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Nicolas Houzé’s Strategy for the Future of Galeries Lafayette

Nicolas Houzé, chief executive of Galeries Lafayette, tells Imran Amed about his plans for the venerable French department store in today's turbulent, globalised, wired world.
Nicolas Houzé, chief executive of Galeries Lafayette | Photo: Thibaut Voisin
By
  • Imran Amed

PARIS, France — With Paris still reeling from the terror attacks that killed 130 people on November 13, the iconic department store Galeries Lafayette might be a strong beacon of optimism in a city that has lived through one of its darkest years since the Second World War.

On the day I first met Nicolas Houzé, several weeks before the attacks, the sales floor under the famous cupola of Galeries Lafayette’s global flagship on boulevard Haussman was absolutely jammed with an international mix of shoppers. It was Golden Week and the Chinese were out in full force, but so were tourists from virtually every nation on the planet: the Japanese, the Emiratis, the Nigerians and more. And while, even after the attacks, tourists continue to visit the store in large numbers, according to Houzé, local French customers — who were already shifting their spend away from department stores to other channels, including e-commerce — have significantly retreated from shopping.

But if there is a French temple to consumer culture, this is it, with more than €2 billion in retail sales alone at this one location and more than 50 other stores in cities around France, as well international outposts in Berlin, Beijing, Jakarta, Dubai, Casablanca — and soon Doha, Milan and Istanbul.

As a fifth generation member of the family that owns the business, it is Mr Houzé who has been tasked by his father Philippe Houzé, still chairman of Galeries Lafayette, with the job of positioning the venerable department store for the Internet age. With a digital strategy still only in its nascent stages, Mr Houzé certainly has his work cut out for him. But the INSEAD MBA remains sanguine about the long term potential of Galeries Lafayette and future of Paris retail at large.

The generalist model is dead. We are a multi-specialist retailer.

BoF: First things first, how is Galeries Lafayette responding to the recent terror attacks and how it has impacted store traffic?

NH: Our country is currently going through very dark moments and I would like to seize this opportunity to express our support to the families and relatives of the victims. The impact of these attacks on our department store activities is very significant, especially in a critical period like Christmas. Overall, we've experienced two separate trends between our French and foreign customer base in our Parisian flagships of Galeries Lafayette Haussmann and BHV MARAIS.

Traffic decreased by 20 percent among our French clients since November 13, partly offset by a remaining strong presence of international clients. Only Japanese clients — very sensitive to these kind of events — have totally disappeared for now. We remain very cautious on the outlook for the coming weeks, as it is impossible to foresee how the situation will evolve, but we are confident that things will slowly come back to normal and that life will prevail.

BoF: Your father once said, “The department store is dead, long live the multi-specialist lifestyle retailer.” What is the role of the department store today?

NH: In all of our businesses, we have very strong competitors and we have to adapt our organisation in order to be as good as they are in marketing, buying and selling. When we are in the beauty business, we are competing with Sephora, when we are in the shoe business, we are competing with Sarenza. Selling shoes is not the same as selling a shirt or a perfume. So, we have organised a structure, specialised around beauty — from buying to selling to marketing — in order to try and be as good as our competitors. When I arrived at Galeries Lafayatte we had 5.5 percent market share in beauty and now we have 8.5 percent, so we are growing in that business — although it's not easy with the competition we have.

We are doing the same in the shoe department and accessories. We want to professionalise the back office and also the front office of the business. That’s why we say the generalist model is dead and we are a multi-specialist retailer.

BoF: Department stores were once about getting everything under the same roof, which meant, among other things, convenience. Now, convenience can come from shopping online. What is it that pulls someone into the multi-specialist lifestyle store like yours today?

NH: There is an experience, there is a place. When you come into this store and you see the cupola, you are in a place different from a website or a small store. We want to make the Galeries Lafayette experience more joyful and different to going online or into a specialist store.

My great grandfather in the 1920s, already at that time, organised a marketing event and landed a plane on the rooftop. Organising events and being different from the others; that is how we compete and how we think Galeries Lafayette can be an experience for our customer.

BoF: One of the first things that happened when you took over the role of chief executive was that you completely cleared out the management team — but I get the sense you are only just getting started.

NH: With my father it has always been clear that he placed me in charge of the company with the full power to rethink and redo everything. I can assure you that every day or two days, every week, I have a discussion with him, but he is always telling me, "You are the CEO, you choose." It has been clear between the two of us that my taking this role was also to refresh and give [the business] a new start.

With the [previous] management team it became a bit difficult because they had so many successes and had become a bit arrogant, saying, “We are the best, and everything is great.” But we are late on e-business. Our organisation was so huge with so many people doing I don’t know what.

It’s only two and a half years that I have been in charge of the company. We still have a lot of things to do. I have done the easiest thing by naming new people around me. Now we have to rethink the overall Galeries Lafeyette experience —on the web, in the store, elsewhere in France and abroad.

BoF: Let’s talk about each of those elements. Let’s start with the heart and soul of the business, here in France.

NH: We have divided our provincial stores in three categories. The flagship stores, which are Marseilles, Nice, Bordeaux, play a role in the city centre where they are and have been for the last century. We have to be the fashion place around the city and we are playing this role. In this category, we have roughly 20 flagship stores. As for the rest, in fact, we have addressed all the difficult ones, which are going to be closed by the end of the year. It's about being more healthy and being more agile — giving us more flexibility to think differently.

