MEXICO CITY — Latin America’s largest retailers are shaking up their executive ranks as the region’s top economies grapple with an election year — one that has brought a big surprise in Brazil with fashion chain Riachuelo’s chief executive officer announcing plans to run for president.
Retail sales throughout Latin America could increase 3 to 4 percent this year, according to Fitch Ratings Mexico and LatAm retail analyst Maria Pia Medrano. The increase is being driven by rising consumption in Peru, Chile and Colombia, and a potential uptick in Brazil, where a fragile economic and retail recovery is slowing in the face of presidential elections on Oct. 7.
Enter Flavio Rocha, the outspoken retail mogul and owner of leading fashion department-store Lojas Riachuelo.
Rocha, 60, announced his candidacy last month, vowing to crack down on crime and corruption and privatize inefficient state-owned enterprises hobbling Latin America’s biggest economy. As part of his presidential bid, Rocha will exit as ceo of Lojas Riachuelo, which under his watch has expanded to 302 shops from just 77 in 2006.
Rocha, known for launching flashy capsule collections — such as one boasting Versace in 2014 — to “democratize” Brazilian fashion with top designer names at bargain prices, has joined the Brazilian Republican Party — part of a strengthening center-right political block — and faces front-runner Jair Bolsonaro, a former Army captain, for the nation’s top job.
There are no poll estimates tracking Rocha’s popularity, but his presidential bid has unleashed protests outside Guararapes, the factory in Natal that is part of the family’s textiles group that owns Riachuelo. The factory employs 8,000 seamstresses and left-wing unions are reportedly angry about some of Rocha’s pro-business agenda items.
But Brazil isn’t the only Latin American country facing potential political turmoil. Mexico also will hold elections this year, where leftist candidate Juan Lopez Obrador — who has shown a stronger anti-Trump stance than outgoing President Enrique Pena Nieto — is leading the polls closing July 1.
As far as Mexican retail goes, leading fashion franchisee Grupo Axo is undergoing a quiet, yet deep management reorganization, which recently saw the appointment of new vice president of marketing and communications Charles Chamouton. He succeeded Lorenzo Ruiz, who reportedly left following management spats. Juan Jose Arciniega has also joined to lead e-commerce.
Several other marketing and brand management executives recently departed amid disagreements over how to run Axo’s venture with PVH Corp., struck in December 2016, to jointly operate the CK, Tommy Hilfiger, Warner’s, Olga and Speedo trademarks in Mexico.
“I was given very, very short notice though they did give me a fair compensation package,” a newly departed executive told WWD, requesting anonymity. “The new structure [from the JV] caused many clashes in the work culture and there has been a continual exit of personnel from Speedo, Warner’s and other brands and departments.”
Despite the rejig, Axo is well managed and expected to withstand any possible election turmoil, which could sour spending following steep sales declines after last year’s earthquake scares.
While a falling peso as a result of lingering uncertainty over the future of NAFTA could hike clothing imports, the executive said most of Axo’s U.S. and European fashion labels import their merchandise from China and Asia, shielding them from currency fluctuations.
The marketing department, meanwhile, has developed hedging strategies to offset sales slumps. Such was the case with the new Mexico City mall Artz Pedregal, where the group opened a Tommy Hilfiger store.
“We knew traffic would be weak in the first month so we launched a big campaign with special sales and social media strategies and influencers to ensure people knew we have a store there,” an executive explained.
With 4,764 department-store doors and 533 boutiques in a country enamored with foreign fashion, Axo has become a force to contend with in Mexican retail. Last year, EBITDA rose 32.7 percent to 1.2 billion pesos, or $62.5 million at current exchange, on sales up 44 percent to 8.8 billion pesos, or $458.1 million. Net profits also chalked up a 40 percent gain.
Despite that, the Mexico City-based firm, which keeps a low press profile (executives declined to be interviewed), could be challenged if Mexican elections turn more volatile than expected.
But whatever happens, analysts expect Axo and top rivals such as department-store network Liverpool or mass-market operator Coppel to fair marginally better than last year, when more heightened NAFTA concerns and two major earthquakes hurt sales.
