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IN LATIN AMERICA HOMEGROWN RETAILERS THRIVE

By María Bird Picó

Most foreign retailers have stayed out of Latin America, but consumers have not missed them. The region’s domestic retailers have seen to that.

For sure, Carrefour, H&M, Payless ShoeSource, Wal-Mart and Zara have established themselves in some parts of the region, but shoppers are more familiar with such homegrown chains as Caro Cuore, Falabella, Lolita and Ricky Sarkany.

It seems every Latin American country has its retail showpieces. Argentina’s apparel retailers include Cheeky, Etiqueta Negra and Mimo. Chile boasts Falabella, Paris and Ripley among its world-class department store chains. Colombians get their apparel from Arturo Calle, Studio F and Tennis, their food from éxito and their home decoration items at Cachivaches. In Mexico Liverpool and Palacio de Hierro shine, and Ovejita and Tiendas Rori hold sway in Venezuela. Such chains have prospered in the absence of foreign retailers, of course. But they are also better positioned to compete as the foreigners, including North American stores, take a new look at Latin America.

“Latin America has shown it has good native retailers and, of course, good shopping centers,” said Alfredo Cohen, vice president of Grupo Sambil, a major mall landlord in Venezuela. “There was a time when our industry thought that having North American retailers in the malls was indispensable to further professionalize the market, but this was not the case.”

As it happens, the arrival and rapid departure in the 1990s of Home Depot and JCPenney in Chile and of Sears in Peru and Colombia prompted local players to improve their game, says Guillermo D’Andrea, an Argentina-based retailing consultant who heads Coca-Cola’s Latin America Retailing Research Council.

“The arrival of chains like Zara, Tower Records, JCPenney, Sears and Home Depot spurred a modernization trend among Latin America’s retailers, and the changes were noticeable in the areas of lighting, space and design,” said D’Andrea. “In a few years the sector became very sophisticated, and this was particularly noticeable in stores located in malls. Today you walk into a Falabella and can enjoy a shopping experience at the level of many shopping venues in Europe.”

What a contrast to what happened in Puerto Rico. The U.S. commonwealth’s dense population, loose consumer credit and high levels of consumption became a magnet for mainland retailers — Gap, Home Depot, JCPenney and Sears among them. And though such natives as Farmacias El Amal, La Favorita, Pitusa and Tiendas Capri continue to thrive, others, including the González Padín and Velasco department stores, are gone.

Ironically, Latin America’s domestic retailers can thank the region’s past economic and political turbulence for their good fortune. These troubles repelled foreign competitors and gave the locals some breathing space to develop.

“Latin America’s retailers have nailed their business,” said Gerardo Aguinis, vice president of The Zall Co., a Denver-based retail leasing consultant firm that works with Latin American retailers tapping the U.S. market. “They have turned the learning curve, understand quite well what works and doesn’t work and have the capacity for quick adaptation.”

Aguinis points out some reasons this has been so. The region has relatively few malls, compared to the United States, and this has made it easy for Latin American retailers to dominate their markets by establishing themselves at key shopping centers.

Equally important, many chains had the foresight to provide credit to the region’s credit-starved low- and middle-income shoppers. This is how Chilean department store Falabella built a retail and financing empire of supermarket and home improvement chains that stretches to Argentina, Colombia and Peru. Others in the region that are fueling their growth this way include Brazilian household goods chain Casas Bahia and Mexican appliances seller Elektra. “Seventy percent of retail sales in Chile are financed by in-house credit cards,” said Salvador Arenas, a senior retail analyst at Larraín Vial, a Chile-based investment brokerage. “Retailers have created an impressive data bank.”

The proliferation of shopping centers has encouraged some retailers to improve their store design, lighting and merchandising to be competitive and meet mall standards, D’Andrea says. Others, though, particularly in malls he has visited in Colombia and Mexico, have yet to do this. And in Argentina, he says, there is little to differentiate midsize women’s apparel retailers in terms of merchandise and price.

The expansion of regional and foreign retailers across Latin America will force local chains to improve or die, says Roberto Persivale, founder and partner of Asesorandes, a Lima, Peru-based retail consulting firm. “In each country retailers will have to concentrate in what they are good at to continue growing,” he said.

Latin America’s retailing industry is about to be challenged by the expansion of regional retailers and the arrival of European and North American retailers, says Michel Cohen, president of Uruguayan women’s apparel chain Lolita. “Consumers are increasingly being seduced with offers from foreign chains entering our markets,” said Cohen. “To survive, local retailers must at least be at the same level of the foreign retailers. The industry slogan is now to professionalize, improve the quality of the merchandise, design and seasonal collections or die during the attempt.”

The presence of foreign chains will be good for consumers and malls, some say. “Right now what is ideal for a mall is the combination of successful Latin American retailers with the most successful U.S. chains,” said Grupo Sambil’s Alfredo Cohen. “This will benefit the shopper, with more purchasing options, higher quality and more-competitive pricing.” It is up to Latin America’s retailers, sources say, to make sure that the influx of foreign competitors is good for them, too.