International news analysis: Auchan calls time on Prixbas experiment

The city of Mulhouse has high levels of unemployment and is a problem area for Auchan as it has been facing increasing competition from discount chains and cross-border shopping in Germany.

Despite significant investments, Auchan’s turnover had decreased 16% in the years previous to its conversion to the then-new discount concept Prixbas - meaning “low prices”.

As Planet Retail regularly highlights, the remodelling of an underperforming store to a discount format does not really address the underlying concerns regarding the profitability of a particular hypermarket.

There are other factors that are part and parcel of the performance of an individual store, including demographics, location and product range, to name but a few.

When Planet Retail visited the pilot we sensed that local shoppers were not especially enthusiastic about the concept. Initially operating an EDLP strategy and an enhanced economy offering, Auchan seems to have increased promotions and loyalty programme rewards over the years as a result.

We also believe shoppers need a compelling reason to visit an out-of-town site, and we doubt that a 93,600 sq ft store listing some 20,000 products -threefold less than a regular Auchan hypermarket - was sufficient to generate traffic, especially given the Carrefour and Cora hypers located a stone’s throw away, not to mention a choice of traditional discounters.

Faced with ongoing struggles with hypermarkets and the discounters’ march, many French retailers have tried to combine the best elements of the two in a bid to turn around their fortunes.

And, like Auchan, all have failed. We can think, for example, of Casino and its Géant Discount pilot located on the opposite side of the country in Toulouse (south-west France). These fruitless efforts can serve as a valuable lesson for a number of European retailers facing similar challenges in their markets.

Looking at Auchan’s wider strategy, we believe this move is a consequence of Auchan’s ongoing difficulties in France, forcing the retailer to rationalise its store portfolio and excise any unprofitable operations.

The retailer’s 2014 results are expected in a few days, and we anticipate sales are likely to be disappointing. Ironically, Prixbas came about after the retailer’s experience with its Les Halles d’Auchan discount superstores selling loose goods and fresh produce, stores which are now also reportedly for sale.

• Gildas Aitamer, retail analyst, Planet Retail