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1 November, 2012 Magazine Luiza Day

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Page 1: Ml day presentation

1 November, 2012

Magazine Luiza Day

Page 2: Ml day presentation

2

Overview of Magazine Luiza and 2013 Strategy 09h00 – 10h20

Break 10h20 – 10h30

Roundtable with the Directors of Magazine Luiza 10h30 – 12h00

Lunch 12h00 – 12h30

Store and Distribution Center Visits 12h30 – 16h30

Agenda

Page 3: Ml day presentation

3

• Opening Event Luiza Helena Trajano, President

• Highlights of 2012 and Expectations for 2013 Marcelo Silva, CEO

• E-commerce: Sustainable Growth and Future Outlook Frederico Trajano, Sales and Marketing Executive Director

Page 4: Ml day presentation

4

• Opening Event Luiza Helena Trajano, President

• Highlights of 2012 and Expectations for 2013 Marcelo Silva, CEO

• E-commerce: Sustainable Growth and Future Outlook Frederico Trajano, Sales and Marketing Executive Director

Page 5: Ml day presentation

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Overview of the Main Indicators of Magazine Luiza

Revenue Growth and Number of Stores

0.6 0.7 0.9 1.4

1.9 2.2 2.6 3.4

4.1

5.7

7.6

6.4

111 127 174

253 351 346 391

444 455

604

728 736

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 9M2012

Receita Bruta¹ (R$ bi) Nº Lojas Gross Revenues (Rs billion) Number of Stores

Geographical Footprint

Cabedelo

Simões Filho

Contagem Ribeirão Preto

Louveira Ibiporã

Navegantes

Caxias

30% South

2%

Mid-West

20% Northeast

48%

Southeast

Stores Channels

629

Conventional stores

106 Virtual stores

1 Website

Mix (% of Sales)

Household

appliances

23% Sound & Image

23% Technoloy

16% Furniture

7% Others

31%

736 stores

Overview - Magazine Luiza

Over 22 thousand employees

Over 30 million customers (30% active)

15 years: the best companies to work for

Multi-channel under single brand

Competitive portfolio of financial products

Average Age of Stores

More than 3 years

2 to 3 years

456

1 to 2 years

142

21

Up to 1 year

117

Page 6: Ml day presentation

6

Corporate Governance

Corporate Governance

General Meeting

Fiscal Council

Board of Directors Audit Committee Other Committee

(Finance)

External Audit Firm

Board

Internal Audit and Risk Control

Ethics and Conduct Standards and

Procedures

Risk Management

Considerations

New Market

Controlling shareholders with more than 50 years in the industry

Board of Directors with independent members since 2005

Audit Committee conducted by an independent member

Financial Statements audited for over 10 years by one of the country’s biggest audit firms

Senior Management: retention plan (stock options)

Fiscal Council in 2012

Page 7: Ml day presentation

7

Current Scenario (9M12) and Expectations for 2013

Financial Indicators for Channel – Sep, 2012

Total Sales R$

Ilustrative

EBITDA Margin (%)

Tota

l Gro

wth

(%)

ML 2012

E-com 2012

New VS 2012

Mature VS 2012

New CS 2012

Mature CS 2012

CS: Conventional Stores VS: Virtual Stores

Page 8: Ml day presentation

8

Current Scenario (9M12) and Expectations for 2013

Financial Indicators for Channel – Sep, 2012

Ilustrative

EBITDA Margin (%)

Tota

l Gro

wth

(%)

ML 2013E ML 2012

E-com 2012

New VS 2012

Mature VS 2012

New CS 2012

Mature CS 2012

Total Sales R$ CS: Conventional Stores VS: Virtual Stores

Page 9: Ml day presentation

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Main Achievements in 2012

• Integration of more than 250 stores in 12 months

• Sustainable growth in online and offline channels

• Delinquency under control

Baú Maia

Project Beginning August, 2011 March, 2012

Time 7 months 8 months

Scope (integration) 104 stores 150 stores, 2 DCs and 3 cross dockings

National Footprint 2 states (SP and PR) 9 states (PI, CE, PB, PE, SE, MA, RN, AL and BA)

