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Via Varejo's imminent sale highlights risks in Brazil appliance market
February 9, 2017 / 12:03 PM / a year ago

Via Varejo's imminent sale highlights risks in Brazil appliance market

SAO PAULO (Reuters) - French retailer Casino Guichard Perrachon & Cie (CASP.PA) plans to auction off a controlling stake in Brazil-based appliance chain Via Varejo SA (VVAR11.SA) in March, although prospects for a buyer are far from certain, given the industry’s myriad problems.

Other Brazilian appliance retailers trying to sell themselves face similar obstacles as some investors say their traditional playbook of brick-and-mortar outlets with lots of floor space and slow inventory turnover looks increasingly unsustainable.

Casino has held preliminary, non-binding talks with about half a dozen potential bidders since Via Varejo formally went on the block in November, two people familiar with the plans said. Chile’s SACI Falabella FAL.SN and Brazil’s Lojas Americanas SA (LAME4.SA) were among the companies that participated in that round of talks, the sources said.

Whatever the outcome, old problems could await Via Varejo’s new owner as Brazil’s No. 1 appliance chain wrestles with the burden of oversized stores, tight credit and an aging business model during Brazil’s worst recession ever.

Casino, Falabella and Americanas declined to comment.

Without changes to that business model, Casino could struggle to find a buyer for the 43 percent stake it holds in Via Varejo, and efforts by other chains to sell themselves and end years of over-borrowing and internal conflicts could also prove fruitless, investment bankers and industry players say.

Aside from Via Varejo, other potential takeover targets include Brazil’s No. 2 appliance chain, São Paulo-based Máquina de Vendas SA, which has failed attract a minority partner for the past two years, another person with knowledge of the matter said. Smaller rival Eletrosom SA filed for bankruptcy protection in September and is also looking for a buyer, a fourth person said.

Máquina de Vendas and Eletrosom declined to comment on speculation about their sales.

All three retailers, some of which also sell home furnishings, are coping with the aftermath of debt-fueled expansion binges that were based on the past government’s promises of stable, rapid economic growth.

When a record budget deficit and a decline in global commodity prices put the brakes on Brazil’s economy, their plans collapsed, margins narrowed and costs spiked. The largest appliance chains reacted by firing staff and closing stores.

“There is an urgent need to revamp the industry’s business model,” said retail consultant Eugênio Foganholo, pointing to stubbornly high costs and lack of integration between online and brick-and-mortar operations as major problems.

Revenue at Brazil’s top two appliance chains declined more than 20 percent last year, and Via Varejo has been losing money for two years.

Privately held Máquina de Vendas fired 30 percent of its staff and closed 15 percent of its stores as part of a sweeping debt restructuring. Via Varejo has cut about 15,000 jobs, or 20 percent of its workforce, and closed 9 percent of its stores nationwide in the past two years.

“A further restructuring, more store closing and staff dismissals might be needed in order to make these companies attractive for potential buyers,” said the third person, who requested anonymity because of the sensitivity of the processes.


The product of the 2009 merger of Brazil’s leading appliance chains, Via Varejo has suffered from frequent management reshuffling, rifts with partners, and even accounting scandals.

For Casino, selling the chain would help reassure investors about Chief Executive Officer Jean-Charles Naouri’s plan to focus on supermarket retailer GPA (PCAR4.SA), through which it controls Via Varejo. Standard & Poor’s decision to cut Casino’s debt ratings to junk last year has heaped further pressure on him to improve Brazilian operations.

To attract stronger interest from global retailers or buyout firms, Casino knows it must demonstrate improvements in Via Varejo when it reports fourth-quarter results on Feb. 23, the first two people said. Viva Varejo posted a loss of about $60 million in the first nine months of last year.

According to the second source, who has knowledge of the Via Varejo sale process, Casino also held talks with U.S. retailer Best Buy Co Inc (BBY.N), France’s Groupe Fnac SA (FNAC.PA) and China’s Alibaba Group Holding Ltd (BABA.N).

    Buyout firms Carlyle Group LP (CG.O), Cambuhy Investimentos Ltda and Advent International Corp were also approached, the person added.

    The companies declined to comment.

    Likewise, Máquina de Vendas has struggled with integration problems since it was created through a series of mergers between 2008 and 2011.

    Efforts to sell a minority stake to private equity firm Kinea Investimentos Ltda, which is backed by Itaú Unibanco Holding SA (ITUB4.SA), foundered last year due to disagreements during due diligence procedures, said a person with knowledge of this process.


    Elsewhere in the sector, chains that have reduced their store count, increased their digital footprint or taken advantage of their rivals’ woes are gaining market share, although analysts said such progress could be short-lived.

    Magazine Luiza SA (MGLU3.SA), Brazil’s No. 3 appliance chain, has stood out because of its ability to expand digital and e-commerce operations even as it reshaped its brick-and-mortar stores, Itaú BBA analyst Thiago Macruz said.

    Bradesco BBI analysts wrote in a recent client note that the stores have floor space up to 80 percent smaller than rivals and lower costs, helping the retailer offset some of the recession’s effects.

    Last year, Magazine Luiza was the only appliance chain that opened any stores.

    The São Paulo-based company’s share price surged sixfold over the last year, while Via Varejo’s more than doubled on takeover speculation.

    Reporting by Tatiana Bautzer; Editing by Guillermo Parra-Bernal, Christian Plumb and Lisa Von Ahn

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