For the others, we think the omni-channel experience can be a way to redevelop and recreate the experience for our customer. People know where Galeries Lafayette is. We have to create a new experience and we are working on that. In the store, [we are] bringing new brands and organising new events.

There is also work from the buying departments, bringing in new brands like Topshop, which opened [here] in Haussmann. Topshop is now in five of our stores around France and we plan to expand it. We, as a department store, have a role to play in each city we are in. We have to be more specialist than generalist, and perhaps one day more conceptual than a department store.

BoF: As you walk through the store, you can see you’re trying to appeal to international tourists, but also local French customers. That’s a tough balance to maintain.

NH: It's quite difficult. Somehow, it's as difficult as having no customers, because of all the traffic! Some people are not happy because they can't queue, or because there are too many Asian customers, who don't have the same habits as Americans. It's very difficult to address the different nationalities.

But the store this year will do €2 billion in sales. This business is done mainly with one-third French customers, one-third Chinese customers and one-third from the rest of the world. French customers are still the [biggest category of] people coming into this store, but they have lower average spend than Chinese or other international customers. We want to address differently those populations.

We know that the Chinese customers are all different. We are going to address the Chinese customer group first, and we want to recreate a duty free department to better address this category of people that are coming for cosmetics, little accessories and stuff like that. We will open something close to our store — this is a way to redirect a lot of these customers. This is the first step that we will take in 2016.

After that, when we refurbish this main store, we will address all the different clientele to be sure and try to irrigate this store as efficiently as we can. At the moment, it is true and we are very proud to be an international tourist destination. We have worked on that and we will continue to work on that.

BoF: As you go up to the store’s different floors, the merchandising makeup changes. It seems the value-focused brands, the contemporary segment, seems to be very appealing to the French customer.

NH: This is true, and most of our French customers are coming to those floors —the third and fourth. I think it's because it's affordable luxury or premium segments. Not all of them, but some want to play a role like that. In fact, it's a way for our customers to buy a brand because they are branded like luxury brands and want to be as appealing as Chanel or Vuitton, with the same marketing campaigns that are so powerful and seen everywhere.

Also, they became our competitors, because they have opened so many stores that somehow the customer can find those brands — not only in department stores — but everywhere. Like that we do our original proposition, which is everything under the same roof.

BoF: A lot of big department stores like Galeries Lafayette have missed the boat on digital. How do you catch up?

NH: When I arrived, we were pursuing a strategy of discount and seeing the e-business as a way of doing more business and not looking at the profitability, nor looking at the image around the brand. My thoughts were that we were destroying the brand because it's the most seen 'door' of Galeries Lafayette — on the web. It's the easiest way to compare everything. In fact, we will never be the cheapest one.

I decided to re-launch the website to be more in line with the identity and fashion aspiration. We launched the website in April and now we still have a lot of work to do. But, we are very confident, and brands that were not coming onto our previous site are coming now.

But it’s complicated and there is a lot of competition as you have said. I don’t want to follow a path of doing crazy things. I am very cautious about the way of being digital and I am confident in the fact that it’s a natural complement to the department store. Our ambition is to do 10 percent of our turnover online by 2020. Today, it is only 2 percent.

BoF: The biggest advantage you have is that you have a physical destination where the consumer can engage. What can you do to leverage the existing reach that you have in France to build uniqueness or differentiation in your business model?

NH: Our ambition is to offer to our customers the wide range of our Haussmann store online. In Haussmann, we have 2 million [SKUs]. By 2020, we should have those 2 million [SKUs] on our website. It will be difficult and perhaps the most luxurious brands won't join. But 20 years ago, my predecessor thought they would never get Vuitton or Rolex in their store and now they are in Galeries Lafayette. We never know what will happen in the future, but we need to have an ambition and the ambition is to grow this experience online.

BoF: But what about in terms of the specific link between digital and physical?

NH: One of the first things we have done is 'Click and Collect.' Then, we have to develop all the devices to help the staff to propose brands they don't have in the store or [SKUs] they don't have.

Thirty five percent of the sales [volume] on the website is collected in stores. In France, people prefer to go to a physical point to get a product, because they are not sure when it will arrive. But, if we say in the next hours you will be able to pick it up in the stores, it works. They don’t have to look around the store to see what they want, they have already done the transaction and they just come to collect it. It was much more than what we expected and it’s very important. It’s also a way to attract more people to our store. Then, 20 percent of those people will buy something else.

BoF: Let’s move to the third pillar of your strategy: international expansion. How do you build awareness and understanding of Galeries Lafayette in foreign markets?

NH: We now have stores in Berlin, Jakarta, Casablanca, Dubai and Beijing.

We have chosen these destinations differently. Berlin was the first one in 1996 and the rest of them, except Beijing, are franchises. We are looking, not at financial partners, but retailers that understand the retail business. That’s how we’ve developed Galeries Lafayette abroad. In the future, we think the regions where we have the most potential are China and the Middle East.

Our store in Beijing is only two years old, but it’s still growing very fast. However, it’s the same strategy we are following here — we are bringing new brands. We opened the first Topshop store in China and it’s an event for the customers. We have only one store over there so, at the moment, we are not facing difficulties there. We go from affordable to luxury and we are a destination. We are finding our own territory and working to still develop the store, change the layout and open new brands.

We are looking for two or three other stores to open in China. We have a lot of local operators asking us to open stores over there, refurbish their own Chinese department store to become a Galeries Lafayette. What we have done in Beijing we are quite proud of and landlords are now willing to open Galeries Lafayette around China.

This interview has been edited and condensed.

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