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ELEKTRA HELPS LATIN AMERICA’S CREDIT-CRUNCHED

María Bird Picó

Elektra, Mexico’s austere furniture and home appliance retailer, is conspicuous enough in Latin America’s burgeoning retail scene. But parent Grupo Elektra is doing a lot more than simply selling appliances and electronics.

In short, Grupo Elektra does not just sell the merchandise — it helps people buy it on credit or save up for it through banking arm Banco Azteca. The company has expanded its stores and credit business to Argentina, El Salvador, Guatemala, Honduras, Panama and Peru, and it recently announced plans to expand its stores and banks to Brazil in the coming year. At the end of June, Grupo Elektra boasted 1,762 stores and banks in Latin America. In Mexico alone there are 786 stores with in-house Banco Azteca branches. There are also 56 Salinas y Rocha stores there, which sell furniture to the middle class, and these, too, contain Banco Azteca branches. In addition, there were 630 Banco Azteca units operating as stand-alones in Mexico, or inside other types of businesses.

In the rest of Latin America, Elektra has 113 stores, of which about half house Banco Azteca units, and 195 stand-alone Banco Aztecas and other outlets that offer money transfers and similar services.
Financing Grupo Elektra’s aggressive expansion is not a problem. At the end of 2006, the company, which has other investments in Mexico’s financial services and retailing markets, reported total assets of $5.07 billion. Of that, $3.3 billion belongs to the financial division. During the first half of this year, Grupo Elektra’s assets grew to $7.08 billion.

The retailer sells one out of every four television sets in Mexico. And thanks to an 11-year-old alliance with Western Union, Grupo Elektra handles 10 percent of the electronic money transfers that Mexicans in the U.S. send back home. That’s a smart move, given that it is common for the receivers of those funds to spend some at Elektra stores.

Grupo Elektra executives declined to comment for this article, but the company’s formula is no secret. At last year’s World Economic Summit, in Brazil, Ricardo B. Salinas, president of Grupo Salinas, a family-owned business that holds 75 percent of Grupo Elektra, summed it up. “Latin America’s business potential is everywhere, including infrastructure and the financing of the low- and middle-economic segments,” said Salinas, whose family holds other interests, such as TV Azteca, Mexico’s second-largest television network. “The most important opportunities can be found in the massive markets that have been amply unattended by the majority of the companies.”

An Economist Intelligence Unit report this year says that at least half the region’s population (about 258 million people) lacks access to formal financial services. What Elektra and other retailers have discovered is that not all these people are poor or unemployed. Many are simply not registered as being employed. Latin America’s informal employment — referring to workers not officially on payrolls, such as street vendors, day laborers and maids — accounts for 56 percent of the urban work force, says a World Bank study.

In Mexico Elektra’s target market is 65 percent of the population; this covers those with monthly earnings between $550 and $5,999. Within that range, a core 35 percent of households earn up to $899 a month, the company says.

Other Mexican retailers are emulating Elektra’s business model. Among these is Wal-Mart Mexico, Mexico’s biggest retailer (Latin America’s largest too, for that matter) and Mexican furniture chain Coppel, both of which were close to opening banks at press time — Adelante in Wal-Mart’s case and Bancoppel in Coppel’s. Also in Mexico Citigroup’s Banamex and Organización Soriana, owner of the 240-store Soriana supermarket chain, announced in June an alliance to open a bank that will operate inside Soriana stores and in freestanding locations.

Grupo Elektra started opening stores outside Mexico in 1997, first in El Salvador and Guatemala. The first overseas Banco Azteca unit opened in Panama in 2004. With 11.8 million bank accounts as of June 30, Banco Azteca has become Mexico’s biggest account holder.

In Brazil, in the northeast state of Pernambuco, Grupo Elektra will open 12 Elektra stores (with Banco Azteca branches inside) and 12 independent Banco Aztecas. Also in Brazil Banco Azteca will initially peddle three credit products: purchase financing, personal loans and a credit card. In addition, clients will be able to open a basic savings account with a $5 minimum deposit and pay no fees.

This is smart, because that northeast region is largely ignored by banks, which have concentrated on the more affluent south and southeast regions of the country, says Daniel Araujo, director of financial services ratings at the São Paulo office of Standard & Poor’s. Most of Brazil’s large retailers, notably specialty household goods chains Casas Bahia and Ponto Frio, have agreements with banks to provide financing and store-branded credit cards. “Large retail banks face the challenge of increasing the number of clients,” said Araujo. “They have found out they can reach potential clients through partnerships with retailers. The agreement is to finance purchases, but once inside the store, other banking products, like credit cards, are offered.”

Many Brazilians, like Latin Americans in general, have no bank account. Araujo estimates the Brazilian number is over 40 percent. “Elektra will face challenges,” said Araujo. “But there is a lower concentration of banks in Brazil than in Mexico.”

In Argentina Elektra has one store so far. There is room for more, because people are eager to spend, sources say. “Sales of home appliances and electronics have broken sales records,” said Florencia Aguilar, a Buenos Aires–based director of capital markets at Cushman & Wakefield. And Argentina offers plenty of scope for Elektra’s financing services too. “There is also a huge informal economy,” Aguilar says, “and many consumers can’t present income evidence to take out loans.”

Elektra is hearing music right about now.