“We are expecting the first half to be better than last year’s so we could grow 5 percent compared to 4.8 percent,” Medrano said. “Axo will probably do well because they are opening stores in low-income segments [referring to an expansion of its Promoda outlets business] and have very aggressive growth targets.”
Meanwhile, retail is seen firming up in Colombia, where presidential elections late this month are taking center stage.
“The macroeconomic numbers are improving, home consumption is increasing and inflation is coming down,” said a brokerage analyst requesting anonymity, adding that sales should gain 3 percent this year from 1.5 percent in 2017, when sales were hurt by a slowing economy.
“This is going to help the retail sector do better unless we have a surprise win by Petro,” a hard-leftist and former guerrilla contender who was leading the race in early winter but is now trailing conservative candidate Pedro Duque. Petro has sparked concerns Colombia could veer to the extreme left, mirroring Venezuela.
According to the analyst, market leader hypermarket chain Exito, which has a growing apparel franchise, should benefit from a recently hiked GDP projection of 3 percent from 2.3 percent, boosting its already high fashion apparel margins, said the analyst.
Exito has been rushing to open new, smaller-store formats to take on Chilean rival Cencosud’s Jumbo chain and supermarket discounters such as D1 or Ara. Jumbo has a smaller clothing franchise but sells cosmetics in a fast-growing beauty industry where firms such as Brazil’s O’Boticario and Peru’s Yanbal and Belcorp are engaged in a fight for preeminence.
Exito makes much of its Arkitect and Bronzini private labels in Medellin and ships them to other group-owned banners in Brazil, Argentina and Uruguay — a strategy that has boosted economies of scale, experts said.
“The clothing division has grown double digits in the past few years and the strong dollar has helped them by boosting demand for local clothing,” as opposed to more expensive imports, said the analyst, adding that Exito will open 12 stores this year, matching a similar amount in 2017.
Colombia’s market remains relatively conservative and favoring local labels, making the entry of international trademarks more challenging than in markets like Mexico or Chile, where Axo has been launching Victoria’s Secret stores.
Medrano said Colombia could become an interesting market for Axo to bring the likes of Abercrombie & Fitch or Tommy Hilfiger, but the Bogota-based analyst said not so fast.
“Colombian consumers are very traditional and all of those imported goods have become very expensive,” she said. “I don’t think specialized international retailers will do that well here.”
Nearby Chile has a different story.
Retail consultant Denisse Vega said young Chileans are embracing international fashion labels with zeal, as witnessed by activewear label Decathlon’s recent arrival, which saw round-the-block queues.
She expects retail sales will rise at healthy rates this year as a growing and stable economy continues to fuel consumption and e-commerce, which she claimed is becoming increasingly competitive.
“You are seeing a lot of big department stores like Falabella and boutiques going online,” Vega said, adding that social media like Facebook and Instagram is driving young Chileans to shun brick-and-mortar shops and experiment with a growing crop of boutique sites.
“We have a lot of differentiation including boutique brands like Zapateria Maestra, which offers artisan shoes and bags,” she noted.
SACI Falabella just promoted Gaston Bottazzini as ceo of the South American retail and finance group, replacing Sandro Solari, who will now lead the Falabella department-store chain, Sodimac home-improvement franchise and hypermarket label Tottus, strongly present in Chile, Peru, Argentina and Colombia. The group, which runs 491 stores and 41 shopping malls, said it will elevate Manuel Matheu to general manager of its finance division, which operates the Falabella Bank division, helping cement the retailer’s regional expansion.
Bottazzini, who has a Harvard MBA, is credited for expanding the group’s digital credit and banking businesses, a background that should enable him to boost e-commerce sales beyond $769 million in 2017, up 36 percent. That number, however, seems low compared to regional estimates of a 100 percent hike in 2017 and a similar outlook for this year.
Falabella, which has a growing fashion business alongside arch-rival Ripley, is watching the digital newcomers closely, according to Vega, who said Botazzini’s appointment stemmed from that strategy.
Chilean retailers have improved their online customer experience, taking a cue from international merchants such as Asos and Urban Outfitters, as online sales are seen booming this year, driven by Chile, Peru, Colombia and Argentina, Vega concluded.