Executive Meetings 20 18

IT Committe 32 32

Page 10: Ml day presentation

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2013 Strategic Planning

Development

Career Plan

Retention

Strategic Management of

Employees

Inventory Management

Price Management

Business Processes

Logistics

Supply Chain Management

Project “More with Less”

Dilution of fixed costs

Rationalization of Expenses

1

2

3

Customers Service, Delivery, Loyalty,

Brand

Results SSS, Margin,

EBITDA and Net Income

Page 11: Ml day presentation

11

• Opening Event Luiza Helena Trajano, President

• Highlights of 2012 and Expectations for 2013 Marcelo Silva, CEO

• E-commerce: Sustainable Growth and Future Outlook Frederico Trajano, Sales and Marketing Executive Director

Page 12: Ml day presentation

12

Multi-Channel Strategy

Consistency of multichannel customer loyalty (spends 97% more than one that buys only in the store and 98% more than

one that buys only on the website)

Expansion of the product portfolio (the integration of channels allows sharing of product mix for all points of sale)

Cross marketing and cross selling opportunities (using CRM tools to leverage the customer base across all channels)

Dilution of fixed costs (operating leverage)

Multi-channel Strategy

To be where, when and how

customers want

Conventional Stores

Virtual Stores

E-commerce / Mobile

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Customers who buy at the two channels have higher frequency, which is equivalent an annual spend of ~2x higher

Decomposition of annual expenditure per customer, 2010-12

AVERAGE VALUE OF THE ITEM

# ITEMS PER SALE

AVERAGE TICKET

ANNUAL FREQUENCY OF PURCHASE

ANNUAL SPENDING PER CLIENT x = x =

Pu

rch

ase

Ch

ann

el

Note: Consider a universe of 2.9 million customers who made the first purchase with ML in 2010 Data: Magazine Luiza, Market Data, Bain analysis

+97%

+98%

Customers from 2012

Only stores

Only stores

Only stores

Only stores

Only stores

Only e-com

Only e-com

Only e-com

Only e-com

Only e-com

Both Both Both Both Both

Page 14: Ml day presentation

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Virtual Stores

Size 150m²

15% less investment than a conventional store

Potential to leverage 50% of revenues from sales of a conventional store

Account for 5% of company’s revenues

Page 15: Ml day presentation

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E-commerce Magazine Luiza

The biggest store: representing 13% of all revenues

Unique visitors: 9 million

Page views: 83 million/month

Customers: 1.3 million

Page 16: Ml day presentation

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Examples of multi-channel actions

The virtual saleswoman

Lu “humanizes” the

website and gives

relevant information to

our customers

To sell products from website at the stores

Physical Stores

7,000 SKUs Website 31,000

SKUs

Currently 80% of the lists are created and registered on the

website, but 60% of the revenue is done at the store

Gifts list 100% integrated

Page 17: Ml day presentation

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Main Indicators of E-commerce

Gross Revenue Unique Visitors

Page Views Distints Clients

RS Million

Million / Month Thousands

Average Monthly (Million)

2007 2008 2009 2010 2011 9M12 2007 2008 2009 2010 2011 20121

2007 2008 2009 2010 2011 20121 2007 2008 2009 2010 2011 20121

158 240

325

569

821 781

2.4 3.8

4.8 6.0

8.0 9.0

1) Realized until 18th November, 2012

23 38

47 56

80 83

212 276

365

708 1,149 1,302

51%

CAGR 2007-2011

35%

37% 53%

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Economics of the Channel

Gross Revenue

Gross Margin

EBITDA Margin

Net Income

Working Capital

Investiments

ROIC

Financial Indicator Drivers of value Comparative versus physical store

Multichannel platform that serves nationwide and search for customer loyalty

Interactivity between e-commerce and physical store is a differentiator for the customer

The focus is not "every day low price" but competitive prices and quality of service

