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BEYOND BORDERS

Latin America’s retailers view foreign markets as key to growth

By María Bird Picó

José Martí and Simón Bolívar, two of Latin America’s founding fathers, both dreamed of a confederation of Latin American countries. That never panned out, but regional borders are melting away for a growing number of Latin American retailers — including Almacenes Carrión, Casa & Ideas, ChurroManía, Elektra, Falabella, Pollo Campero, Ripley and El Tijerazo, to name a few.

Last August Olímpica, a Colombia-based supermarket chain, bought the Megasuper chain in Costa Rica and is reportedly snooping around Panama and Ecuador, as well.

Elektra, a Mexican department store chain, has announced ambitious plans to expand in the region; having already opened a store in Panama last year, Elektra is now eyeing Brazil.

This kind of expansion into neighboring countries is not unusual, of course, but the pace of growth has picked up with Latin America’s shopping center boom. Furthermore, lower returns of investments in the United States and Europe have induced investors to look at securities markets and other opportunities in emerging markets like Latin America, says Leonidas Oyaga, a partner at The Partnering Group, a Colombia-based retail consulting firm. “For instance, in Colombia the stock market has doubled in two years, a similar phenomenon that already took place in Chile,” Oyaga said. “Latin American entrepreneurs are also more aggressive, motivated by the initial success of Falabella, Ripley, Farmacias Ahumada S.A. and Sodimac, and the room left by the departure of big international retailers. Except for Mexico and Brazil, there has not been a major expansion of international retailers in the region.”

Malls throughout the region are looking for innovative retailers to make them stand out in a growing but competitive market. And domestic retailers are helped by the fact that some of these markets are too small and remote to interest many European and U.S. rivals.

“If you have a good retailing business concept, the world’s doors are open for you,” said Juan Gramaje, a Venezuela-based retail consultant. “Branching out into other countries also provides income equilibrium. Like the old saying goes, it is not wise to put all your eggs in one basket.”

That is one lesson Ariel Acosta Rubio, creator and owner of the Venezuela-based ChurroManía franchise, has learned and does not cease to spread. ChurroManía, a chain of shops selling hot chocolate and churros, a sweet, fried dough, survived a two-month national strike in 2002-2003 because it imported flour and other scarce products from its sister U.S. operations. “Globalization makes you less vulnerable to the ups and downs of a particular country,” said Acosta.

Globalization also means that retailers wanting to grow must tap other markets, says Juan España, general manager of Venezuela-based EPA, a home improvement chain with one store in Costa Rica that opened last year and a second slated to open there this year.

“This is a highly competitive business sector,” España said. “To remain alive and effectively compete with the multinational home improvement chains we must become one as well.”

The company, with 13 stores in Venezuela, chose Costa Rica for its first overseas incursion because of its demographic and housing similarities to the Venezuelan city of Valencia. The Costa Rican market is ripe for two or three more EPA stores, España says.

Central America is a particularly popular business destination for Latin American retailers, because specialty retailers are in short supply there and the countries’ small size makes them less attractive to multinational retailers. Full Pizza, a Venezuelan chain that discovered Panama has a big appetite for its pizza parlors, is among those deriving the benefits. But it is also among those that have learned that branching into other markets does not always go smoothly. In Venezuela, for instance, companies have to deal with tariffs assessed on exports and restrictions on buying foreign currency. Venezuela, like other countries, restricts the amount of its currency people and businesses can convert into a stronger currency like the Euro and the dollar. In the case of Venezuela, businesses have to obtain a permit if they are going to exceed a certain amount. “Overcoming all these obstacles is costly and difficult,” said Alvaro Diez, president of Caracas-based Fondo de Inversión Comercial de Venezuela, which owns Full Pizza. But the company’s efforts were rewarded. “We achieved our dream of exporting our concept to other markets.”

