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It's Raining Hard on Club Med


Philippe Bourguignon, the urbane chief executive of Club M?diterran?e, strolls through Club Med World in Paris with the ease of a carefree vacationer. He blends right into the crowd at the urban leisure complex, which features a tapas and sushi bar, plus a nightclub where visitors relax in wooden tiki chairs under palm fronds.

But the tropical atmosphere can't melt away Club Med's blues. On Jan. 8, the company announced losses of $63.3 million for the fiscal year ended Oct. 31, on revenues of $1.8 billion. Club Med's shares have plunged 50% over the past 12 months. "It's a reflection of a difficult year," says Bourguignon, 54, who joined Club Med in 1997.

True, Club Med has weathered many tempests during its 51-year history. Under founder Gilbert Trigano, the resort chain flourished on a formula of sea, sun, and sex for budget-conscious singles. But with the arrival of other all-inclusive resort operators such as Robinson Club and Sandals, Club Med embraced the concept of family fun. Along the way, other hazards--from typhoons in the Pacific to weak growth in Europe--periodically hammered earnings. This time, the losses stem from the triple whammy of the post-September 11 travel freeze, an overambitious expansion, and recession in the U.S. and Asia.

Bourguignon, a marketing whiz who turned around Euro Disney Co., is trying to smooth out Club Med's earnings. He wants to turn Club Med into a year-round destination by adding sports clubs and urban leisure centers to the mix. Success in these new enterprises could determine whether Club Med remains independent. The possibility of a takeover remains "the largest uncertainty that surrounds the stock," says Philippe Ronceau, an analyst with BNP Paribas in London.

Although Bourguignon boasts the support of Club Med's largest shareholders, Italy's Agnelli clan, analysts want results. In October he kicked off a cost-cutting program expected to save up to $36 million a year by merging regional offices and closing 17 of 120 resorts. "We're shrinking temporarily to face lower demand," says Bourguignon.

At the same time, Club Med is stretching its brand muscle into new arenas. Club Med Gym, a chain of 40 fitness clubs acquired last May, was one of the group's best performers in 2001, turning a $1.6 million profit over six months.

The same can't be said of Club Med World. Applying the concept of a tropical Club Med village to urban settings has proven costly. The Paris property lost $5.1 million in 2001. Plans for a total of 15 clubs are on hold. Still, analysts aren't completely writing off the idea. "They'll make something decent out of it," says Ronceau.

If not, Club Med risks being gobbled up by a rival. Potential suitors could include Germany's Preussag, the giant tour operator, and Thomas Cook. Bourguignon will need more than sunny optimism to repel their advances. By Christina White in Paris


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