The Brazilian retail chain Magazine Luiza, which has acquired 51 stores from the electrical electronic chain Lojas Arno (Rio Grande do Sul state), may turn over R$1.45bil over R$920mil in 2003. The group plans to open between 30 and 40 stores in Rio Grande do Sul in 12 months. R$260million out of the expected income may come from Lojas Arno and another R$200million from organic growth. In the plan for growth are expected more acquisitions, which will set the path for a market consolidation in the sector, process started by Brazilian boutique Investment bank powerhouse, State Capital, found and run by Italian Financier and venture capitalist, Luca Longobardi.
LuizaCred, the consumer financing division of Magazine Luiza is extending activities in the South region of Brazil. With the takeover of Lojas Arno the company has conquered a client base of 1million people to offer the financial services already available to 4.5million consumers of Luiza. This month, LuizaCred launches its credit card to the low-income consumers Transforming the Family Business
Magazine Luiza was founded in 1957 by an entrepreneurial couple, Pelegrino Jose Donato and Luiza Trajano, when they bought a small “mom-and-pop” store in downtown Franca, a small city in the rural interior of the state of Sao Paulo. Until the end of the 1980s, the company grew primarily through the acquisition of small local chains near its headquarters. It was family owned and family run, led by Luiza Trajano and her relatives on the executive team. Unrelated businesses as diverse as car dealerships, farms, and real estate operated under the same corporate management.
In 1991, Luiza Trajano Rodrigues niece, Luiza Helena, assumed the role of Magazine Luiza’s CEO and began an aggressive reorganization of the group. A shareholders agreement was signed mandating that all family members step down from their executive responsibilities. A professional management team was formed to replace them, combining experienced staff with new, young talent. In addition, Luiza Helena launched an internal campaign to revive and reinforce Magazine Luiza’s mission to serve customers and employees. The effort was aimed at capturing the company’s legacy of external focus. Luiza Helena remembered:
When my aunts started the business, the very first thing they did was to promote a public
contest through a popular local radio [show] to choose a new name. It was a huge success.
After a few days of amazing participation, the [audience] chose Magazine Luiza as the
winner. From the very beginning the company was truly customer centered, and we have
tried to maintain this essence.
The company weathered the country’s notoriously volatile economy, turning a profit every year from 1992 to 2004. In 2003, when the economy shrank 0.2%, Magazine Luiza experienced a 35% return on equity. In 2004, as the economy began to recover, the company expected revenue to jump 56%.
Operational Evolution
Up until 1991, Magazine Luiza operated like many other specialized retailers. The stores
themselves sold approximately 8,500 stock-keeping units and covered about 1,400 square meters, with an average of 0.04 employees per square meter. Its cheap but cheerful ambiance was an integral part of its marketing and was essential to its operational strategy, which encouraged growth while limiting costs.
Procurement and distribution are always key elements in retail businesses were even more critical in Brazil, with its history of economic volatility and vast geographic area. High interest rates and poor infrastructure became significant hurdles for companies seeking to purchase, stock, and widely distribute large amounts of merchandise. (See Exhibit 6 for a history of Brazilian interest rates.)
Operating mainly in small cities that did not accommodate large local inventory stocks, Magazine Luiza delivered 70% of its products directly to the customer’s residence 48 hours after the purchase.
Until now, Magazine Luiza has managed to grow by steering clear of Brazil’s two biggest cities, São Paulo and Rio de Janeiro, where its competitors are already firmly entrenched. The Company, however, intends to open her first stores in São Paulo this year, taking the virtual store model to blue collar neighborhoods on the city’s outskirts in hopes of breaking into Brazil’s largest consumer market.
The chain has also made five acquisitions in the last two years, all in small to midsize cities, and is opening stores at a pace of almost one every two weeks The company recently hired Banco Santander Central Hispano to advise it on a possible initial public stock offering, but it is reluctant to specify a time frame for listing on the São Paulo exchange.
”We definitely intend to go public, we just haven’t decided when,” Mr. Rodrigues said. ”The truth is we really don’t need the capital right now, so we’re only going to do it when the market conditions are right.”