Gross margin below physical stores due to the channel characteristics that support profitability with lower prices

High productivity combined with shared expenses

EBITDA higher than physical stores because of lower operating expenses

Profitability partially offset by higher working capital

Net performance over physical stores

Higher third card sales versus physical stores, so e-commerce is more intensive in working capital

Focus on innovation Low investment requirements compared to physical stores

High level of return on invested capital Well above physical stores

Efficient inventory and payment management

Page 19: Ml day presentation

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Opportunities for 2013

Multi-channel Delivery Project

Magazine Você (Magazine You)

Chip Luiza (Luiza Simcard)

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To enable the delivery of e-commerce and telesales orders by the DC located closest to the

customer’ region (i) reduction of delivery costs, (ii) reduction of delivery and collection times and (iii)

increased customer satisfaction and revenues

Project Objective

Page 21: Ml day presentation

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General Concept

Current Situation Proposed Model

Cabedelo

Simões Filho

Contagem

Ribeirão Preto

Louveira Ibiporã

Navegantes

Caxias

Cabedelo

Simões Filho

Contagem Ribeirão Preto

Louveira Ibiporã

Navegantes

Caxias

From Louveira DC to Brasil From any DC to Brasil

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22

Benefits

• Reduction of delivery time by 56%

• Reduction of collection time by 56%

• Faster delivery time than the competition

Reduction of Delivery and

Collection Times

• Quicker delivery

• More competitive prices

• Customer Satisfaction

Increasing Sales

• Reduction of delivery price by 60 %

• More competitive delivery price, lower than the market

Reduction of Delivery Price

• Reduction in complaints and PROCON

• Award: Diamond in E-Commerce (E-Bit)

Customer Satisfaction

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Benefits

1 Reduction of Delivery and Collection Times

Faster delivery time than the competition

Delivery Time Collection Time

Current Proposed % Reduction

Northeast

Day

s

Current Proposed % Reduction

Northeast

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1 Reduction of Delivery Time

Faster delivery time than the competition

Benefits

Competitors Delivery Time (Proposed)

Day

s

Northeast

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25

Benefits

2 Reduction of Delivery Price

1) Análise sem Courrier e Setor 20.

Reduction of delivery price by 60% More competitive delivery price

Price

Current Proposed % Reduction

Northeast

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26

Opportunities for 2013

Multi-Channel Delivery Project

Magazine Você (Magazine You)

Chip Luiza (Luiza Simcard)

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In a world of

fragmentation

and change,

we took our multichannel strategy to a

new level

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28

Global direct sales industry in

2010: US$ 132 billion

Brazil is the fourth largest market

for direct sales: R$ 26 billion in 2010

Number of resellers in Brazil: 2.74 million

Personalized service increases business

Page 29: Ml day presentation

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70 Million

internet users

85%

have social networks

30 Million

Facebook users

29 Million

Orkut users

Page 30: Ml day presentation

30

The insight

No one knows better than you what your

friends want

The idea

A new direct sales channel on the web

strengthened by social networks

Page 31: Ml day presentation

31

Your store to your friends

Page 32: Ml day presentation

32

Fast

Create your own store selecting up to 60 products of

Magazine Luiza website and share with your friends in

Facebook and Orkut

Easy

Gain from 2.5 to 4.5% bonus for each product sold through

MagazineVocê

Free

No investment is required. Magazine Luiza is responsible

for the all the operation

Page 33: Ml day presentation

33

Anyone can get a store

55,000

stores

12,100,000

friends

blogs

Conversion rate

40% higher

the website

Page 34: Ml day presentation

34

Opportunities for 2013

Multi-Channel Delivery Project

Magazine Você (Magazine You)

Chip Luiza (Luiza Simcard)

Page 35: Ml day presentation

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What is it?

• Chip co-branded: partnership between Magazine Luiza and Claro

• First co-branded chip in Brazilian retail

• Magazine Luiza is not an operator

– Claro gives benefits of voice and data

– Magazine Luiza gives content and exclusive promotions

Page 36: Ml day presentation

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What are the benefits?

