Magazine Luiza outperforms rivals, but still fights for survival

São Paulo – The 19000 employees of retail Magazine Luiza attended, in March, a video on seals. The film describes the habitat of these animals and how global warming was making their lives more difficult. To survive, said the Narrator, the seals had to "adapt" and "conquer new territories". On little subtle metaphor, the dome of Magazine Luiza tried to pass a note to employees: in the midst of the worst recession of the brazilian history, each one had to turn to survive. What was at stake, strictly speaking, was the target of the company. The Magazine Luiza suffered from the drop in sales, had prejudice and their actions came from a low of 70% in 2015. The turnaround achieved in the first months of 2016 was to impress the most optimistic. After a loss of 66 million dollars in 2015, Magazine Luiza had profit of 16 million reais in the first half of this year. At a time when retail revenues decreased 15% furniture and consumer electronics, the company''s sales grew 3.6 percent to 5.3 billion reais, drawn especially by 31% increase of online sales (which today account for 22.5% of total sales). The margin of cash flow nearly doubled: went from 4% in December to 7.6% in June. The results were higher than expected so that the retailer''s shares have climbed 410 percent this year — by far the largest of the Bovespa. The actions of its main competitors, Viavarejo and B2W, valued 165% and 6%, respectively. Today, the Magazine Luiza worth 2 billion reais, almost triple his assets — until the end of last year, the company was worth less than the assets. As is common in corporate turnaround stories, a combination of factors explains the good performance of the company this year. One of them has to do with the recession. "The strategy of many competitors of Magazine Luiza in retail expansion was making aggressive promotions, to grow at any cost, especially in electronic commerce. Many burned box for years to finance its online operation. With the crisis, it no longer makes sense ", says Marcos Gouvea de Souza, Managing Director of retail consulting GS & MD. B2W loses money from 2011. This year, its sales fell 12.8%. Cnova sales, which brings together the online operation of Viavarejo, decreased 42.9%. With competitors retracted, Magazine Luiza took advantage to win space. To grow in the midst of the crisis, the company decided to invest in what''s different from its main competitors: the tight integration between the brick stores and online sales. "We are changing the company so that it is truly digital," says Frederico Trajano, son of Luiza Trajano (Chairman of the Board of Directors of the network) and President of Magazine Luiza since the beginning of the year. As soon as I took office, Trajan put 25 ongoing projects. The sellers of the stores are getting cell phones to help sales. The plan is that, until the end of 2017, customers do not have to go to a box to pay: the sellers receive payment by cell phone (as, for example, in the Apple stores). Today, sellers have access to the profile of the customers who buy through the website, which can be accessed with the SFC. With the profile on the screen, they can see which products have been researched and what was purchased recently. So, they have more chance to be assertive. With the increased automation of stores, the average time to process a sale fell from 45 to 4 minutes. "The Magazine Luiza is the only company in that physical and digital operations are integrated, and it is perceived by the consumer," say analysts at banco BTG Pactual in a report. Another advantage is the reduction of costs, since the areas of logistics, marketing and technology are the same. "The retail profit margin is low. We cannot afford to replicate structures ", says Trajan. The opposite direction in the Brazilian retail gold, 2004 to 2014, this integration was seen almost as a weakness of Magazine Luiza. Its main competitors were separating the physical operation of e-commerce, with the justification that it showed best the value of each subsidiary. That''s what made the Pão de Açúcar group, controlled by French group Casino. One of the companies of the group, the Viavarejo, which owns the brands Casas Bahia and Ponto Frio, opened the capital at Bovespa in 2013 and went on to be worth 10 billion reais. But it was up to another company, today named Cnova, play the online stores of Ponto Frio and Casas Bahia. The Cnova, which was also controlled by the Casino, was listed on Nasdaq in 2014, with a market value of 2.3 billion euros. The problem is that with this Cnova and Viavarejo have become competitors. The conflict gave so much headache in August, Viavarejo and Cnova announced that they are going to combine Brazilian operations — businesses estimate that it will generate savings of 245 million reais a year. Founded in 1957, in Franca, São Paulo State, Magazine Luiza has always been more "digital" than the competition, but made in improvisation. Instead of having large stores, full of products, opened "virtual stores", which are, in reality, product showcases, where vendors help customers buy at the company''s website. As they have no inventory, the stores may be smaller and thus cheaper. The strategy worked well until 2011, when the Magazine Luiza opened the capital and decided to use the funds borrowed (almost 1 billion reais) for growing in different regions of the country. Had already bought the Mayan Stores, one of the leading retailers of consumer electronics in the Northeast, and in 2011 bought the Baú da Felicidade, Silvio Santos group. Also began to open stores in the city of São Paulo — until then, operated in less competitive markets in the State. Integrating the new companies and make money in São Paulo has proved more difficult than expected, and the results started to prorate. "In 2014, we close the cycle of accelerated growth and we decided to start another, to create a digital company," says Marcelo Silva, Vice President of the Board of Directors of Magazine Luiza and former President of the company. From now on, life must be difficult. When is integrated as a matter of fact, the "new" Viavarejo can be a threat, because it is twice the size of the Magazine Luiza (not including Cnova on account), which gives her greater bargaining power with suppliers, and will have a competitive advantage. B2W approved a capital increase to 823 million dollars this year and is expected to gain breath. Walmart, which made price freeze campaigns this year to lure consumers, managed to increase their sales from January to June. "We grew up alone until now, but this should change." The fight for survival never ends.