The company has two pizza parlors in Panama and one in the U.S., in Dallas, called Googie’s Pizza. Diez says there are opportunities to open more parlors in both countries, and next year the company plans to enter the Dominican Republic, too. Otherwise, though, the company is concentrating mainly on the booming Venezuelan market for now.

The Colombia apparel industry has stood out for decades. Such Colombian fashion retailers as Studio F and Tennis are exporting their concept elsewhere in the region.

Restrictions on apparel imports are still common in Latin America, but trade pacts among certain countries have eased things somewhat, sources say.

“In our case, since the clothing is made by us in Colombia, we do not face restrictions,” said Carlos Goez, general manager of Medellin-based Tennis, a growing chain of fashion stores aimed at the 15-to-35 age group.

With 75 stores in Colombia, Tennis is a good example of a Latin American retailer that has successfully exported its business model. There are now 12 stores in Venezuela, four in Ecuador, and one each in El Salvador, Nicaragua and Honduras. (The stores in Colombia, Ecuador and Venezuela are owned by Tennis; the others are franchises.) The company began 30 years ago as a textile manufacturer and evolved into a fashion retailer.

Studio F is attracting a lot of interest from investors who want to open franchises in their countries, though it is proceeding with caution, says Wilingthon Ortiz, commercial director of the Cali, Colombia-based retailer. Studio F owns the three stores operating in Panama, but the company has distribution agreements with retailers in Costa Rica, Guatemala and Mexico that sell the Studio F brand in their stores. In Colombia alone, Studio F operates 44 stores and nine outlets. “We have many requests for our store, but we prefer to grow slow but with certainty,” Ortiz said.

In mature retail markets such as Chile, retailers are finding out that intraregional expansions are a way to continue growing. That is the case with the two biggest Chilean department store chains, Falabella and Ripley, both of which operate stores in Peru. Falabella also has stores in Argentina and is entering Colombia.

Farmacias Ahumada, a drugstore chain, and Casa & Ideas, a home goods and decoration chain, are also setting up outside their home country of Chile. Casa & Ideas operates 24 stores in Chile and has expanded into Peru, with three stores there already. “Chile is fairly mature, and we think the best alternative to grow is to open ourselves to other markets,” said Mauricio Risso Calderon, majority owner and general manager of Casa & Ideas.

But stumbling blocks remain.

Mexico places duties on textiles from China of between 400 and 500 percent, says Risso. The equivalent duty in Colombia is 90 percent.

“A new market is always attractive, but there are certain obstacles that do not always make that feasible,” said Risso. “But since we like challenges, we are making the necessary changes to expand into Mexico or Colombia.”

Cross-border migration has gone hand in hand with Casa & Ideas’ growth. The chain got its start in 1993 with the name Casa, which was changed five years later to Casa & Ideas after the Chilenean government ruled that Casa (House) is a generic word that cannot be registered. The company expanded into Peru last year, the same year Santiago, Chile-based Celfin Capital bought 30 percent of the retailer for $17.5 million.

A demand for new retailers has also benefited Chilean retailer Farmacias Ahumada S.A. (FASA), which successfully expanded into Peru and Mexico and boasts annual sales of $1.06 billion through its network of 1,000 drugstores in Latin America. Its first drugstore opened in Santiago in 1968, and by 1997 the company had gone public. (Falabella holds a 20 percent stake.) Two years later Boticas FASA was established in Peru and is now that country’s leading drugstore chain, according to Farmacias Ahumada, the Chile-based parent company. In 2002, Farmacias Ahumada bought Farmacias Benavides, one of Mexico’s three main drugstore chains.

“Like Peru, the results have been very good, marked by a strong growth in retail sales and a sizable market,” said one executive who requested not to be named.

“We seek to continue to grow in the markets where we have a presence, mainly through the inauguration of new locales,” the executive said. Last year the company unveiled 87 new drugstores — 44 in Mexico, 17 in Peru and 26 in Chile. A rollout of 130 is planned for this year.

Latin America’s retailers, then, have learned that travel broadens the bottom line.