• Double recharge for calls from Claro to Claro

• Free access to social networks

• Free acces to email + Magazine Luiza and Claro websites

• Special promotions and news

Page 37: Ml day presentation

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Strategy

• New communication channel: enhanced multichannel strategy

• Prepaid: focus on low-income customers

• We hope:

– To be closer with our consumers

– Differentiation in the mobile category

Page 38: Ml day presentation

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My Chip Luiza

• Luiza Promotions: especial and segmented

promotions

• Recharge: benefit in a practical and fast way

• My Magazine: news, store locator, target

messages

• Luiza Internet: free access to social networks,

email and Magazine Luiza website

• Luiza Card: card request and quick access to call

center

Page 39: Ml day presentation

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Q&A Section

Page 40: Ml day presentation

40

Overview of Magazine Luiza and 2013 Strategy 09h00 – 10h20

Break 10h20 – 10h30

Roundtable with the Directors of the Magazine Luiza 10h30 – 12h00

Lunch 12h00 – 12h30

Store and Distribution Center Visits 12h30 – 16h30

Agenda

Page 41: Ml day presentation

41

Overview of Magazine Luiza and 2013 Strategy 09h00 – 10h20

Break 10h20 – 10h30

Roundtable with the Directors of the Magazine Luiza 10h30 – 12h00

Lunch 12h00 – 12h30

Store and Distribution Center Visits 12h30 – 16h30

Agenda

Page 42: Ml day presentation

42

• Roundtable with the Directors of Magazine Luiza:

• Fabrício Garcia, Commercial Executive Director

• André Monlevade, Supply Chain Director

• Decio Sonohara, IT Director (CIO)

• Marcelo Barp, Luizacred Director

• Moderator: Tatiana Santos, M&A, New Business and IR Manager

Page 43: Ml day presentation

43

Topics of discussion

Ensuring excellence in service, availability of product mix, delivery

assertiveness, competitive prices and payment terms

consistent with client needs

Ensuring sustainable gross margins, excellence in

operations, efficient costs structure that result in

profitability and operational cash flow

Cu

sto

me

r Fo

cus

Pro

fita

bili

ty

IT Infrastructure and System Integration

Consumer Finance

Co

mm

ercial, P

lann

ing an

d Lo

gistic

IT

LuizaCred

Management of Commercial Process

Supply Chain Management

Category Management

Supply and Logistics

Pricing Management

Inventory and Working Capital Management

Page 44: Ml day presentation

44

Topics of discussion roundtable

Ensuring excellence in service, availability of product mix, delivery

assertiveness, competitive prices and payment terms

consistent with client needs

Ensuring sustainable gross margins, excellence in

operations, efficient costs structure that result in

profitability and operational cash flow

Cu

sto

me

r Fo

cus

Pro

fita

bili

ty

IT Infrastructure and System Integration

Consumer Finance

IT

LuizaCred

Co

mm

ercial, P

lann

ing an

d Lo

gistic

Management of Commercial Process

Supply Chain Management

Category Management

Supply and Logistics

Pricing Management

Inventory and Working Capital Management

Page 45: Ml day presentation

45

General view of the main initiatives in 2012

Continuous improvement of processes

Continuous Improvement of

Commercial Processes

xx Supply Chain Management

Focus on authority categories (appliances, furniture and technology)

Strengthening of “light” categories

Intensity promotional activities

Categories Management

Gain of market share in all

categories

Maintenance of profitability

Improvement of “unhealthy” stock

Assortment Demand Planning

Stores supply

Lifecycle Manage-

ment

Price Manage-

ment

Page 46: Ml day presentation

46

Significant gains of market share in all categories

Market Share (%)

