Darty S.A.

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Darty S.A.

BP103
14, route d’Aulnay
93141 Bondy Cedex
France
(33) 1 48 02 36 19
Fax: 01 48 02 35 55
Web site: http://www.darty.fr

Wholly Owned Subsidiary of Kingfisher Pic
Incorporated: 1957
Employees: 8,196
Sales: FFr 9.93 billion (US $1.8 billion) (1997)
SICs: 5722 Household Appliance Stores

With its “contract of confidence,” Darty S. A. has gained the confidence of the French consumer, raising this national chain of retail appliance stores to France’s sector leader. Darty also has gained the confidence of British retailing group Kingfisher Pic, parent of Darty since 1993, which has placed Darty at the center of its European expansion. As such, Darty joins the store groups Comet and BCC in The Netherlands, New Vanden Borre in Belgium, and Kingfisher’s U.K. holdings, including Wool-worth’s and B & Q. In the late 1990s Darty also has acquired a majority holding in another leading French appliance and furniture retailer, But.

The Darty chain continues to enjoy steady expansion in its native France, at six stores in 1998 to top 160 stores. The average size of a Darty store is 12,500 square feet. Darty stores feature a wide-ranging selection of household and electrical appliances, including computers and peripherals and stereo systems. The company also operates a number of after-sales service centers, including emergency repair services.

With nearly FFr 10 billion in annual sales, and consistent net profits, Darty has proved to be the motor of Kingfisher’s 1990s growth and has helped the British group weather the extended European economic crisis during the decade. Darty is led by managing director Jean-Nëel Labroue.

Electric Beginnings in the 1950s

The Darty family ran a small fabric shop in Montreuil, near Paris, in the 1950s. When brothers Natan, Marcel, and Bernard Darty joined their father at the store, the family decided to expand by purchasing the neighboring store. According to that store’s lease, however, the Darty family was required to maintain the store’s former occupation: that of a retail center for radio and television. Bernard and Marcel Darty took over the new store’s operation. As a means for attracting customers, the brothers began exhibiting their new stock on the sidewalk.

This simple beginning would prove just the start of a long history of successes. Within days after taking over the new store, the Darty brothers had sold off its entire inventory. Joined by brother Natan, the Darty brothers decided to build their fortune through radio and television, quickly adding other electrical appliances. Their company, Darty, was established formally in 1957. Over the next several years, the brothers continued building a clientele, while also gaining experience in both customer relations and in their products.

Customer satisfaction quickly became a house rule. Not content simply with sales of their merchandise, the Darty brothers soon added delivery and post-sales services, as well as an emergency repair service. The Darty dedication to customer service was a novelty for much of France. Before long, the company’s service department would become as well known as its retail operations and would begin offering repairs independent of sales. By the mid-1960s the Darty brothers had added a warehouse to distribute inventory to its Montreuil store, but also to supply the company’s next step in its growth: the opening of a second small store in the Parisian region. Darty’s later growth would follow a similar model of retail stores grouped around a regional distribution center and service facility. Post-sales service had grown to be an important component of the Darty brothers’ business, aiding not only in building client fidelity, but also in providing continuous revenues.

In 1967 Darty moved its warehouse to a new building in Bondy. The Darty brothers, however, had purchased a building and lot far larger than they actually needed. This provided them with the opportunity to test out a new idea for the French consumer market. On a trip to the United States, the Darty brothers had marveled at an American innovation, that of large-surface specialty stores, later known as “category killers.” The Darty brothers felt that this formula could be adapted to the French market. In 1968, they opened France’s first large-surface home appliance store. With its 800 square meters, the store enabled Darty to offer a larger selection at lower prices. Extending the range of products in its store had another objective as well: to continue to build the company’s after-sales service component.

