Music retail chain Virgin France, owned by Butler Capital Partners and Lagardere SCA, has already become a casualty of online competition, digital downloading and a worsening economic climate. It filed for bankruptcy in January.

Fnac sales fell 2.4 percent to 4.1 billion euros in 2012. The retailer, founded in 1954, gets about 70 percent of revenue from France, which is mired in recession, and more than half from electronics. It had 170 stores as of Dec. 31, including in Spain, Portugal, Brazil, Belgium, Switzerland and Morocco.

The business, which had a net loss of 141.7 million euros last year, agreed to sell its Italian operations in November.

With no debt, 420 million euros of cash as of Dec. 31 and a revolving credit facility in place since last month, Fnac has the means to pursue its transformation, Malige said.

“We will continue to implement cost saving actions with the same magnitude as we have done in the past,” he said, ruling out job cuts at Paris stores in the immediate future.

After 2016, “we have the objective that Fnac realize an above 3 percent Ebit margin,” he said.

By Andrew Roberts; Editors: Paul Jarvis, Robert Valpuest,  Celeste Perri