Mobile

Technoloy

White Goods

TV and Sound

House ware

Personal Care

Sep.11 ML Sep.12 ML Sep.12 ML + Maia

+190bps

+180bps

+270bps

+240bps

+260bps

+290bps

Data: GFK

Evolution of Market Share of ML by Product Category

Gains of market share while maintaining

profitability

3,0% 4,0% 5,0% 6,0% 7,0% 8,0% 9,0% 10,0%

Page 47: Ml day presentation

47

Main Opportunities for 2013

Opportunity with increased penetration of products and upgrade of consumption

Mobitec Project - Technology

Furniture Project

Price Management

Capturing Synergies in the NE

Gain of market share,

maintaining profitability and

improving operational efficiency

Page 48: Ml day presentation

48

Growth Opportunities for 2013

Penetration (% Brazil’s households)

1) Northeast: 21% Data: TGI Ibope 2011; Nilsen – Estudo Especial de Duráveis 2012

1 Increased penetration...

22%

10%

49%

53%

Flat screen TV

Laptop/Notebook

17%

Smartphone

Refrigerador frost free 45%

Washing machine

Digital Camera

1

Page 49: Ml day presentation

49

Growth Opportunities for 2013

1 ... and upgrade of consumption at Magazine Luiza

Television

Financial Volume (%)

Cell phone

Financial Volume (%)

Computers

Financial Volume (%)

19%

2012

97%

3%

2010

81%

37%

2012

63%

2010

95%

5%

36% 20%

10%

2012

70%

2010

64%

0%

Flatscreen TV Tube TV Smartphone Cell phone Notebook Tablet Desktop

Page 50: Ml day presentation

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Growth Opportunities for 2013

2 Mobitec Project - Technology

Before... After...

Implemented in 72 stores, potential for sales growth of 15% - 20% of the categories revenues

Page 51: Ml day presentation

51

Growth Opportunities for 2013

3 Furniture Project

Objectives:

Increased revenues

Opportunity to increase cross selling

Market share gain

Improved profitability

Initiatives

Ambiance Design - Furniture

Investment in design - partnership with Marcelo Rosembaum

Page 52: Ml day presentation

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Growth Opportunities for 2013

Before...

3 Furniture Project

After...

Tested in 11 stores, potential for increased profitability (greater participation of furniture and cross selling) given the ambiance

Page 53: Ml day presentation

53

Growth Opportunities for 2013

5 Price Management

Strategy of pricing by category/ region

Quick reaction to competition

6 Capturing gains in the NE

Integration of management systems (price, margin and inventory)

Implementation of the entire commercial strategy in the NE

Increased profitability (gross margin) – potential increase of 400bps

Page 54: Ml day presentation

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Overview – Supply Chain

Assortment Demand Planning

Stores Supply

Lifecycle Management

Price Management

Page 55: Ml day presentation

55

• Reduced unhealthy stock

• Reduced shortage of products AA

• Better consistency in the operations

• Better availability of correct products per stores

Main Achievements 2012

• Improving unhealthy stock indicators

• Systematization of tools and processes, gaining agility and productivity

• Implementation of the Price Management Project

• Improving the operations of the Northeast to the levels achieved in the Southeast

• Commercial support for objectives as a whole

Main Opportunities for 2013

Overview – Supply Chain

Page 56: Ml day presentation

56

Topics of discussion roundtable

IT Infrastructure and System Integration

Consumer Finance

Co

mm

ercial, P

lann

ing an

d Lo

gistic

IT

LuizaCred

Management of Commercial Process

Supply Chain Management

Category Management

Supply and Logistics

Pricing Management

Inventory and Working Capital Management

Ensuring excellence in service, availability of product mix, delivery

assertiveness, competitive prices and payment terms

consistent with client needs

Ensuring sustainable gross margins, excellence in

operations, efficient costs structure that result in

profitability and operational cash flow

Cu

sto

me

r Fo

cus

Pro

fita

bili

ty

Page 57: Ml day presentation

57

IT: Integration and Multichannel Pillar

Strategic Plan for Information Technology (PETI) finalized in 2011 with participation of one Consulting Technology Firm:

IT Governance (Process and Organization)

Infrastructure(Migration of the Data Center to SP)

