Wednesday, November 19, 2008

Duran Out, Olofsson In at France's Carrefour

Duran Out, Olofsson In at Frances Carrefour

Meager profits were the ultimate fashion faux pas for the boss of global No. 2 retailer Carrefour (CARR.PA). On Nov. 18, CEO Jos-Luis Duran was ousted in a coup orchestrated by an unlikely pair of investors: French luxury mogul Bernard Arnault and U.S. investment group Colony Capital, which teamed up last year to take a major stake in Paris-based Carrefour.

Duran is to be replaced on Jan. 1 by Lars Olofsson, a senior vice-president responsible for strategy and marketing at Swiss food giant Nestl (NESR.DE). Carrefour shares rose 3.7% on the news, as analysts applauded the shakeup. "Many investors have been frustrated at the slow pace of change" under Duran, a veteran Carrefour executive who has held the top job since 2005, says Christopher Hogbin, an analyst with Sanford C. Bernstein in London.

Carrefour, whose $103 billion in annual sales make it a distant global second to Wal-Mart Stores (WMT), was struggling even before Duran took over. Slow growth in its core Western European markets has weighed on the bottom line, as the company invested heavily to expand in China and other emerging economies. Pressure on management has mounted since 2007, when Arnault, the boss of luxury group LVMH Mot Hennessy Louis Vuitton (LVMH.PA), joined California's Colony Capital to take a 14% stake in the company, making them Carrefour's single largest shareholder (, 3/8/07).

Shedding Assets

Although Arnault and Colony control only 3 of the company's 12 board seats, "they are clearly the main influence in the company," Hogbin says. Arnault, an investor with a keen eye for undervalued companies and little tolerance for poor returns, quickly turned up the heat on Carrefour. Along with Colony, he leaned on Duran to sell off real estate holdings and shed noncore assets. But progress has been slow, and the company's vast hypermarkets have lost market share in such countries as France and Spain as consumers defect to bare-bones discounters in a slowing economy.

Adding to its woes, Carrefour was targeted earlier this year by protests in China after French President Nicolas Sarkozy threatened to boycott the Olympic Games (, 4/22/08) because of China's Tibet policies.

Olofsson brings impressive credentials to the job. Besides his experience in marketing, he knows French corporate culture, having run Nestl's operations in France from 1997 to 2002, and he speaks fluent French. Also, he'll sit on Carrefour's board, unlike Duran, who lost his board seat last summer in a restructuring spearheaded by Arnault and Colony.

A turnaround won't come easily, though. Slow-growing Western Europe still accounts for more than 70% of group sales. And with commercial real estate in the dumps (BusinessWeek, 9/4/08), this isn't a good time for the company to unload properties. Says Hogbin: "I don't think there are too many quick fixes."

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