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Our mission is to maintain our ability to offer customers affordable goods at a fair price, and to win their loyalty through service. We achieve this goal through continuing growth in neighboring stores, adding new accounts and increasing our market share.
Grupo Elektra, S.A. de C.V. is Latin America's largest specialty retailer and consumer finance company. It sells consumer electronic products, household appliances, and furniture through its Elektra and Salinas y Rocha stores and clothing through its THE ONE outlets. These products are also available through the Internet. Grupo Elektra's stores also offer such financial services as consumer credit, electronic cash transfers, extended warranties, home mortgages, and savings accounts. Grupo Elektra claims as its target customers the 83 percent of the Mexican population with monthly household income between $400 and $2,600 in 1999. Controlled by Ricardo Salinas Pliego, the group cross-markets its goods and services by means of other Salinas-controlled companies, including TV Azteca (two national networks), Unefon (wireless telephone service), Movil@access (pagers), Radiocel (radiocommunications equipment), and Todito.com (an Internet portal).
Elektra and Its Origins Before the 1990s
The origin of Grupo Elektra lies in the Monterrey furniture-manufacturing business that was opened in 1906 by Benjamin Ricardo Salinas Westrup and his brother-in-law, Joel Rocha, with the goal of selling the goods on discount. Some years later, it added mattresses to its products and developed into a holding company that produced kitchen appliances as well. It also, in the 1930s, implemented a formula new in Mexico: sales on credit. By 1943 the firm was being run by Salinas's son and Rocha's nephew Hugo Salinas Rocha. In that year the firm introduced its first department store, in Monterrey. It proved so successful that two years later the company introduced a second department store, in Mexico City.
In 1950 Salinas Rocha opened a business manufacturing radio sets, which he named Elektra. Two years later, his son Hugo Salinas Price became chief executive officer of the company. He made it Mexico's first television manufacturer and opened the first of its retail outlets in 1957, also introducing credit sales. There were six stores in 1958. This new enterprise opened a breach with his Rocha cousins, and in about 1960 Salinas Rocha and Salinas Price were expelled from their posts in Salinas y Rocha, although retaining a stake in the department store chain.
The Elektra chain grew to 12 in 1968 and 88 in 1980. This expansion was financed by banks, and in 1982 they held 52 percent of the company's stock, while the Salinas family held only 20 percent. When oil prices dropped sharply in the early 1980s, the peso lost 80 percent of its value against the dollar in two years. Elektra fell into, or close to, bankruptcy in 1982, for its sales were in pesos, while its debts were in dollars. While Salinas Price restructured Elektra's debts, his son Ricardo Salinas Pliego was taking an increasing part in managing the stores. The recent graduate of Tulane University's business school invested in a computer system after spending a day with Sam Walton, founder of Wal-Mart Stores Inc. Computerization of the stores allowed each one to operate with only six employees and provided instant information about sales, expenses, and inventory. Elektra also reduced prices and the number of lines of merchandise that the stores carried.
Even more important to Elektra's renewed growth, according to Salinas Pliego, who became president of the chain in 1987, was the decision to offer warranties on merchandise. Although this was not new in Mexico, the chain's extension of the concept to low-priced goods was truly revolutionary. Elektra's customers, Salinas explained in 1990 to Jorge A. Monjaras Moreno of the Mexican business magazine Expansion, were 'humble people, of few resources. ... But in a market so large, there are always people who have money,' and they had the same expectations of quality as upper- and middle-class shoppers. 'Among the readers of Expansion,' he added, 'no one knows Elektra. But the chauffeur or the secretary know it well, because they are those who shop here,' drawn by radio commercials declaring that no one could undersell the chain. Sales grew from 21 billion pesos ($23 million) in 1986-87, to $650 billion pesos ($249 million) in 1989-90, while the number of stores increased from 55 to 250 during this period.
By product, Elektra's sales at this time consisted of television, audio, and video, 65 percent; appliances, 18 percent; computers, seven percent; telephones, five percent; and furniture, five percent. Elektra held 30 percent of the national market in electronic products. About 40 percent of the electronics goods sold by the chain bore the Elektra trademark. Almost all of these products were made in Mexico until 1986, after which they were still assembled there, but with foreign parts. (Furniture and appliances were all made in Mexico.) At first, foreign companies were not interested in supplying Elektra with parts, but Salinas went to South Korea to convince companies such as Goldstar Co., Ltd., Daewoo Corp., and Samsung Electronics Co., Ltd. that Elektra would be a reliable partner for this function. Salinas told Monjaras Moreno that his chain now enjoyed the luxury of picking and choosing among suppliers. 'It has to be an article well priced and dedicated to the popular market,' he said. 'We don't handle elitist products. Finally, the supplier must have sufficient capacity, because the volumes we deal with are very great.'
