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Greased lightning: Casas Bahia aims low and sells fast to grow in Brazil's challenging retail space.

Priscila Oliveira Visconde, a 21-year-old housekeeper in Rio de Janeiro, is a typical Brazilian in many ways. She makes US$150 a month, complementing her husband's $500 monthly salary. She's also a loyal customer of Brazilian retailer Casas Bahia, the runaway leader in the low-price segment, controlling 25% of non-food retail market share. The nearest competitor, Ponto Frio, has 7% of the market.

"Casas Bahia's prices are 5% to 10% lower than at other appliance stores, which means I can use that savings for other purchases," says Oliveira Visconde. "That's important because my husband, who pays the rent and food costs, expects me to pay all the other household costs."

She's also typical in that she is among the 70% of Casas Bahia's 23 million customers who buy through store financing. Too, she's among the 66% of Casas Bahia shoppers who are repeat customers, the kind the company at times takes unprecedented measures to keep loyal to the brand.

In 2002, for instance, the retailer sent a letter to 2 million customers who had defaulted on installment payments with the store. The letter offered a pardon on their debt and to reactivate their credit lines as long as they showed up at a store to do so. Some 350,000 customers accepted, at a cost to Casas Bahia of $300 million.

The pricey pardon bought loyalty and resulted in new purchases when customers came in to reactivate their credit, says Casas Bahia CEO Michel Klein. "Our unbeatable prices attract low-income clients for whom even a small price savings on a high-ticket item can go a long way," says Klein, the 55-year-old son of a Polish immigrant and concentration camp survivor, who started the retailer in 1952 with $6,000.

Giant foreign competitors such as U.S. behemoth Wal-Mart are edging into this space but mostly through food stores for now, trying to first displace hypermarkets such as France's Carrefour or by purchasing locally owned supermarkets such as Bompreco. Klein believes that 2006 will be a particularly profitable year because of the World Cup soccer tournament in June and July (Brazilians of all income levels will suddenly need new TV sets) and elections in October and November. Politicians tend to spend in election years, which moves money across the economy, Klein says.

Aside from seasonal pops, growth will depend on adding stores and deepening the chain's profile vertically. By producing the furniture it sells, for instance, Casas Bahia can offer a product its competitors don't carry. The sales leader, however, has been mobile phones (at 4.1 million units in 2005), followed by DVD players and television sets.

Carlos Alexandre Cipriano, commercial director at Vivo, Brazil's No.1 mobile-phone supplier, credits Casas Bahia's success on the skill of its sales people in closing a sale. He also lauds the retailer's lightning-quick feedback. Lucrative. "Casas Bahia will tell us the day after we launch a publicity campaign whether it resulted in its selling more Vivo mobile phones and, if so, for what models," says Cipriano. If sales for a given phone are low, indicating that the campaign could be off-target, the retailer says so immediately. "We don't get that valuable, quick and detailed kind of feedback from most of our clients," Cipriano says.

Brazilian retailers often partner with banks to provide consumer financing, which take on the risk. Casas Bahia is sufficiently capitalized, at $1.50 billion, to approve its own consumer financing.

Nevertheless, in December 2004 the chain took on a rare partnership with Banco Bradesco, Brazil's No. 1 private bank. In the deal, Bradesco agreed to provide consumer financing for Casas Bahia clients, although Casas Bahia continues to approve financing for each customer and assumes the default risk.

Through this arrangement, customers can get slightly lower interest rates than at competing retailers. Bradesco in 2006 will provide Casas Bahia clients with $1.25 billion of the chain's total $3.5 billion in consumer financing, close to double the 2005 figure.

The Bradesco deal frees up capital for expansion, as much as 100 new stores in 2006, rapid growth for a chain with 505 stores total. "While this gives us a lower spread, 33% of Bradesco's profit comes from company and consumer credit, making it a very lucrative business, which allows us to grow while helping grow Casas Bahia," says Bradesco Vice President Norberto Barbedo. "It's a 'win-win' proposition."

MICHAEL KEPP * RIO DE JANEIRO
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Title Annotation:Ponto Frio; Casas Bahia; Wal-Mart Stores Inc.
Comment:Greased lightning: Casas Bahia aims low and sells fast to grow in Brazil's challenging retail space.(Ponto Frio)(Casas Bahia)(Wal-Mart Stores Inc.)
Author:Kepp, Michael
Publication:Latin Trade
Geographic Code:3BRAZ
Date:Jul 1, 2006
Words:733
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