How SGM has woven its web since 2018

Long gone are the days when Société des grands magasins (SGM), the Lyon-based family business founded by Maryline and Frédéric Merlin, made its first acquisition. That was in 2018. "Until then, the company hadn't made asset ownership its priority," says Karl-Stéphane Cottendin, now COO. "In order to perpetuate the structure, but also to give it greater scope, the strategy evolved..."

The focus was on city-centre shopping centers, "the only asset class offering rather aggressive rates of return on acquisition, which nobody wanted at the time", he recalls. The story begins.

Seven years later, SGM is backed by a substantial portfolio of assets (see map and table), soon to be complemented by the acquisition of the BHV Marais premises still owned by the Galeries Lafayette Group: SGM, which has been operating the premises since the end of 2023, has entered into exclusive negotiations with Banque des Territoires with a view to finalizing a deal in which it will retain a majority stake.

Has the strategy changed over the past seven years? "No," says Karl-Stéphane Cottendin. "Our convictions, for their part, have remained unchanged, dictated by the common sense of an asset-based real estate company between cost control and sustainable actions..."

In 2018, by way of founding act(s), SGM identified its first four sites: in Mulhouse, Roubaix, Tourcoing and Lille - Altarea owned them. "They had several points in common," says the Group's COO. "They all benefited from a fairly dense catchment area. They were in decline, with falling footfall and departing retailers, with vacancy rates of between 30% and 50%."

Maryline and Frédéric Merlin's company then decided to adopt a strategy it describes as "logical". "We reviewed the entire management of these centers. These assets had far too many operating costs, and the lines were not optimized. So we started from scratch, then identified the players we wanted to keep, be they Monoprix, H&M, Chausséa or Kiabi, to which we added a driving force that would get the whole thing moving again, like Primark in Mulhouse."

Karl-Stéphane Cottendin, again: "If we take the example of Mulhouse, this has clearly had an impact on the center's values. Some stores have even multiplied their sales by 2 or even 2.5...".

While retaining a notion of "made-to-measure", SGM is duplicating the model for its next acquisitions, in Châlons-en-Champagne and Kremlin-Bicêtre, where it took possession of Okabé. In 2020, it will acquire SQY Ouest, in Saint-Quentin-en-Yvelines, from Hammerson. "A very fine asset that had never found its place. We then moved away from the mass-market and turned it into a leisure and restaurant center, complementing the Espace Saint-Quentin located just opposite."

In its development, SGM took a new step forward with the deal signed with Galeries Lafayette to take over seven regional establishments, not without having previously signed a portfolio of eight assets with BNP Paribas REIM. "For these seven stores, we have deployed capex of around €40m to re-use undeveloped areas in particular," sums up Karl-Stéphane Cottendin. "

These operations will inevitably remain in the shadow of BHV Marais, whose premises are currently being acquired. "Since 2023, we've been working on operations with a reduction in operating costs, an internal restructuring, which we expect to finalize by the end of the year," explains SGM's COO, before adding: "When we bought the BHV, it was losing €15m a year. We closed 2024 at almost €10m Ebitda. And we have growth ambitions for 2025."

He adds: "We are not yet autonomous. In 2023, Galeries Lafayette has undertaken to support us for two years in all aspects of store operations: payroll, HR, central purchasing, warehousing, logistics, loyalty and so on. By the end of October, we'll be 100% autonomous. We're looking forward to it, as this complexity is not easy to manage. And the brands are in the middle of it all...". Hence the recent complaints on social networks and in the press.

" In terms of operations, we're reviewing the entire store offering, which will retain the BHV DNA, while adding destination brands. On the real estate side, we're considering a few leases, notably on the rooftop or others." BHV Parly 2 is also in the acquisition phase.

What's next? Karl-Stéphane Cottendin speaks of a "consolidation phase", after "crazy growth" in the space of seven years, despite Covid-19. The recently signed €96 million financing deal is part of this process. "It's a key step that adds value to our work over six centers, and allows us to move forward serenely. Even if there's still work to be done...

(*) SGM Group and Banque des Territoires have entered into exclusive negotiations with Galeries Lafayette to acquire the BHV Marais premises.