MEDELLIN, Colombia — Colombian hypermarket group Éxito intends to grow its apparel franchise to account for roughly 10 percent of Latin American sales by 2019 following acquisitions in Brazil and Argentina.
“We want to grow our regional textiles sales to account for 10 percent of group revenues in three years,” Éxito’s textiles division director Irina Jaramillo said.
In Colombia, apparel sales rose 7 percent to roughly $300 million last year, making up 10 to 12 percent of the retailer’s revenues in the South American country. In contrast, sales in the group’s Brazil, Argentina and Uruguay divisions comprise just 4 to 5 percent of revenues, she said, adding that the goal is to grow them to match Colombia’s level.
Jaramillo would not provide sales figures for the regional business, which publicly traded Éxito substantially enlarged when it bought 18 percent of Brazilian peer Pau de Azucar and absorbed Argentina’s Libertad for $1.8 billion in July.
The deal gave France’s Casino Group, which owns 54 percent of Éxito, a deeper foothold in Latin America, with access to 280 million consumers and boasting a 2,500-strong network of hypermarkets, supermarkets and convenience shops, on top of a growing shopping-mall presence.
The transaction positioned Éxito as one of the region’s top 10 clothing merchants and was expected to generate $160 million in synergies, though those have yet to be met, according to Jaramillo.
Speaking from Éxito’s Medellin offices, Jaramillo said Éxito is mulling the right strategy to flesh out the business. Jaramillo said Éxito’s 14 private-label brands are strong performers in Colombia, where they account for 25 percent of a typical Éxito megastore versus less than 10 percent for Pau or Libertad, which also operates in Uruguay.
“We are working to define the strategy to export the Colombian business model,” Jaramillo said, adding that the newly purchased divisions don’t have strong private labels. “Given how well our private labels have done, there is a strong possibility we will take them there.”
Currently, 40 percent of apparel turnover stems from private label and 60 percent from brands like American Eagle, Aéropostale or Colombian trademarks Gef, Punto Blanco or Leonisa. The chain sells discount fashions with an average price point of $15.
Women’s business and casual banner Arkitect and unisex ready-to-wear brand Bronzini make up 45 percent of sales, followed by the youth denim label People Concept and sportswear line Wkd. Bluss, which caters to older women while Custer sells mostly men’s wear. Colormix leads catalogue sales, while the Scandinavian-inspired label Finlandek is a home textiles collection.
Éxito [“success” in Spanish] sells apparel in its hypermarkets, supermarkets and Éxito Express convenience stores in Colombia. Its Carulla premium supermarkets, Surtimax and Super-Inter discounters also sell apparel, with underwear doing particularly well.
In 2015, Éxito rolled out 23 stores and two new Viva shopping malls, boosting the count to 573 and 11, respectively. At a cost of 600 billion pesos or $177 million, the 10-story Envigado Viva Center being built in Medellin is expected to open in 2018. It is expected to feature an H&M, American Eagle, Abercrombie & Fitch and other international apparel chains.
The division hopes to boost earnings before interest and tax and revenues by 10 percent annually, mainly by growing its multichannel sales, but also by fleshing out catalogue and online traffic, the latter of which could grow 20 percent through the launch of the cdiscount.com.co portal, Jaramillo said.
The team will strive to create a more innovative proposal and product mix. Special model or designer collections, such as those featuring Brazil’s Alessandra Ambrosio and four emerging Colombian designers, may also be in the cards, Jaramillo said. She noted that the latest designer capsule featuring stars like Jorge Duque or Renata Lozano generated sales of $1 million.
Such collections, coupled with efforts to “democratize fashion” and give customers “more basics with [fashion] trend content” will help it compete against rivals such as Peru’s Jumbo and Metro operator Cencosud, Wal-Mart or Chile’s Falabella.
Growing apparels sales in Brazil may not be easy, said one analyst, adding Éxito will face brand-recognition challenges as well as import duties. “They are going to have to manufacture locally and competing with brands like Forever 21 or Zara will be tough,” he said. “If you are a 20-year-old girl looking for shoes, you don’t go to Éxito.”
That said, he noted Éxito’s apparel enterprise has a leg up on Jumbo or Metro, which have much smaller nonfood businesses. Éxito’s nonfood franchise accounts for about one-third of sales, compared to 10 percent for Jumbo. While clothes make up about 30 to 40 percent of that for Éxito, they make up less than a quarter at Jumbo.
“Éxito is unique in Latin American supermarkets,” said the analyst, who requested anonymity, but who covers Éxito for a Brazilian bank. “They have the most exposure to apparel and because of that, they also compete with Falabella or Ripley.”
Éxito’s private and nonprivate labels don’t have much brand power outside Colombia, however, while Falabella’s do. “Falabella has a broader brand mix with stronger private labels and aspirational brands like Ralph Lauren or Benetton,” added the analyst.
With an eye to the future, Jaramillo said opening stand-alone shops, notably for Arkitect, could also take place in future Viva outlets, all of which feature an Éxito hypermarket.
Éxito also hopes to grow its textiles export business, which is sending Arkitect and Bronzini fabrics to Casino in France.
Manufacturing division Didetexco hopes to ramp up foreign sales to one million garments this year, up from 235,000 in 2015, amid strong demand, said manager Ramiro Arango. Production will rise to 25 million units from 16 million units last year when Éxito’s Colombian sales grew less than expected amid high inflation and rising competition, though they are seen picking up this year, he added.