Elektra's computer division also was proving successful at this time. IBM-compatible computers, sold under the Elektra name, were being assembled in Mexico from imported parts and being sold to customers of limited means. Salinas said, 'Our clients are going to continue opting for the service and warranties that we offer them, above all because a computer requires a lot of technical knowledge in order to repair it.' The telecommunications division was offering multiline telephone equipment, fax machines, and modems, all at low prices to attract trade from small and medium-sized businesses. Elektra also was seeking to sell trunking radiocommunications equipment for taxi fleets and delivery trucks, as well as digital beepers.
Consumer Credit Fueling Elektra's Growth: 1991-96
Between 1981 and 1987 the cost of living doubled, on average, each year in Mexico, forcing Elektra to suspend its credit program--not for the first time--in the latter year and substitute a layaway plan. In 1991 Elektra once again resumed extended credit to low-income people. This service cost them dearly, for they were required to make weekly payments (which drew them back in the stores to make more purchases) for 26 weeks and were charged what amounted to annual interest rates of 60 to 90 percent. In addition to the merchandise itself, the applicant had to offer collateral in the form of his or her own real estate or that of a co-signer. These customers had little option except to do without, for few qualified for bank credit cards. Within three years, more than half of Elektra's sales were on credit. Even so, the company did not approve credit applications lightly; in 1994 it employed 1,100 investigators to validate the information given by making house calls and checking salaries, reporting back within 24 hours. As a result, the default rate was so low that in 1997 Elektra became the first company in Latin America to issue securities backed by accounts receivable.
Elektra was still not truly nationwide in 1990. It was planning to open stores along the border with the United States, with a goal of 300 stores by the end of the year and 500 in 1993, the year Salinas Pliego moved up to chairman of the board. Although Elektra did not meet this goal, there were 400 stores at the end of 1995. 'Visiting the average Elektra store is still like walking into a Mom-and-Pop appliance business,' Mark Stevenson wrote that year for Business Latin America, 'with one or at most two models of each item. Often located in neighborhoods where streets are yet to be paved, Elektra shops--almost always rented locations&mdashe frequently the first businesses to enter many newly settled areas in ever-expanding Mexico City. Open-front set-ups and sticker prices listing weekly payments of as little as $6 on television sets draw a healthy crowd.' Elsewhere, Elektra stores were generally somewhere near the 'municipal market, where they sell chickens and fruit and so forth,' as Salinas told Stevenson. Stores ranged in size from 2,000 to 7,000 square feet in traditional format to the 12,000 to 15,000 square feet in the MegaElektra format introduced in 1993.
The company made its initial public offering in December 1993 under the name Grupo Elektra, selling seven percent of its stock for $65 million. When Salinas launched TV Azteca in 1993, he used a $204 million bank loan to Elektra to help finance the purchase of the broadcasting network, which in turn used unsold air time to advertise Elektra's products. In 1996 Elektra spent $107 million for an indirect 14.5 percent stake in TV Azteca, through its 36 percent share of Comunicaciones Avanzados, S.A. de C.V., the broadcasting company's controlling shareholder. By the fall of 1997 this stake in TV Azteca had increased to 20 percent, but in 2000 Elektra sold it back to Comunicaciones Avanzados for about $400 million.
Elektra's sales rose from $1.46 billion new pesos ($458.73 million) in 1993 to $1.82 billion new pesos ($518.74 million) in 1994. Its net profit rose from 114.9 million pesos ($36.5 million) in 1993 to 192.9 million pesos ($55.1 million) in 1994. At the end of the latter year there were 586,000 active credit accounts, and nearly 70 percent of total sales were on credit. The chain's data bank held more than two million names.
A lucrative operation that Elektra introduced in 1994 was its 'Money Within Minutes' remittance service, a joint venture with Western Union. Some 362,000 electronic transactions that year received in Elektra's stores yielded $100.5 million in payments made to south of the border and a profit of $4.4 million--thanks to its half of Western Union's eight percent transfer fee. Moreover, every recipient picking up money at an Elektra store was a potential merchandise buyer. 'We know that approximately 17 percent of the people who receive money purchase something in the store afterward,' Elektra's chief executive officer, Pedro Padilla Longoria, told Discount Merchandiser in 1995. 'Money Express,' a similar service for electronic cash transfers within Mexico, was introduced in 1996.
With only 20 percent of its debt in foreign money, Elektra was not badly hurt by the peso devaluation of December 1994. The chain dealt with the ensuing recession by orienting the product mix toward lower-priced products and extending the terms on the loans it was providing for big-ticket purchases. Sales dropped by only five percent in 1995. The number of Elektra stores reached 458 at the end of the year, when Grupo Elektra acquired 72 percent of Grupo Hecali, S.A., a clothing retailer with 40 stores, increasing this share to 88 percent the following year. Hecali accounted for five percent of Grupo Elektra's sales in 1996.
