SMCP’s Daniel Lalonde Draws Up New Plans for Business

Click here to read the full article. PARIS — Who’s hankering for a return to

Click here to read the full article.

PARIS — Who’s hankering for a return to normal? Not Daniel Lalonde. The chief executive officer of SMCP, the group behind accessible luxury labels Sandro, Maje, Claudie Pierlot and De Fursac, is not looking back — the world has changed. He’s developing a business plan for the new order.

The group reported a 45.8 percent decline in second quarter sales to 265.7 million euros, reflecting the steep impact of coronavirus shutdowns and slow path to recovery, with the sharpest declines coming from the Americas. Across France, its biggest market, and the rest of Europe and the Middle East region, sales were down 46 percent and 54.9 percent, respectively. The Asia Pacific region clocked the best performance, down 19.5 percent, with the company flagging that growth returned to China in June.

“My objective is not to return to the performance and levels of 2018 and 2019 — for me, that’s the past,” said Lalonde, speaking from his modern and airy corner office overlooking ornate, historic buildings in the center of Paris.

“We’ve had a transformation and we’re not looking to replicate what we had before,” said the executive, who had embarked on a reflection on the company’s strategy before the coronavirus hit Europe. 

While the message is clear in his mind, and he has begun communicating it to his teams, for some, it is not obvious, he noted. 

Listed on the Paris Stock Exchange in 2017, the group has made store network expansion its key source of growth, adding new stores at a pace of 80 to 90 a year. That strategy was appropriate for broadening the group’s geographic reach outside of France, but the environment has now changed, in the executive’s view.

Lalonde is putting the finishing touches on new plans that reflect an emphasis on organic growth.

“My growth in the future — we will tailor it to have a bigger proportion of like-for-like growth,” he said.

“That’s a big pivot point,” he continued.

In the past, two thirds of the group’s growth came from expanding store space while a third came from like-for-like figures.

“It was the right strategy for building the brands in China, and expanding abroad,” said Lalonde.

In the future, more than 50 percent will be like-for-like growth, a shift he predicts will take place “fairly quickly.”

Stores, meanwhile, will become larger, and “more expressive,” with more personalized brand appeal, in his description.

“I expect to do half of the physical stores that I used to do,” he noted. The fast pace of expansion that reflected a strategy of increasing the group’s presence in markets abroad continues to make sense in China, however, where there is still room for more stores, added Lalonde.

In the Americas, the strategy has been to focus on digital means first, then complemented with physical stores, which reflects the future strategy in other markets.

“Our objective and ambition is to become a global leader in accessible luxury,” noted Lalonde, estimating the group’s current position as one of the top ten players worldwide.

“I want to, by the time we finish our plan, to move positions,” said the executive, describing his idea of becoming a “very modest LVMH of accessible luxury,” referring to LVMH Moët Hennessy Louis Vuitton, the luxury group that dwarfs rivals with a vast stable of 70 high-end brands.

One day, further in the future, Lalonde, envisions a larger accessories pole for the group. 

“We have ambition to get into other sectors later,” said Lalonde, hinting at the accessories category as a potential area for future expansion. The group has focused on accessories of its brands in recent years, and they now account for around 10 percent of group sales, a proportion Lalonde sees rising into the “teens,” he said.

In the current environment, there has been talk of consumers gravitating to the least-expensive or higher-end labels, but Lalonde predicts people will be drawn to the ‘best-in-class’ brands at all ranges. 

Reflecting on the ways in which the coronavirus crisis has changed the landscape that the group operates in, he listed several.

“There has been a massive acceleration of — I’d say, first of all — brand purpose,” he said.

“I think you have to not only have great product, service, etc., you have to stand for something as well,” he continued.

“What we’ve done for that, all our brands have done a deep dive in the last year, some very recently, re-going back to the roots, clarifying its DNA, all its brand environments to make sure that it’s very unique, captures the essence, and has purpose,” explained the executive.

Collection structures have been reviewed, the number of SKUs per collection has been reduced over the past year, from around 400 down by around 20 percent, and the company is trying to better manage inventory levels to have less product. There are no plans to reduce the time allowed for designing products, however.

“As you look at your business holistically we thought maybe there’s an opportunity to produce less and to reduce the number of references available because we think it will have an impact on our business,  on our sales and it will make our stores look better, it will be more qualitative, for the experience as well,” he noted. The group will continue to lower SKUs slightly more while focusing on managing global inventory.

“If you do that well, you don’t miss a beat,” he said.

