Carrefour and Fnac Darty form French purchasing partnership

[PARIS] French retailers Carrefour and Fnac Darty will team up for purchases of domestic appliances and consumer electronics in France as Carrefour seeks to cut costs and boost earnings, the companies said on Tuesday.

The purchasing agreement will take effect for supplier negotiations in 2018 but Carrefour and Fnac Darty stressed they would maintain independent commercial policies.

Supermarket operator Carrefour, the world's largest retailer after Wal-Mart, hired Chief Executive Alexandre Bompard in July from Fnac Darty, France's largest electronics retailer.

The tie-up follows a similar partnership sealed last year between domestic rival Casino and furniture chain Conforama.

French retailers are intensely aware of the threat posed by Amazon, whose acquisition of U.S. food retail chain Whole Foods has triggered speculation the online giant is looking to crack the European market next.

Casino last week agreed to use British online retailer Ocado's platform to expand its e-commerce grocery business in a deal that analysts say will allow Casino to outpace domestic rivals.

Fnac Darty shares initially rose to a record high of 94.51 euros, before settling back to trade up 0.6 percent at 91.50 euros by 0925 GMT. Shares in Carrefour, which issued a profit warning in August, were flat.

"This partnership will allow both companies to achieve cost savings, while the tie-up is also complementary as Fnac shops are mainly in town centres while Carrefour outlets tend to be in the suburbs," said Roche Brune Asset Management fund manager Gregoire Laverne, whose firm owns shares in both companies.

Mr Bompard is expected to back a far-reaching restructuring that some analysts estimate could involve a billion euros (US$1.2 billion) of cost cutting. Carrefour is due to unveil its strategic plan on Jan. 23.

Investors want Mr Bompard to boost the performance of the group's France-based hypermarkets, a goal that has eluded several predecessors amid competition online and price discounting from rivals such as unlisted Leclerc.

They also want him to catch up as more shoppers go online for their goods.

Bernstein analysts estimated the deal with Fnac Darty would generate 90 million euros of savings for Carrefour or 25 basis points of French margin, which would give it "additional firepower to be invested in the French business".

On Monday Fnac Darty said it was banking on merger synergies and its ability to deliver sales growth above that of its markets in order to nearly double its operating margin mid-term.

Fnac shares are up around 40 per cent since the start of 2017, while Carrefour shares are down around 20 percent.

REUTERS