Lojas Americanas S.A.
Lojas Americanas S.A.
Type: Public Company
Address: Rua Sacadura Cabral 102, Rio de Janeiro, Rio de Janeiro, 20081-902, Brazil
Telephone: (21) 2206-6505
Fax: (21) 2206-6969
Sales: BRL 2.28 billion ($948.81 million) (2004)
Stock Exchanges: São Paulo OTC (for ADRs)
Ticker Symbol: LAME3
NAIC: 452112 Discount Department Stores; 454111 Electronic Shopping
Lojas Americanas S.A., or Lasa for short, is one of the largest retailers in Brazil, operating almost 200 discount department stores and selling more than 80,000 items from 4,000 different companies. The company's stores guarantee major brand products at competitive prices and have a major share of the Brazilian trade in toys, chocolates and candies, lingerie, and compact discs. Other areas are household goods, small household appliances, basic clothing lines, convenience foods, and perfumes and cosmetics. Its subsidiaries include the Internet sales company Americanas.com S.A. Comércio Electrônico for shopping online, and the financial services provider Facilita Serviços e Propaganda S.A., which offers such products as personal loans, cellular telephones, and its own credit card.
Brazil's Five-and-Dime Store Chain: 1929-89
Lojas Americanas was founded in 1929 by four directors of the F.W. Woolworth Co. who were bound for Buenos Aires with the intention of opening a store in Woolworth's nickel-and-dime tradition. On the ship, they met two Brazilians who invited them to get to know Rio de Janeiro. On their visit to Rio, they noted that people with modest but stable incomes, such as public servants and military personnel, were not being well-served by local merchants, who generally sold expensive and specialized merchandise so that a housewife had to visit a number of establishments to do her shopping. They decided that the city was the ideal place to launch their venture and opened a store there before the year was out. At the end of the first year, there were three other Lojas Americanas as well: two in Rio and one in São Paulo. Lojas Americanas became a joint-stock company in 1940.
Lojas Americanas was the fourth largest retail chain in Brazil, with $300 million in annual sales in 1982, when, at the end of the year, a controlling share of the enterprise was purchased by major stockholders of the Garantia group for $23 million. Unusual for Brazil, the acquisition was made through the stock exchange, using several brokerages to buy stock so as not to alert potential selling shareholders. Considering the chain's sales volume, the purchase price was cheap, but over the next seven years, Garantia invested $220 million in cash flow and depreciation. The Economist concluded in 1991 that "From a financial point, that investment ... has simply disappeared; Garantia would have been better off in cash and gold." In spite of this evaluation, Lasa was profitable throughout the rest of the 1980s. There were 63 stores doing about $570 million worth of business in 1988 and selling 40,000 different items. The stores were carrying so many food items that they resembled supermarkets and, later, some of them were turned into a supermarket chain administered by a subsidiary.
Challenges of the 1990s
The early 1990s were a difficult period for the Brazilian economy, but Lojas Americanas lost money only in 1990. Even in 1992, when the chain, consisting of 83 Lojas Americanas stores in 18 states, experienced a decline in revenue for the third consecutive year, it was able to earn a small profit. Only three of the stores were unprofitable. In 1995 Lasa reached maximum annual revenue of BRL 2.34 billion.
In 1994 Lojas Americanas entered into a joint venture with Wal-Mart Stores Inc. This alliance had been under consideration since the beginning of 1983, when, following Garantia's acquisition of the chain, Lasa's chairman had written Sam Walton, founder of Wal-Mart. For Lasa executives, Wal-Mart constituted the gold standard of retailing. Company executives frequently visited Wal-Mart's headquarters in Bentonville, Arkansas, to study modern retailing concepts and techniques and to learn about cash-flow management. They then applied what they learned in order to operate within Brazil's highly inflationary environment. When a new government program wrung hyperinflation out of the economy in 1994, Brazilian retailing executives were faced with new challenges, such as effective cost control and pricing, inventory control, lowering overhead, and making better merchandising selections.
