Well maybe that's too strong a term. You be the judge: http://www.msnbc.com/news/765215.asp Brazilâ??s poor on the installment plan Brazilian retail magnate gets rich on loans to the underclass By Miriam Jordan THE WALL STREET JOURNAL SAO PAULO, Brazil, June 11 â?? Maria Pereira visited a Casas Bahia store recently to pay a $38 monthly installment on a music system that she bought last year. On her way out, a set of five cooking pots on sale for $25 caught the housewifeâ??s attention, and she purchased it as well, in four installments. â??I hadnâ??t thought of buying anything, actually,â? says Mrs. Pereira, whose husband earns $167 a month as a security guard. THAT IS THE SECRET of how Samuel Klein, a 78-year-old Holocaust survivor with four years of schooling, has unlocked the buying power of the poor in Latin Americaâ??s biggest country and become Brazilâ??s version of Sam Walton. By selling in installments, Mr. Klein makes products accessible to people like Mrs. Pereira. And by requiring customers to return to the store each month to pay, he induces two-thirds of them to make another purchase. About 90% of sales are on credit. Mr. Kleinâ??s closely held Casas Bahia chain is Brazilâ??s biggest nonfood retailer, last year selling about $1.5 billion of furniture, household goods and appliances â?? including one-third of all new TV sets in Brazil. While most mainstream Brazilian retailers shun the poor, the former peddler courts them assiduously. Mr. Kleinâ??s stripped-down stores are located in some of the most deprived neighborhoods of Sao Paulo and Rio de Janeiro. His clients include free-lance masons, hot-dog vendors and blue-collar workers whose average monthly income is $190, below the national average of $290. Surprisingly, their default rates are lower than the market average, too, and their loyalty intense â?? a combination that has turned Mr. Klein into a billionaire. â??The poorer the customer, the more punctual his payments,â? says Mr. Klein, who shuffles around company headquarters in plastic slippers. â??The poor know they need to guard their reputationsâ? or they jeopardize buying on credit, he adds.
His critics say retailers such as Casas Bahia are preying on the most vulnerable members of society, burying huge interest charges in the prices of the goods they sell. â??Uneducated consumers only consider whether a monthly installment fits in their budget,â? says Donizete Piton, president of the national debtorsâ?? association, who adds that retailers should do a much better job of informing consumers of the cost of immediate gratification. FILLING A NEED Others regard Mr. Klein as a hero, keeping consumer spending alive at a time when the Brazilian economy is in the doldrums. As similar businesses crop up throughout the developing world, they fill a need for credit among the poor that risk-averse banks wonâ??t meet. Ultimately, consumer spending could smooth out economic bumps for poor countries in much the same way as debt-laden Americans have spent the U.S. out of its latest recession. â??Of course Klein isnâ??t thinking about the economy. Heâ??s thinking about his business,â? says Miguel de Oliveira, economist at the National Association of Financing Executives. â??But the economy is benefiting.â? In a country where annual credit-card rates surpass 200% for the minority of Brazilians that qualify for plastic, Casas Bahiaâ??s policies arenâ??t exceptional. The retailer used to charge monthly interest of between 3% and 5%, depending on the payment plan, roughly in line with the rates at other retailers, such as the Brazilian outlets of Wal-Mart Stores Inc. More recently, the company has begun promoting â??interest-freeâ? programs. But Mr. Klein still manages to squeeze money out of the deal by bumping up the prices he charges. When Yolanda Moises, a 49-year-old maid in a Sao Paulo suburb, outfitted her home with a refrigerator, stove, VCR, stereo system, bed and closet from Casas Bahia over the past two years, she didnâ??t know how much interest she was paying, but says the vendor told her it was â??very small.â? It didnâ??t matter, she says: Casas Bahia was the only store that would give her credit. Installments worked out to more than half of her $190 monthly salary. She says she didnâ??t deprive her four children of any basic needs, but for months she wouldnâ??t allow herself the luxury of replacing her disintegrating sandals. â??I preferred to drag my feet in sandals with broken straps than delay my installment payment,â? she says. Mr. Klein, a stout man with a rugged boxerâ??s face, is aware of the sacrifice that his customers often make. â??Some people live to eat and pay my bills,â? he says. But he argues that his terms are more generous than those of many competitors, considering that he lends to a poorer, and thus arguably riskier, clientele. Whatâ??s more, higher-end retailers such as Wal-Mart demand something from Brazilian borrowers that Casas Bahia doesnâ??t: proof of income. Wal-Mart declined to comment on its credit policy here. â??My talent is trusting the poor and giving the poor good service,â? says Mr. Klein. â??Many poor have a better character than the rich. I was poor once.â?
