Casa Anglo (holding), Lojas Americanas, Lojas Arapuã, Lojas Renner, Globex

Department stores account for 12% of retail turnover in Greater São Paulo, domestic-utility outlets for 9% and stores specializing in consumer durables and semi-durables (clothing, footwear, fabrics, furniture and home furnishings, cine, photo and sound equipment and optical items) for a further 9%. According to a Nielsen survey covering 89% of the population, there were 267 department stores in 1996/97. Between 1986 and 1992, their overall retail share declined for two main reasons. Firstly, they lost ground to the utility concerns, which were able to offer lower prices thanks to more intensive use of personnel and space and a simplified management structure; secondly, the lengthy period of acute economic instability led them to put off major investments and refuse the role of anchor stores in burgeoning shopping-mall growth. Rampant inflation and economic stagnation at the end of the 80’s and beginning of the 90’s hammered demand for durables, restricting chain expansion, although growth began to pick up in 1994. After the Plano Real in July of the same year, the end of the inflationary corrosion of wages and easier credit facilities meant that a good proportion of the low-income population was able to enter the durable market. Sales of stoves, fridges and color TV’s increased significantly to meet the substantial latent demand of this socio-economic group (mostly via consumer financing) following years of stagflation and the department stores began to invest once again.

Both segments are currently suffering from soaring default across their product range.

Source: ACSP

The raising of interest rates to stratospheric levels in September/98 forced retailers to obtain money at the higher levels practiced by the financial system, a tragedy for those establishments undergoing Chapter 11 proceedings, and may well provoke a new wave of judicially-enforced creditor agreements, not to mention outright bankruptcies. Consumer financing will become considerably more expensive and pre-fixed rates (where purchasers know in advance exactly how much they will pay per installment) will probably give way to the post-fixed system, with the rates varying over time. Thus both shopkeepers and finance agencies are likely to become a lot more cautious over granting credit and end-of-year sales will be hit hard. We believe department-store volume will drop by between 12% and 15% in 1998, with utility outlets recording a variation of between -1% and +1%.

We expect little change in 1999 since the same factors will prevent new consumers from entering the market. Sector expansion may well remain flat since even those firms without financial problems have suspended their investments indefinitely.

The outlook for the next few years will depend on the companies’ capacity to reorganize both commercially and technologically. Utility outfits will have to some find some way to avoid being driven to the wall by heightened competition from department stores and hypermarkets which have been improving their sale of electrical, electronic and home-appliance sales, mostly by undercutting the prices of the more specialized outlets.