Wal-Mart Brasil S.A. was established in 1994, with Lojas Americanas taking 40 percent of the shares. The new company began to operate in April 1995 with both a warehouse-club format and supercenters selling groceries and general merchandise. Twelve months later, the joint venture was operating five stores, all in the state of São Paulo. The road was rocky, however. Manufacturers such as Nestlé Brasil Ltda., accustomed to controlling pricing, were angered when Wal-Mart sold their products at deep discounts. Difficulty in implementing just-in-time deliveries resulted in serious inventory shortages of critical products. An attempt to apply Wal-Mart's U.S.-style management-control systems proved to be difficult or inadequate. For its own part, Lojas Americanas made some unwise decisions, such as overextending credit to consumers and entering midsized cities with doubtful profit prospects. At the end of the first year of operation, Wal-Mart Brasil had lost $16.5 million. Lasa, at the end of 1997, sold Wal-Mart its stake in Wal-Mart Brasil.
Even apart from its Wal-Mart Brasil difficulties, Lojas Americanas was running into problems. In spite of investing $35 million in cutting-edge information technology, the company was not coping well with the logistics and distribution of its large number of stock items, 139,000 by one count. Each one of the 99 stores was receiving, in 1996, separate deliveries from the chain's 4,580 suppliers. Twenty percent of basic goods were found to be out of stock in a given store at a given time. Addressing the problem demanded more employees, more invoices, and hence, more bureaucracy. A recent policy of accepting predated checks from customers boosted sales but also uncollectible debts. Moreover, Lojas Americanas was faulted for not entering the lucrative field of home electronics while filling its space with such low-margin goods as groceries, which now accounted for 40 percent of sales. Lasa's shares of stock fell 55 percent in value in less than two years. In late 1996, Jorge Paulo Lemann, founder of Garantia and the principal shareholder in Lasa, fired the company's chief executive after four years on the job.
Lojas Americanas lost money that year and again in 1997. In the following year it cut costs, reducing employment by about 15 percent and renegotiating property leases. Next, it reduced the number of different stock items, focusing on five core areas: housewares; health, beauty, and adornment items; underwear and hosiery; toys; and confectionary. Rather than emphasizing discount sales, the chain decided to rely much more on selling popular brands, declaring a policy of "strong brands, low prices, every day." Centralized distribution centers were established in Rio de Janeiro and São Paulo, with a third to open in Recife in 1999. Finally, unable to compete successfully with food chains, Lasa sold its 23 supermarkets to Comptoirs Modernes S.A., a French group, for $200 million.
Staking Its Future on e-Commerce: 1999-2005
These measures buttressed the finances of Lojas Americanas, but its critics continued to maintain that the chain was outdated, doomed to lose its customers to bigger general-merchandise stores, especially the hypermarkets cropping up in Brazil's urban areas, and also to Internet commerce. Accordingly, in late 1999 Lasa unveiled its new, virtual enterprise, Americanas.com. A platform of six delivery services offered to bring the chain's merchandise to customers anywhere in Brazil in less than six days. (By 2005 this had been reduced to 48 hours.) Customers in São Paulo could generally count on same-day delivery. The electronic site initially targeted the high-income customers who owned most of the computers in Brazil, then expanded to the middle class through kiosks in Lojas Americanas stores. The first product lines offered were similar to those in which the stores specialized, but in 2000 five new lines were added, including articles generally not available in the stores: computer hardware and software, larger electronic equipment, digital videodiscs, watches, perfumes, and flowers. The site also included content such as news and entertainment by 42 journalists contributing weekly articles. Americanas.com went public in 2000, with private-equity funds taking a one-third share of the enterprise for about $40 million, while Lasa kept a 60 percent stake and Americanas.com executives took the rest.
Lojas Americanas' revenues stabilized at about BRL 1.7 billion a year, or an average of $600 million, in the early years of the 21st century, and after incurring a loss in 2000--perhaps due to development costs needed to get Americanas.com off the ground--the company became increasingly profitable. Under a new chief executive, the stores were expected to meet performance goals not only for the year but every day. "Access to information allows us to resolve the problem in an hour," a company executive told Consuelo Dieguez for the Brazilian business magazine Exame in 2003. The centralization of distribution in three warehouses allowed company functionaries to obtain better prices from their suppliers, who could no longer play one store against another. Lasa began opening many new stores, although these were smaller neighborhood ones.
