By Dominique Vidalon and Pascale Denis
PARIS (Reuters) - Leclerc, France's second-largest retailer by market share, plans to spend 1.2 billion euros (934.16 million pounds) to renovate its hypermarkets and beef up its click and collect service even as the outlook for consumer spending remains poor.
Privately-owned grocer Leclerc, which has a domestic market share of 20.2 percent against 20.6 percent for rival Carrefour (PA:CARR), Europe's largest retailer, said it expected tough times to last due to sluggish French consumer spending, and that it would keep its focus on low prices.
"The crisis is far from over. We are stuck in it for two to three years," Chief Executive Michel-Edouard Leclerc told Reuters in an interview on the sidelines of the World Retail Congress, an annual gathering of retail executives.
Leclerc said that as of Sept. 15 his group had achieved revenue growth of 2 percent year-on-year. He predicts revenue growth of 3 percent for the full year, which would be a slowdown from 4.9 percent in 2013 and lower than his expectations in February this year.
Leclerc, one of the most vocal executives in the French retail sector, cited high unemployment and households' declining spending power as key reasons for his grim forecast.
Food retailers across Europe such as Carrefour and Britain's market leader Tesco (L:TSCO) have struggled as shoppers' disposable income is squeezed by subdued wage growth and austerity measures. Most have responded with price cuts.
Data from the INSEE statistics institute this week showed that with France's unemployment rate stuck at record highs above 10 percent and economic growth stalling, consumer confidence was unchanged in September from August.
Data last month showed consumer spending in the euro zone's second-biggest economy stagnated in July and August.
Leclerc, 62, heads a cooperative association of retailers which operates 642 stores in France, mostly hypermarkets, and 121 stores abroad, with 2013 group sales of 45.6 billion euros.
A centralised buying strategy enables Leclerc to negotiate low prices from suppliers by buying in bulk.
Apart from its focus on low prices, Leclerc's response to the current crisis will be to earmark 1.2 billion euros between June 2014 and end-2015 to make its French hypermarkets more attractive, renovating 50 stores per year, while also improving its logistics and accelerating the diversification of its stores to offer more services such as beauty shops, DIY or jewellery.
Leclerc is also boosting its "Drive" - or "click and collect" - service allowing shoppers to order online and then collect their purchases at distribution points. It currently has 530 such locations and wants 100 more by the end of 2015.
Listed rivals will unveil third-quarter sales later this month with Casino (PA:CASP) reporting on Oct. 14.
Commenting on the recent performance of the French retail market, Leclerc said: "July was negative and August not good, while September confirmed a slight decline in French retail revenue for the quarter."
He said the textile and do-it-yourself sectors seemed to be among the worst hit while car equipment and health products were holding up.
Last year and for France alone, Carrefour saw sales grow 1.3 percent while Casino's fell 2.9 percent year-on-year.
In recent years, Leclerc has focused on luring in consumers with lower prices and gained market share at the expense of rivals, notably Carrefour.
Carrefour, which has been cutting costs, revamping stores, and cutting prices, has been regaining ground.
Leclerc predicted the price war would continue: "We are in a deflationary trend that is going to last," he said.
According to research institute IRI, prices of French Fast Moving Consumer Goods fell 1.7 percent year on year in August.
Operating margins in the grocery industry fell to around 3.8 percent in the last 12 months, down from an average of 4.9 percent in the last five years.
(Editing by Natalie Huet and Elaine Hardcastle)