Global Economics

Luxury's Rising Son


Fran?ois-Henri Pinault is tailoring PPR for rapid growth

Fran?ois-Henri Pinault has led a charmed life: He's the scion of one of France's wealthiest families, with holdings ranging from Christie's auction house to famed Bordeaux winery Ch?teau Latour, and now he's engaged to Hollywood star Salma Hayek. Now it's becoming clear that his pedigree is helping him become a formidable businessman, too.\

Pinault is the son of Fran?ois Pinault, the legendary founder of PPR, a onetime timber trading operation that has grown into a $24.7 billion behemoth. Under the elder Pinault, PPR expanded from its humble roots into a host of businesses ranging from mass-market retail to top-drawer luxury brands such as Gucci and Yves Saint Laurent. Now, two years after taking over the company, the younger Pinault is showing he has his father's eye for a deal.

His latest move, sealed on July 17, is the purchase of 62% of Puma, a maker of hot-selling sportswear. Although Puma might seem an odd fit for PPR's closet, analysts widely praised the deal, saying it positions the company to cultivate a younger generation of luxury shoppers who wear sneakers and jeans with Chanel jackets. Puma was a pioneer among sportswear brands in breaking free of the sluggish growth and narrow margins of the athletic-shoe business, reinventing itself as a purveyor of style by teaming up with the likes of designer Jil Sander and model Christy Turlington. Pinault believes PPR's retailing savvy can help build Puma into a global star, and he doesn't rule out pairing it with one of his high-end brands. "Why not Gucci, powered by Puma' jogging gear?" Pinault muses in an interview at his office near Paris' Parc Monceau.

Pinault has been equally bold in reshaping elements of the company assembled by his father. He trimmed his retail portfolio, selling off the landmark Paris department store Printemps, part of the company's original name: Pinault-Printemps-Redoute. And Pinault refused to back down when Gucci Group designer Tom Ford and top manager Domenico de Sole threatened to quit in a contract dispute. Then when the pair rocked the fashion world by walking, Pinault decided against hiring another big name and instead handed responsibility to Gucci's junior designers, led by Frida Giannini. Her team has now turned out several seasons of widely praised apparel and accessories, and Gucci's sales and profit growth are stronger than they were in Ford's day.

That's not to say Pinault doesn't face plenty of competition in the rarefied world of supple leather, diamond-encrusted jewelry, and $10,000 gowns. PPR remains the No. 3 player in the global luxury sector, with $4.9 billion in sales from its high-end brands (about 20% of its overall portfolio). That pales next to the $21 billion at Paris-based LVMH Mo?t Hennessy Louis Vuitton (LVMUY) and $6.6 billion at Switzerland's Richemont, owner of jeweler Cartier. And the 16% margins in PPR's luxury business are a far cry from the 40%-plus that LVMH reaps from its star Louis Vuitton brand.

ENTREPRENEURIAL SPIRIT

But PPR's luxury business is growing faster than its rivals'. Sales were up 18% in 2006, vs. 12% at both LVMH and Richemont. Operating profits from PPR's luxury units soared 44% last year, to $779 million, compared with 16% at the two others. And unlike LVMH, where smaller brands such as Givenchy and C?line have struggled in Vuitton's shadow, PPR is coaxing stellar results from a bevy of venerable small fry, including couturier Balenciaga, jeweler Boucheron, and leather goods maker Bottega Veneta. PPR "is a lively company, with an entrepreneurial spirit and a different style of management" from LVMH, says Erwan Rambourg, a Paris-based analyst with HSBC (HBC). Investors seem to agree: PPR shares have risen 60% in the past two years.

It's an impressive record??etter, in fact, than many expected when Pinault took over in March, 2005. Before, his father had recruited outsiders to run the company. While the younger Pinault had worked there for 16 years, during much of that time its key activities had been timber trading and manufacturing. But Pinault played a growing role behind the scenes, and in 2003 his father named him chairman of Art??mis Group, a family holding company that controls 40% of PPR. He worked closely with PPR's then-CEO Serge Weinberg in a successful fight to snatch Gucci away from its would-be buyer, LVMH.

Pinault p??re also took elaborate care training his son. In 1992, he set up an advisory board of 10 French luminaries, including Cr??dit Lyonnais then-Chairman Jean Peyrelevade and J??r??me Monod, a top adviser to former President Jacques Chirac. The group was called the Pinault Trustee, and its role was to keep an eye on Fran??ois-Henri. For the next seven years he met regularly with each trustee, and once a year the board members peppered him with questions at a dinner. Finally, one night in 2005, father and son met at the famed Paris bistro L'Ami Louis. During the meal, the elder Pinault handed over a golden ring with the keys to the CEO's office. "He said," Pinault recalls, "You're 40 years old, and if I were you, I'd want to be in charge."

With the younger Pinault running the company, the contrast between PPR and LVMH is stark. LVMH boss Bernard Arnault, 58, is formal and detail-oriented, meeting weekly with managers and focusing on minutiae such as choosing photos for ads. Pinault works in shirtsleeves and gives his team a lot of latitude provided they meet their targets, speaking with brand chiefs only about once a month. "I don't tell them what to do," he says.

His management team differs from Arnault's, too. The PPR chief has surrounded himself with executives about his own age, with most division heads in their mid-40s, while most at LVMH are in their mid-to-late 50s. And "from the moment [PPR] chooses someone, they put confidence in that person. They don't put a lot of strata and hierarchy around them," says Floriane de Saint Pierre, a Paris-based headhunter.

Val??rie Hermann is one of those PPR newcomers. The former executive at Arnault's Christian Dior brand took over PPR's Yves Saint Laurent business two years ago, when it was hemorrhaging more than $100 million a year. She credits Pinault with giving her flexibility to reorganize operations and trim staff, cutting the unit's losses in 2006 some 25%, to $67 million, while boosting sales 20%. Analysts expect YSL to be back in the black by 2009. "If you need something, he's extremely accessible," says Hermann. "But he's not calling every two or three weeks about the numbers."


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