“There’s been a massive acceleration of sustainability,” he continued, noting while this is not new, the movement has been “amplified incredibly.”

“If you weren’t there before, it’s hard to get there so quickly,” he said.

SMCP plans to reveal specific objectives around sustainability at an investor day this fall, with initiatives at the group level — which is setting overarching objectives as well as with each brand.

Sourcing, much of which comes from Eastern Europe, is mostly separate for each brand — as set up by Sandro founder Evelyne Chétrite and her sister Judith Milgrom, founder of Maje —  although negotiations can take part at the group level in the case of common suppliers. 

The company does not source textiles through its owner, Chinese textile group Ruyi Group. Ruyi Group owns around 54 percent of SMCP, and has made headlines in recent months for struggling to meet debt payments, prompting speculation it could sell assets, which also include Lycra, Gieves & Hawkes and Cerruti.

Lalonde is interested in speeding up production time, from the current average of five to nine weeks replenishment time.

Online sales accounted for 15 percent of overall sales last year, rising quickly in just a few years, but Lalonde doesn’t want to have to discuss such figures in the future — it’s about having one integrated channel, he insists. The group has been building an omnichannel, or integrated system over the past two years, starting with Maje. It is designed for smoother online sales deliveries, allowing for shipment of products from stores, using algorithms to track merchandise. While SMCP was behind peers in this area five years ago, the new system will help it shoot ahead of others, estimated the executive.

“I think here we’re going to break through,” he said.

Meanwhile, the coronavirus crisis has brought on the need to attend to relations with landlords, and the company has been renegotiating rents worldwide. Lalonde has himself called the top 20 landlords every six weeks to readjust terms.

“How do you share the pain, how do you equitably share the impact between retailers and brands and landlords — that’s what we’re trying to find, is that line where it seems fair for both,” said the executive. 

At the end of the first half of the year, SMCP counted 1,650 points of sale, including some 326 operated by external partners in markets like Russia and the Middle East. 

When it comes to rent negotiations, variable rent contracts help hedge against lower sales, going down when business drops, but in the case of fixed rents, quickly becomes an issue.

“The issue is when you don’t have a variable rent and you have a high base rent. With lower sales, this has a big impact — and that’s what we’re trying to solve with all these landlords,” he said.

“It’s going, I’d say, relatively well but we haven’t solved all the issues yet for this year and more importantly for 2021 — it’s still a work in progress,” he said, noting arrangements vary according to each landlord.

A large proportion of selling points are in department stores — around 40 percent — which are mostly based on concessions contracts.

“We don’t do wholesale — I’m allergic to wholesale. I’m convinced we have the right sales model,” he said.

“The fact that we run a concession model, I think we’re more in control of our own destiny, we’re able to work with the department store but we have personnel there that is trained for our brands — we make sure that there are good levels of inventory, we can float goods in, and we are able to control the customer experience, because it’s our people,” he said, touting the strategy’s benefits. 

The group’s labels are in leading department stores around the world, though fewer in the U.S., serving as a draw for space dedicated to more affordable apparel.

“Often we’re the traffic builders for accessible luxury — if you want to have a successful accessible luxury wing, you get Sandro, Maje,” he said.

The labels typically have the “best location and the biggest location” in the stores, he asserted. 

The brands are in stores including David Jones in Australia; La Rinascente, Harrods, Selfridges, Galeries Lafayette, Le Bon Marché in Europe, and, in the U.S., Bloomingdale’s, Saks Fifth Avenue and Nordstrom, as well as Hudson’s Bay in Canada.

“There are still a lot who prefer a wholesale model” in the U.S., he noted, adding that it’s the only market where this is the case. U.S. department stores make up less than one or two percent of the group’s sales, he said.

“We don’t compromise on our business model — we could have more doors in the U.S. but we choose not to because I don’t want to compromise on our business model — either it’s a concession or if it’s not a concession then, no, thank you very much,” he said.

Reflecting on the overall mission of the group’s brands, Lalonde said he has slightly adjusted his message.

“Our mission of the overall company is still the same but I’ve tweaked it,” said the ceo, before rattling off his terms: “Inspire Parisian chic around the world as passionate and responsible entrepreneurs.

“We’re very much a company of entrepreneurs,” he said, noting SMCP, which counts around 6,000 employees worldwide, hires entrepreneurs “just like our founders were.”

“We ask and try to find people to join us who have the notion of treating the company like it’s their business, like it’s their own business,” he said.

The executive said the group, which recently secured a 140 million euro guarantee from the French government, has sufficient financing to weather the crisis this year and next.

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