French retailer that owns Gucci and Puma is making a long-term bet on global luxury demand

The French retail company PPR’s business splits between a star-studded clothing and accessory portfolio—Gucci and Yves St. Laurent and Puma, for instance—and a struggling retail division that consists of the French home electronics chain, Fnac, and a mail-order business, Redcats. That business segment cost the firm €276 million in losses last year.

But 2012 was a turning point for PPR as it finalized its shift away from its slow-growing retail activities to concentrate on its decidedly more profitable clothing and apparel holdings. Altogether, PPR increased its sales last year by 21%, to €9.7 billion, the company announced this morning. The stock’s share price shot up 7% today, past its highest value in 12 years, reflecting investor approval of PPR’s nearly finalized shift away from retail.

Even within PPR’s clothing and accessory holdings, the alignment is somewhat strained. PPR’s luxury division, which also includes brands like Bottega Veneta and Boucheron, reported a 27% increase last year (to €1.6 billion), while profit for sport and lifestyle (which includes Puma and Volcom) fell 12% (to €305 million).

But sales of luxury goods are slowing down too: LVMH, the world’s biggest luxury-goods company, reported its slowest growth last year since 2009. And the luxury frenzy in China, a key market, is quieting down, falling from the 20-30% sky high pace of years past, to 10-15% growth expected in years to come. Still, as Hermès’ latest earnings demonstrate, luxury goods are nonetheless in very high demand among rich Chinese. And by focusing on its luxury brands, PPR is betting this will continue for some time.

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