The new store was a hit with the French consumer. Darty began plans for greater development, based around its “Choice, Price, and Service” concept. Although the company had continued to operate as a family business through the 1960s, at the start of the 1970s the Darty brothers instituted a tighter management structure, with Bernard Darty taking the company’s lead. In 1970 the company opened its second large-format store, in Pierrefitte. Darty also began supplying its competitors, forming a wholesale component, Caprofem, providing cash-and-carry services to other professionals. The large assortment and higher volume also enabled Darty to achieve higher margins on its own retail sales.

Confidence in the 1970s

By 1973 Darty had expanded to nine retail stores while adding a new distribution depot at Tremblay-les-Gonesse (former name of Tremblay-en-France). As the company’s chain of retail stores expanded—and began to include franchised stores—Darty took steps to maintain centralized control of the Darty image. Communications and advertising soon were recognized as an important component of the growing company. Whereas previous publicity had been conducted on the local scale, Darty now brought this activity under the responsibility of its headquarters. In 1973 the company contracted with Havas-Conseil, then the country’s largest advertising agency, to create Darty’s first nationwide campaign, placing advertising spots on the radio (television programming, controlled by the French government, remained as yet commercial-free).

This campaign would take place under the company’s famed “Contract of Confidence.” Instituted in 1973, this “contract” offered something new to the French consumer: a guarantee of price, choice, and service. The contract certainly proved to be a confidence builder with the customers, as the company’s sales continued to grow. In that same year the Darty family opened the company to outsiders, bringing in investment capital from Paribas, Compagnie Bancaire, and UAP. This capital was needed for Darty’s next step: developing its chain beyond the Paris region. For this, the company brought in Philippe Francés, who was named Director of Development before being named the company’s president in the 1980s.

In 1975 the company consolidated its warehousing to a new site in Mitry-Mory. The company’s future development would be built around the centralized warehousing model, breaking with its competitors’ model of grouping retail and warehousing activities in the same location. Centralizing its warehouses enabled Darty to open new retail stores at a relatively low cost, as inventory needs could be handled away from the new store sites. While inventory was centralized, however, the company’s national expansion would take a different route, focusing on regions, rather than the entire country. Each region would be grouped under a separate subsidiary, operating more or less independently. The first Darty to open beyond the Paris region was established in Lyon in 1975. By the end of the decade the company had created four regional subsidiaries: Darty Nord-Pas-de-Calais; Darty Provence Méditérranée; Darty Alsace-Lorraine; and Darty Normandie.

The company’s growth was aided by Darty’s introduction on the Paris stock exchange in 1976. Although the Darty family maintained majority control, the family would begin making plans to transfer control of the company, in part to protect the company against any attempts at a hostile takeover—the rage in the business world of the 1980s. In the mid-1980s Darty began transferring shares in the company to its employees as part of their salary and benefit plans. At the start of the decade, however, Darty had begun looking at diversification.

Transferring Control in the 1980s and 1990s

Despite the company’s continued success—by the mid-1980s Darty would take the leadership in French retail sales, with more than ten percent of the market—its efforts to diversify were more trouble-prone. At the start, of the 1980s Darty attempted to export its retail concept to Spain. Difficult market conditions in that country, however, doomed the effort, which was abandoned less than two years later. Darty’s next move to diversify kept the company in France, but looked at a new and growing product category: sports retailing. In 1982 the company launched its Sparty concept, building a chain of 11 sport-specialty retail stores by mid-decade. This development proved to be not enough to counter the rapid growth of competitors Intersport and Déecathlon; in 1987 Darty transferred control of its sports stores to rival Go Sport, taking a 20 percent share of that company in exchange.

If the company had been forced to place a cap on its diversification moves, its appliance retail core continued its vigorous growth. For much of the decade the company would book revenue advances of as much as 15 percent per year and profit growth as high as 25 percent per year. By 1987 the company’s sales had topped FFr 6.5 billion, posting net income of more than FFr 400 million. While expanding its chain through its headquarters and through its regional subsidiaries, Darty also adopted an “integrated management” concept for the less populated areas of the country. The new addition to Darty brought a franchised concept to the chain, breaking from the centralized logistics model in favor of independent operation under the Darty brand name. In 1984, Darty also created a new distribution subsidiary, Dacem, which provided warehousing and distribution of spare parts and appliance accessories to the Darty chain stores and service centers.