By this time Americanas.com had emerged as Brazil's biggest electronic-commerce business in terms of sales and the only such business in the country to make a profit. Although the Brazilian e-commerce customer base was relatively small, it was wealthy in Brazilian terms, and Americanas.com was able to attract many buyers by offering big-ticket items not available in its stores. It also offered interest-free payment plans extending as long as 12 months, compared to the standard in-store three-month installment plan. Americanas.com accounted for almost 9 percent of Lasa's sales in 2002 and 13 percent in 2004. In November 2003, the parent company raised its stake in Americanas.com to 74 percent; subsequently its holding grew to 80 percent. In 2005 Americanas.com was reaching four million customers (half of all Brazilian virtual-store clients) and more than 9,000 businesses with about 160,000 items. Also that year, Americanas.com acquired TV Sky Shop S.A., owner of the pay-TV channel and web site Shoptime.
Established in 1999, Facilita Serviços e Propaganda S.A. was a Lojas Americanas subsidiary that had been operating since 1984 under another name. With the subsequent merger of three other subsidiaries into its operations, it was offering, in 2005, personal loans, financing of consumer goods, a Facilita financing card, cellular telephone services, and payment of accounts at 205 points of sale inside Lasa stores, its own stores, and through the web site http://www.facilitanet.com.br. But in 2005 Lasa announced that a joint venture with the holding company for Banco Itaú S.A., Brazil's second largest private bank, would replace Facilita.
Lojas Americanas added 36 stores in 2004, including its first five Americanas Express outlets, compact neighborhood stores in São Paulo and Rio de Janeiro with a select assortment of goods. This brought the total to 156 in 19 states and the federal district, 65 percent of them in shopping centers. By late 2005, the total number of stores had reached 193. Lojas Americanas claimed to be serving an average of 700,000 customers a day in 2004, some 77 percent of them female. Net consolidated sales for the parent company in 2004 came to BRL 2.78 billion, or $948.81 million at the average currency exchange rate for the year. Net income was BRL 64.1 million ($21.87 million). Lojas Americanas ranked seventh among Brazilian retailers in 2004 and was near the top in terms of adjusted net income and investment in real estate.
Lojas Americanas led all Brazilian retailers in the sale of compact discs. The CD/DVD/entertainment segment of its business was the chain's largest in 2003, accounting for 20.2 percent of gross income; this was followed by clothing, 18.2 percent; convenience foods, 17.7 percent; household goods/electronics, 15.3 percent; perfumes and cosmetics, 14.3 percent; and toys, 9 percent.
Americanas.com (80%); Americanas.com S.A. Comércio Electrónico (80%); Cheyney Financial S.A.; Facilita Serviços e Propaganda S.A.; Klanin Services Ltd.; Lojas Americanas da Amazonia S.A.; Lojas Americanas Home Shopping Ltda.
Arthur Lundgren Tecidos S.A. - Casas Pernambucanas; Casas Bahia Comercial Ltda.; Globex Utilidades S.A.; Sonae Distribuição Brasil S.A..
"Americanas.com," Institutional Investor, July 2000, p. 14.
"Americanas.com Raises $40 Million," Private Equity Week, September 18, 2000, p. 14.
Caplen, Bruce, "Decision Time for Brazil's Top Bankers," Euromoney, May 1998, p. 42
da Rocha, Angela, and Rebecca Arkader, "Horizontal Strategic Alliance and Company Behavior," Latin America Business Review, 1998 no. 1, pp. 9-13.
Dieguez, Consuelo, "Mudar ou morrer," Exame, March 12, 2003, pp. 48-50.
Karp, Jonathan, "From Bricks to Clicks," Wall Street Journal, September 22, 2003, p. R7.
McDermott, Francis, "Lean and Limber," Business Latin America, December 7, 1998, p. 3.
Moffett, Matt, and Jonathan Friedland, "Wal-Mart Won't Discount Its Prospects in Brazil, Though Its Losses Pile Up," Wall Street Journal, June 4, 1996, p. A15.
"A palavra de ordem agora é reforma," Exame, December 14, 1988, p. 118.
"O sol volta a brilhar para a Americanas," Exame, April 28, 1993, pp. 54-55.
Vassallo, Cláudia, "ASSUSTADOR Mundo Novo," Exame, August 11, 1999, pp. 48-50.
------, "O modelo não era tão modelo assim," Exame, September 11, 1996, pp. 38-39.
"Wal-Mart Sets Sam's, Supercenters for Brazil, Argentina," HFD, June 13, 1994, p. 6.
"Where the Money Is," Economist, December 7, 1991, Brasil supplement, pp. 20-21.
— Robert Halasz