Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/62026
RET AILING TODA Y PRICESMART'S GROSS MARGINS ARE SIGNIFICANTLY HIGHER THAN COSTCO'S. U.S. Virgin Islands. About 20 percent of these members are small businesses. The company's biggest market is Costa Rica, where it operates five stores, fol- lowed by Panama, and Trinidad and Tobago, which have four each. All the stores are corporate-owned. Colombia is the first new market PriceSmart has entered since its arrival in Nicaragua in 2003. During the inter- vening eight years, the company pulled out of Asia, principally China and the Philippines, where its largely franchised operation proved unprofitable. It also exited Mexico. "In the case of Mexico, we were late to the party," said José Luis Laparte, PriceSmart's CEO and presi- dent, referring to the established pres- ence of competitors Sam's Club and Costco. "We repositioned the company in our markets and opened new stores as well as relocated others." PriceSmart set up its first Colombia store in Barranquilla, a port city that is the country's main industrial center and is dubbed the "golden door." "We proved wrong many people that said PriceSmart wouldn't work in Colom- bia because there had been some failed attempts at opening similar retail con- cepts there," said Laparte, who worked 14 years for Sam's Club before joining PriceSmart in 2004. "We have proven that when you offer value and unique 56 SCT / MAY 2012 merchandise, it can be done. With many large cities, Colombia offers great opportunities." Pric- eSmart is set to open a second Colombia store, in Cali, this year and is scouting other sites as well. The retailer appears to be mak- ing all the right moves. During its most recent fiscal year (ended last Aug. 31), the company reported $1.68 billion in net warehouse- club sales and posted a $61.8 mil- lion profit. Same-store sales rose 18.2 percent. For the first four months of fiscal 2012, the company re- alized a same-store sales increase of 19 percent. Besides Latin America's booming re- tail market, such figures as PriceSmart's merchandising gross margins (exclud- ing income from membership fees) and EBITDA (earnings before interest, taxes, depreciation and amortization) make analysts smile. "Whereas Costco has a merchandising gross margin of 10 percent to 11 percent, PriceSmart deliv- ers 14.5 percent to 15.5 percent, owing to less competition in its markets and its ability to sell unique products with leading brands," said David Hodgson, a portfolio manager with Toronto-based investment firm Gluskin Sheff, speak- ing to Barron's last May. "The [EBITDA] margin for Costco has averaged 3.5 percent to 4 percent over the past sev- eral years, which compares to the most recent 6.5 percent for PriceSmart." Entering a PriceSmart store in Cen- tral America is like going into any U.S. warehouse club, though with some notable differences. The stores are smaller, for one thing, typically mea- suring about 54,000 square feet (about 5,000 square meters). Membership fees are lower in Latin America, too — about $30, versus $40 to $50 in the U.S. Some of the family packages also are smaller than in a U.S. store. One thing that is important to the chain's business is that 60 percent of the products are imports, mainly well- known international brands that do well in a brand-conscious market like Latin America. Food, soda, and health and beauty products account for three- fourths of sales, and its Member's Se- lection and Club Select private labels bring in about 18 percent. PriceSmart does not advertise but prefers a low pro- file and to keep marketing costs down, Laparte says, adding that the company's best publicity is word of mouth. At the same time, PriceSmart has been quietly building its Internet oper- ation. It offers 4,000 additional prod- ucts on its website that are unavailable in stores but which customers can or- der online and then pick up at stores. This accounts for less than 5 percent of its overall business, Laparte says. "But we want to be there when Inter- net sales take off in Latin America." Meanwhile, the company contin- ues its growth streak. "Our objective is to continue to grow the member- ship-club concept in Latin America, where, in many countries, we are the only retailer of its kind," Laparte said. "There is good momentum in all of the economies, particularly in Central America and the Caribbean, with stability and very active busi- ness dynamics." But the company is unlikely to re- main alone in the market for long. This year Wal-Mart Stores' Sam's Club division is to open its first Central America store, in Costa Rica. Laparte sees no problem, though. "We have been competing with Wal-Mart for the last few years in the Central America region, and we will do the same if they open the club format," he said. "We have a lot of respect for any competi- tor in retail, and we are always ready to compete with all of them." SCT