More Expansion and Cross-Marketing: 1997-2000
Elektra became, in 1997, the first major Mexican retailer to open stores abroad, introducing five in Guatemala and four in El Salvador. By late 1998 this number had increased to 22 and 10, respectively. There were also 18 stores in the Dominican Republic, 11 in Honduras, and ten in Lima, Peru. Elektra introduced photo-development and savings account services to its stores in 1997. The following year Salinas Pliego launched a low-cost fixed wireless telephone company named Unefon, S.A. Elektra's role, in return for three percent of Unefon's revenues, was to offer space in its stores for Unefon's sales and payment collection.
Salinas Pliego regained control of the Salinas y Rocha chain cofounded by his great-grandfather when Grupo Elektra purchased 94.3 percent of bankrupt Grupo SyR in 1999 for $77.7 million. Elektra kept the chain's 86 appliance stores but sold ten of its 11 department stores to El Puerto de Liverpool, S.A. de C.V., a department store chain that paid $27 million. Salinas y Rocha was offering roughly the same merchandise mix as Elektra, but with a greater emphasis on furniture and to a more upscale customer. Elektra immediately invested $50 million in a program to remodel the Salinas y Rocha stores and negotiated more time to pay its suppliers, who were owed nearly $480 million pesos (about $50 million) in 1997. One of the most attractive aspects of the acquisition for Elektra was Salinas y Rocha's tax losses of $310 million, which Elektra amortized over three years. The Salinas y Rocha chain continued to operate under its name and under a separate administration until 2000, when Grupo SyR was absorbed by Grupo Elektra. Since Salinas y Rocha was still losing money, the fusion allowed Elektra to lower its tax rate.
Grupo Elektra's net income fell to its lowest level in years in 1998, but the following year it increased this profit by nearly threefold, earning net income of 780 million pesos ($105.5 million) on net revenues of 11.47 billion pesos ($1.21 billion). During 1999 the Hecali chain was renamed THE ONE. At the end of the year there were 598 Elektra stores in 320 Mexican cities, of which 366 were MegaElektra stores. Of the 232 others, 50 were Bodegas de Remates remainder outlets. Some 99 more Elektra stores were in the Dominican Republic, El Salvador, Guatemala, Honduras, and Peru. The number of THE ONE stores had grown to 159, and there were 90 Salinas y Rocha units, for a total of 946. Grupo Elektra was maintaining five distribution centers in Mexico and one each in the other five Latin American countries. Of the group's merchandise store sales, Elektra accounted for 86 percent, THE ONE for eight percent, and Salinas y Rocha, six percent.
Grupo Elektra had 812,676 credit accounts in 1999, and credit sales constituted 59 percent of its merchandise revenues that year. Interest earned on credit offered yielded 2.39 billion pesos ($251.92 million), or 21 percent of the group's revenues. Grupo Elektra's revenues from electronic money transfers came to 347.6 million pesos ($36.67 million), its share of $641 million from Money in Minutes and $139 million from Money Express. In alliance with Banca Serfin, the group was offering savings accounts to its customers. Also available were pagers and pager service contracts from Biper, radiocommunications trunking equipment from Radiocel, and wireless phones from Unefon--all of them Salinas-controlled enterprises.
In 2000 Grupo Elektra established a five-year strategic alliance with Todito.com, S.A. de C.V., a leading Internet portal and marketplace for Spanish speakers. Todito began opening kiosks in Elektra stores to sell low-cost computers equipped with Todito's Internet connection service. It also was offering computer classes in Mexico's largest chain of computer stores. The bundled hardware, software, and service sold for an average of about $1,000. Qualified Elektra customers were able to purchase Todito's packages through the chain's credit program. Also in 2000, Grupo Elektra began marketing home mortgages in its stores, in alliance with three other companies.
Salinas family members owned 63 percent of Grupo Elektra in 2000 according to one count; about 70 percent according to another. The following year Grupo Salinas was established as the umbrella body for holdings controlled by the Salinas family or in which the family held substantial investments. In addition to Grupo Elektra and TV Azteca, this grouping included Movil@access (formerly Biper), Todito.com, Unefon, and Telecosmo, a newly formed high-speed wireless Internet access company. Grupo Salinas said that while each was under independent administration, the companies generated important synergies among themselves, conferring competitive advantages in their respective lines of business.
Principal Subsidiaries: Elektra Comercial, S.A.; Elektrafin Comercial, S.A.; Salinas y Rocha, S.A.; THE ONE, S.A.
Principal Competitors: Ceteco Holding N.V.; Coppel, S.A. de C.V.; Famsa; Singer Mexicana, S.A. de C.V.; Viana.
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