Systems (revision of the architecture of applications, preparation of systems for growth)

Short, Medium and Long Term Planning

1

Integration of two chains acquired (Maia and Baú), finalized between Aug-11 and Oct-12

Processes and systems unified in all stores and distribution centers

Zero impact to customers, suppliers and partners

Creating a pole with technically skilled resources in the Northeast

Network Integration

2

Developing tecnology platform for deployment of multichannel:

Sales multichannel

Delivery multichannel

Customer relations (integrated view of the various channels)

Multichannel

3

Page 58: Ml day presentation

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Conventional stores Virtual stores Mobile Telesales

Sales

Relationship Delivery multi channel Channels with the integrated

view of the customers • Customer Service • Social media • Promotions

Store and distribution center closest to the customer’s home • Delivery time reduced • Delivery price reduced

E-commerce

Page 59: Ml day presentation

59

Topics of discussion roundtable

Consumer Finance

IT Infrastructure and System Integration

Co

mm

ercial, P

lann

ing an

d Lo

gistic

Luiza cred

IT

Management of Commercial Process

Supply Chain Management

Category Management

Supply and Logistics

Pricing Management

Inventory and Working Capital Management

Ensuring excellence in service, availability of product mix, delivery

assertiveness, competitive prices and payment terms

consistent with client needs

Ensuring sustainable gross margins, excellence in

operations, efficient costs structure that result in

profitability and operational cash flow

Cu

sto

me

r Fo

cus

Pro

fita

bili

ty

Page 60: Ml day presentation

60

Luizacred Highlights

486 572 578 622 475 450 404

715

923 1,028

1,217

1,141 1,297 1,290

127

150 171

223

237

293 316

68

71 54

51

59

45 39

1,716

+46.8%

1,395

Luiza Card – Inside stores

Luiza Card – Outside stores

CDC

Loan

33% 37% 34% 31% 24% 22% 19%

10% 11%

11% 13% 14% 18%

19%

32% 30% 30% 29%

30% 32% 34%

26% 23% 25% 27% 32% 28% 28%

Cash sales/ Down payment

Third party cards Luiza Card

CDC

Financed Sales Mix (% of total sales)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

1,830

2,112

1,911

2,085 2,049

Revenues Luiza Card (R$ million)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

Page 61: Ml day presentation

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Luizacred Highlights

9.1 6.7

4.1 4.4 4.7 4.3 4.0

13.0 12.5 13.6

12.4 12.7 11.6

10.4

22.0

19.2 17.7

16.8 17.4 15.9

14.4

Sep-11 Jun-12 Dec-11 Mar-12 Sep-12

Overdue above 90 days Overdue 15-90 days

Total overdure

111% 114% 111% 117% 129%

Coverage Ratio (%)

Overdue Indicators (% of portfolio)

Jun-11

112%

Mar-11

106% 48,7 48,3

42,4

48,3

53,7

45,7

43,6

3Q11 2Q12 4Q11 1Q12 3Q12 2TQ1 1Q11

Credit Approval Rate (Luiza Card)

Efficiency Ratio

31 28

22

26

20 18

Sep-11 Jun-12 Dec-11 Mar-11 Sep-12 Jun-11

Page 62: Ml day presentation

62

Q&A Section

Page 63: Ml day presentation

63

Overview of Magazine Luiza and 2013 Strategy 09h00 – 10h20

Break 10h20 – 10h30

Roundtable with the Directors of the Magazine Luiza 10h30 – 12h00

Lunch 12h00 – 12h30

Store and Distribution Center Visits 12h30 – 16h30

Agenda

Page 64: Ml day presentation

64

Overview of Magazine Luiza and 2013 Strategy 09h00 – 10h20

Break 10h20 – 10h30

Roundtable with the Directors of the Magazine Luiza 10h30 – 12h00

Lunch 12h00 – 12h30

Store and Distribution Center Visits 12h30 – 16h30

Agenda

Page 65: Ml day presentation

65 November, 2012

Magazine Luiza Day