Interview with Luiza Helena Trajano, CEO of Magazine Luiza
With the slowdown in China, troubles in Europe, and other difficulties the world is facing because of the new recession, how is the consumer’s confidence at the moment in Brazil?
For the first time since 2008, when the global economic crisis started off, Brazilians are feeling very confident. First of all, Brazil is a country used to dealing with crisis. Secondly, Brazil has been preparing economically for that scenario over the last 15 years. We rely on important factors: our domestic consumption is going strong. To exemplify, 45% of the population has not an automatic washing machine yet. Also, we are a democracy. In addition, only in 2020 our residents will start growing older. That indicates that the majority of our inhabitants are young people eager to spend. We have the inflation under control. Although there’s crisis going on abroad, Brazilians feel more secure here and very proud of their country.
And how about the middle class, has this group been affected by the crisis at any extent?
only 4% of Brazilians have a LCD TV, over 70% of them do not have quality furniture, and the majority of our population is now thinking of owning a house.
Surely we are all living in a global economy and somehow we are all affected. But I wanted to point out that we are better prepared to deal with that than ever before. Another factor that instils confidence in investors is that we have maintained steady, increasing employment rates. Our government is aware and committed to not let unemployment rates rise by passing new measures by legislature to stimulate consumption.
You’ve made an IPO (initial public offering) in April, what is your long-term business development strategy? What are the main challenges connected to high debt and interest rates?
The company has been preparing for an IPO for a long time. We introduced a new segment on the stock market called appliances & furniture. In the U.S. market, for example, many companies in this sector have not survived the crisis. What they don’t know is that only 4% of Brazilians have a LCD TV, over 70% of them do not have quality furniture, and the majority of our population is now thinking of owning a house.
Magazine Luiza has been growing around 20% and 30% in the last 10 years and entering the stock market contributed to our expansion and liquidity. We are still penetrating some regions that are strongly consumer-oriented. To illustrate, one year ago we purchased a chain of 140 stores in the Northeast of Brazil, a region dubbed ‘Brazilian China’, due to its huge potential for growth. We doubled our revenue after buying Lojas Maia, a chain store with over 50 years of existence. Now we are in the process of rebranding and renovating commercial buildings. Our next steps include opening stores in Rio de Janeiro, Espirito Santo, and in the North region of Brazil. I foresee the North region’s big take off, with the establishment of new business and an increase of job opportunities there. On top of that, we’ll have both the 2014 FIFA World Cup and the 2016 Summer Olympics in Brazil, which will generate remarkable local job opportunities. Our new middle-class is made up of 40 million Brazilians that have just entered the economic statistics. There will be another $15 billion in investments in the economy over the next few years, resulting in about 104 million people becoming part of the new middle-class.
The Brazilian government recently cut taxes, provided incentives, and lowered interest rates for the consumers to trigger the spending. What’s your take on this policy?
Lately, our government has worked with the goal of turning Brazil into the 5th world economy. In the past, whenever there was a crisis, our government would restrain the economy. Since President Lula’s administration, there has been an effort to speed up the economy without the risk of a recurring inflation. We have a strong banking system, consisting of public and privates banks, which is advantageous. In August 2011, when the government checked that the inflation was under control, they started lowering interest rates. That strategy was not well received by economists. But the specialists didn’t take into account the drop in consumption rates that was slowly taking place at that point. So, in order to avoid unemployment rates increase during the first trimester of 2012, the government started thinking ahead and passed such preventive measures as lowering interest rates and cutting taxes.
The first trimester of every year is usually considered to be the worst for retail sales, due to the fact that people are paying taxes and the children are going back to school. But the first trimester of 2011 was the best ever since, because of the proactive approach of the Brazilian government. And there are yet other measures that could come into place to maintain a heated market.
What makes Magazine Luiza unique?
We started off 54 years ago in Franca, an inner Sao Paulo city, with strong values such as business transparency and commitment to truth. Our debut on the stock market was possible because we attested 11 years of audited balance sheets, something that is not a common practice in the Brazilian retail market. We’ve also counted on an international partner, one of the biggest international investment fund organizations, to improve our management systems. In the last year, we moved our strategic office to Sao Paulo capital, although our operations and 400 staff members continue to be in Franca because of low production costs. Our mission is to be dedicated to consumers. As the president of the company, I supervise our customer service department, which gives me a direct line with consumers and with any staff working directly with clients. So, in order to improve the quality of our communication processes, we have strongly invested in people. That’s why we have been among the best companies to work in Brazil for 14 consecutive years and continue growing about 28% a year.
We practice what we call assisted sales, not following the self-service model incorporated by big chains. To assist clients to the best of our ability, our customer service agents have to be aligned with our company goals and committed to shoppers. Also, our company also invests in education providing subsidies to our teams.
What’s your international strategy? Is there an interest in drawing foreign capital or expanding your presence abroad?
We have a lot of room for growth in Brazil. Our country is huge and we want to establish our presence in some Brazilian States. We do have a virtual store that was founded in 1991, in Harvard University, which could bring innovation to the way we make business everywhere. But for now, our main goal is to have 1,000 stores till 2015 in Brazil. As I’ve mentioned before, there’s great potential in Rio de Janeiro, Espirito Santo and in the North region. In addition, we could open other 200 stores in cities in which we are already established. We continue investing in the Internet and recently launched the “Magazine Luiza e Voce” (and You), an online franchise that has a successful business model based on allowing anyone to have his own virtual store to sell ‘door-to-door’ to friends and acquaintances through Facebook and other social networking sites. There’s no cost to enrol and people are paid on a commission basis.
What is your projection for the sector over the next five years? What are your expectations for Magazine Luiza?
If the global economy improves, it will be even better for us. In the next 10 years, Brazil will become a huge world power. We have a promising scenario ahead of us. For instance, around 75% of our employees living in the Northeast region do not own a house yet. And when you buy a house, you need fridge, furniture, etc. Other surveys indicate that nine million of Brazilians will travel by plane for the very first time. Based on that, we are planning on offering clients a new service called “Magazine Luiza Viagem” (Magazine Luiza Travel). It makes sense to offer products to our clients, since we already have a close relationship with them. Currently, we have 700 stores and one integrated database, where we can access info on what they bought in the last years and what they would like to buy. Our sector will grow a great deal when it comes to furniture manufacturing. In the last years, we’ve seen a boom in LCD TVs sales that exceeded all expectations. Now, we are preparing for what we believe will be the new trend: small and affordable furniture pieces. Soon, we’ll be releasing a couch named after Hebe Camargo, a TV icon in Brazil. Then, there will be bedding & bath products. Also there will be an increase in toys sales, since the new middle class can afford to buy a gift for their kids. But the biggest sales phenomenon is still the mobile phone. Six years ago, none of the studies hinted that Brazil would sell so many cell phones within such a short period of time. Recent surveys show that we have 1.5 cell phones per inhabitant.