At mid-decade the Darty family began facing succession issues. Eager to preserve the independence of its appliance empire, which would near 90 stores by 1986, the Darty family began looking for ways of transferring its shareholdings, without sacrificing the company to foreign ownership. In 1986 Darty opened its capital internally, giving its employees the opportunity to buy stock in the company. Some 99 percent of the company’s employees would participate in the private transaction. By the beginning of 1988 Darty’s employees held some six percent of the company in stock and options. The stock market crash of October 1987, which saw Darty’s stock price tumble dramatically, paradoxically opened the way to a new opportunity.

In April 1988 the Darty family announced their decision to sell the company to its employees. The idea of a management buyout, which had become quite popular in the United States during the 1980s, was still relatively novel for France. The Darty proposal would be the largest employee buyout ever attempted in the country, valuing the company at some FFr 6.5 billion. Moreover, where the buyout option typically had been reserved for businesses in failing health, Darty’s revenue growth and profitability remained robust. By the summer of 1988 the company had been placed under employee control: the company’s employees had gathered some 56 percent of the company. Their holdings were grouped with the Darty family’s 25 percent and the 16.5 percent held by a collection of the company’s institutional investors to form the Financiére Darty shareholding group, with 95.2 percent control of the company. The new shareholders engaged, meanwhile, to maintain their shares until 1993.

As the Darty family retired from active control of the company—with Philippe Francés named as president and CEO—the buyout would raise complaints from several of the company’s minority shareholders, who, excluded from the buyout, would institute an investigation by the French COB (Commision des Opérations de Bourse, equivalent to the United States’ SEC). The Darty example—which was supposed to lead the way to a whole wave of employee buyouts in France—had become the Darty scandal. Meanwhile, however, Darty continued its steady growth. With an objective of a minimum of six new store openings per year (the company would, in fact, often top ten and more new stores per year), the number of Darty stores would top 120 by the early 1990s. At the same time the company purchased a minority holding in Belgium’s New Van-den Borre, a 13-store chain of retail appliance stores.

Darty’s success continued even in the face of a withering economic climate that would grip France in a recessionary crisis into the later half of the decade. Yet, even as its market was shrinking, Darty still could boast profits margins of more than six percent. Nonetheless, the company, which faced the end of the freeze on employee stock sales in 1993, also had began to look for ways to reinforce its growth opportunities in the soon to open European market. Reluctant to repeat its internal expansion, after its negative experience in Spain in the early 1980s, Darty instead began looking for partnerships beyond France.

In March 1993 Financiére Darty agreed to transfer its holdings to the British retailing group, Kingfisher Plc. In exchange for 11 percent of Kingfisher—making the Darty shareholding group one of Kingfisher’s principal shareholders—Darty became a Kingfisher subsidiary, alongside its U.K.-based Woolworth’s, B & Q, and Superdrug chains. In this way, both Darty and Kingfisher could further their European ambitions, uniting Darty with Kingfisher’s Comet—the largest chain of appliance stores in the United Kingdom—and BCC, based in The Netherlands.

After taking 100 percent control of New Vanden Borre, Darty would move to reinforce its French presence. In 1996 the company reached an agreement to purchase 20 percent of the appliance-furniture retail chain But, which, with 37 company-owned stores and 195 franchised stores, counted among France’s leading furniture and household appliance retailers. Darty’s holding would later be augmented, according to the agreement with But’s founders, the Venturini family, reaching 26 percent in 1998.

Under Kingfisher’s ownership, and now led by managing director Jean-Nëel Labroue, responsible for Kingfisher’s appliance retailing expansion on the continent, Darty continued to register strong growth, nearing 160 French stores in 1998 and the FFr 10 billion mark in 1997. With the backing of Kingfisher’s more than US $5 billion per year in annual sales, Darty was certain to maintain its leadership position in France, while extending, with its partners, a contract of confidence throughout the European market.