ESCAPE FROM NAZIS The third of nine children of a carpenter, Mr. Klein grew up near Lublin, Poland. In 1942, the Nazis sent the 19-year-old Mr. Klein and his father to the Maidanek labor camp. He escaped two years later during a forced march to flee advancing Red Army troops, taking advantage of a guardâ??s momentary distraction to dart into the woods. But Mr. Kleinâ??s mother and five younger siblings died on a train bound for the Treblinka death camp. After the war, Mr. Klein and his wife, Ana, eventually accepted an invitation from an aunt of Mr. Kleinâ??s to live with them in Brazil. Settling in the industrial Sao Paulo suburb of Sao Caetano do Sul in 1952, he bought a horse, a cart and a list of 100 clients from a fellow Jewish immigrant. He hawked bed linen and towels in neighborhoods inhabited by migrant laborers arriving in droves to work at General Motors and other factories. When customers hesitated to buy a blanket, heâ??d urge them to â??keep it until next month, in case you change your mind.â? By then, the chill of Sao Paulo would have caught the migrants from the tropical state of Bahia by surprise. When Mr. Klein returned, often they would thank him profusely, pay for the blanket and buy something else. In 1958, Mr. Klein opened his first clothing and furniture store in Sao Caetano and named it Casa Bahia, or Bahia House, in honor of the home state of his original customers. Despite his broken Portuguese, Mr. Klein enticed shoppers with unorthodox installment schemes, which he calculated in his head on the spot. â??He implicitly trusted people that others would doubt,â? says Gilda Sanchez, one of Mr. Kleinâ??s first employees. Mr. Kleinâ??s empire expanded to a new level in 1994, after the government launched an economic program, the Real Plan, which eradicated hyperinflation that had eroded the purchasing power of the poor. This country of 170 million became the worldâ??s third-largest market for TV sets and fourth-largest for refrigerators. The Real Plan â??made the poor less poor,â? says Mr. Klein. Meanwhile, â??the Real Plan made me a billionaire,â? he says. Sales jumped 500% in six months, and the number of Casas Bahia stores doubled in six years. Today, Mr. Klein presides over an empire of 310 stores and 16,800 employees that moves 18% of all electrical appliances sold in Brazil each year. Mr. Klein has added an average of 20 stores annually since 1991. In the first quarter of this year, Casas Bahiaâ??s sales were $410 million, 25% higher in local currency than the same period last year, despite a general retailing slump. Casas Bahiaâ??s popularity was on display one recent morning as 1,000 people gathered for the opening of a store in a graffiti-covered street of Capao Redondo, a blue-collar district of Sao Paulo. A five-man band played popular tunes, until the storeâ??s metal shutters rose at 9 a.m. The crowd charged inside. Lacking desk space, some salesmen helped customers fill out credit applications on top of washing machines on display. The company decided to build the store after a zip-code analysis indicated that many deliveries were made to the area. Francisca da Cunha, a hot-dog vendor whose income is about $150 a month, was thrilled. Her two-room shack nearby is a veritable Casas Bahia showroom, with a bed, bookcase, sofa and kitchen cupboard from the chain. To celebrate the new store, she is filling out a credit application to buy a stove. The average monthly installment at Casas Bahia is about $14. Only a permanent mailing address is required to get credit approval, though about one-tenth of applicants are rejected, usually because their names appear on a federal list of defaulters. Faced with a slowing economy and electricity rationing that forced Brazilians to cut electricity use by 20% in mid-2001, Mr. Klein overhauled his pricing strategy to stimulate sales. He introduced so-called interest-free plans of as long as 15 months for furniture and 10 months for electrical appliances. Gathering 30 regional directors at headquarters for a pep talk, he urged them to push beds and sofas because â??furniture doesnâ??t go in sockets.â? By the end of the rationing in February, furniture accounted for one-third of Casas Bahiaâ??s sales, up from 10% before. Many customers say they are aware they may pay more at Casas Bahia. But â??here the terms are good for me,â? says Maria Nogueira, a building superintendent, after depositing a $13 installment on a $200 sofa. Plus, she notes, Casas Bahia gives a five-day grace period and marginally discounts early installment payments. Mr. Klein doesnâ??t apologize for his pricing strategy. â??Iâ??m not a low-baller,â? he declares. Mr. Kleinâ??s 51-year-old son, Michael, the chainâ??s finance director, adds: â??We speak a language that our clients understand â?? installments. And we are sparing them a trip to the bank for a loan.â? GROWING SALES Even as Brazilâ??s average salary has fallen 10% since 1998, deflating consumer demand, Casas Bahiaâ??s sales are growing. Thatâ??s because Mr. Klein has combined shrewd business with homespun practices that boost the self-esteem of the povao, or masses. Casas Bahiaâ??s yellow preferred-client card is a status symbol that gives punctual payers automatic credit approval. As he stands in line to pay for a fan, Sebastiao Feitosa, a bricklayer, displays a form letter that he received from Mr. Klein â??thanking you for paying on time.â? Indeed, the letter was intended to woo Mr. Feitosa into a store because computer records showed he hadnâ??t bought anything for months. In 2000, Mr. Klein also pardoned debts of one million customers â?? a tax and marketing move that lured back clients blacklisted since 1997. Casas Bahia makes much of its furniture and owns its fleet of 1,040 delivery trucks. Mr. Klein built Latin Americaâ??s biggest warehouse to stock uncommonly large inventories and centralize distribution. In an empire spanning eight states, Mr. Klein keeps an iron-fisted control over spending: Only he, his wife and two sons can sign checks. He is adamant about not selling a stake to outside investors. â??Partners boss you around,â? he says. Mr. Kleinâ??s affinity for Brazilâ??s povao is reflected in his headquarters, which he chose to keep in blue-collar Sao Caetano. In his spartan office, a commemorative miniature wooden cart sits on one shelf. But Sao Pauloâ??s infamous crime problem has forced Mr. Klein to accept one extravagance. Like many Sao Paulo executives, he travels to work in a helicopter to avoid unsafe, traffic-snarled streets, and uses bullet-proof cars whenever he drives. He is shadowed by three bodyguards. Once a fixture at every store opening, Mr. Klein no longer ventures out of Casas Bahiaâ??s well-protected headquarters, thanks to a kidnapping wave in Brazil. His sons, Michael and 48-year-old Saul, run day-to-day operations, and have been groomed to take over as the lifelong workaholic scales back. â??I miss visiting the stores,â? Mr. Klein says, glancing up from Motherâ??s Day sales reports. â??But since I am the mind of the company, I need to be in the office ayway.â?
