Troubled Fnac unveils new strategy

Fnac’s chief defect is that it sells things people no longer buy …

French retailer Fnac has seen its operational profits halved, according to a release. The retailer blamed a lack of elasticity in its cost structure along with pressure on margins due to a strong drop in sales of electrical and electronic goods. To address this, Fnac has announced a new plan, which it is calling Fnac 2015. The plan involves cost reduction moves as follows:

1. Renegotiation of its rents, technical service and logistics contracts

2. The suppression of 510 jobs

Along with these moves, the company aims to build new business by:

1. Opening new small-format “proximity’ stores

2. Installing terminals for its online store in stores

3. Developing so-called “multi-channel” solutions, such as click and collect

4. Shifting product focus in store towards products for children and family

5. Attempting to improve the store experience

Comment: Fnac’s chief problem is that it sells — generally from large stores with mindbogglingly massive inventory — things that people are no longer buying in any kind of quantity. These are CDs, DVDs and books. The high margins obtainable on electrical goods have to some degree insulated the retailer from the terminal decline in these markets, but in straitened times, even this safety net is under pressure. Fnac is right, therefore, to look at smaller stores. It is right to look at shifting focus to other categories. It is right to try to develop online sales. It is definitely right to improve the store experience. The problem is that it may all be too little, too late.

Like HMV and Borders (RIP), Fnac has clung onto the hope that sales of physical entertainment formats will somehow magically come back. They won’t. Long-term, CDs are out, downloads are in. There’s no question about this. The company should cut its losses and exit. Like HMV and Borders, it has decided to invest in developing online sales about a decade too late. Amazon and iTunes already exist and lead the market. Amazon particularly has invested heavily in its shopping experience over that decade and the result is that it is now difficult to imagine what Fnac could bring to the table.

Fnac has not been helped by the fact that its store experience, for all of that decade, has been universally awful. Were the stores pleasant to shop, there might be an argument for still going there. But Fnac is a nightmare. The stores are labyrinthine, with little or no natural light. Suffocating piles of product block sightlines as customers struggle to pass one another between the gondolas. Low ceilings don’t help. Staff on hand appear to have little incentive to be polite or helpful and then there are the queues. Ten or twelve deep is the norm at Paris St Lazare. The whole experience is highly stressful. If you do find what you want it takes a long time to get out. And because the company hasn’t really understood the extent to which interface counts online, shopping on is no less stressful. Click and collect has been a success in grocery retail. But the idea of shopping online with Fnac and then having to brave one of the stores to get my order is simply twice the nightmare.

The measures Fnac has announced will probably go some way to resolving their problems, but frankly the time to do it and win has long since passed. My feeling is that Fnac 2015 will only delay the inevitable. Unless there is a more radical rethink, I don’t believe the retailer is viable in the long term.

Picture credit: public domain


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