Navigating French Retail: Finding Resilience in a Slowing Economy

France's economic outlook in 2025 remains clouded by moderating growth and lingering consumer pessimism, yet beneath the surface, certain retail segments are proving remarkably resilient. While the INSEE household confidence index dipped to 88 in May—the lowest since April 2023—the data reveals a stark divide between essential and discretionary spending trends. For investors, this bifurcation offers a roadmap to identify retail stocks poised to outperform through selective exposure to grocery, luxury, and e-commerce-driven businesses.

Essential Spending: The Anchor of Stability

The May data underscores that French households are prioritizing groceries and energy, even as broader confidence falters. Food consumption, while down 1.8% year-on-year in February 2025, remains a non-negotiable spend. Energy expenditures, meanwhile, rose 3.5% year-on-year, driven by refined products like gasoline. These trends favor retailers with strong grocery footprints and cost-control discipline.

Carrefour (CRF.PA), France's largest supermarket chain, has steadily expanded its fresh food and private-label offerings, which now account for 23% of sales. Its 2025 forecast for 0.7% annual sales growth aligns with INSEE's projection for essential spending resilience. At a forward P/E of 14x—below the sector average of 18x—Carrefour offers valuation upside, especially if energy price declines stabilize demand.

Discretionary Spending: Luxury's Pricing Power Shines

While engineered goods (e.g., appliances, textiles) saw a February rebound, the luxury sector is the standout discretionary bright spot. LVMH (MC.PA), the world's largest luxury conglomerate, has leveraged brand prestige and geographic diversification to sustain growth. Despite a 3% dip in French domestic sales in Q1 2025, its Asia-Pacific revenue surged 8%, and its online sales grew 15% year-on-year.

LVMH's ability to raise prices (average +5% in 2024) without sacrificing demand reflects its moat against economic cycles. At a forward P/E of 28x—moderate for a luxury stock with 12% annual EPS growth—LVMH remains a compelling bet on secular trends like wealth concentration and digital adoption.

E-Commerce: The Silent Growth Driver

The French retail sector's 2025 forecast of 0.6% GDP contribution hinges on e-commerce's acceleration. Online penetration in France sits at 17%, below the EU average, but INSEE notes a 10% year-on-year jump in grocery deliveries. Retailers investing in omnichannel logistics, like Casino Group (CASN.PA), are gaining share.

Casino's 2025 target of 30% online revenue (up from 22% in 2023) suggests it could outperform peers in a cost-conscious environment. Its forward P/E of 12x leaves room for multiple expansion if margins improve post-investment.

Investment Thesis: Selectivity is Key

The French retail sector is a tale of two markets:
1. Essential Goods: Back Carrefour and others with grocery dominance and defensive valuations.
2. Discretionary Luxuries: Bet on LVMH's global diversification and pricing discipline.
3. E-Commerce Plays: Target pure-plays like Cdiscount (part of Casino) or delivery-focused startups.

Avoid retailers overly exposed to engineered goods (e.g., non-luxury apparel) or those reliant on trade-sensitive sectors like automotive.

Risks and Considerations

• Inflation: While core inflation has eased to 1.1%, services costs (e.g., healthcare) could rebound.
• Labor Costs: France's 7.5% unemployment rate may limit wage growth, squeezing margins.
• Policy Uncertainty: Ongoing debates over corporate tax hikes and environmental regulations could disrupt investment plans.

Conclusion

France's retail sector is far from a “one-size-fits-all” story. Investors should focus on companies with pricing power (luxury), essential goods dominance (grocery), and e-commerce agility. With valuations still reasonable and secular tailwinds in place, the time to position for resilience is now.

Final Call: Long Carrefour (CRF.PA) at 14x P/E, LVMH (MC.PA) at 28x P/E, and watch Casino Group (CASN.PA) for e-commerce upside. Avoid cyclicals until the macro backdrop stabilizes.

Data as of June 19, 2025. Past performance is not indicative of future results. Consult a financial advisor before making investment decisions.