With the opinion of Rafael Castelltort, director of the Center for Retailing of Business School of Tecnológico de Monterrey.
By Mara Echeverría, Expansión.
The company belonging to the Salinas family operates under a model of credit sales and weekly payments, which it has been perfecting since its establishment in 1950.
Elektra maintains its credit sales scheme. (Photo: gruposalinas.com)
For decades, Elektra stores have excelled at marketing products through weekly payments. This company, precursor of the Salinas Group currently led by Ricardo Salinas Pliego, has forged a solid business model that remains profitable to this day. This approach has proven relevant in a market where less than 50% of the population over 18 years of age is banked, which limits the ability to purchase durable goods such as washing machines, televisions and stoves.
Grupo Elektra represents a cornerstone of the Grupo Salinas business conglomerate. This business covers both financial and retail aspects, encompassing nine different companies, including the Elektra stores, Banco Azteca, Seguros Azteca, Afore Azteca and Italika, the motorcycle brand that has consolidated its presence with greater strength in the chain's specialized stores. .
In the latest financial report, the group recorded revenues of 131,496 million pesos between January and September of last year, marking an increase of 13% compared to the 116,394 million of the same period in 2022. This growth was driven by an increase of 21 % in income from the financial sector and 2% in sales from the commercial field.
During the first nine months of 2023, EBITDA—operating flow—reached 16,634 million, showing an increase of 12% compared to the same period of the previous year. The company reported a net profit of 5,220 million, in stark contrast to the loss of 8,764 million recorded in the first nine months of 2022.
When did Grupo Elektra emerge?
The roots of the creation of the Elektra Group stores date back to a family-owned mattress factory located in the city of Monterrey. It was Benjamín Salinas who elevated this legacy to the next level by opening a store dedicated to the marketing of household items.
The Salinas family owned a mattress factory, which was located in Monterrey, Nuevo León. (Photo: gruposalinas.com)
In 1917, the name of Salinas y Rocha was erected on the marquee of the first furniture store in Monterrey. This store, the result of the commercial collaboration between Benjamin Salinas Westrup and Joel Rocha Barocio, evolved into a small chain. From its beginnings, the establishment adopted the credit sales model, an approach that today constitutes the pillar of the operations of Elektra stores.
In 1933, Salinas y Rocha opened its doors in Mexico City. During those years, it served as one of the favorite stores for the consumption of the wealthy class of that time. While the stores were developing, in 1948 Hugo Salinas Rocha joined forces with Donald Stoner and created Radiotécnica, a radio factory that later also manufactured televisions, which they later marketed under the Elektra Mexicana stores, which was founded in 1950.
However, the partnership between the Salinas and Rocha stores was not going in the best way, and ended with the departure of Benjamín Salinas in 1961, who decided to dedicate his efforts to Elektra, although he maintained a shareholding position in the company. So both chains went from allies to competitors.
Elektra sells radios and televisions that the company manufactured. (Photo: gruposalinas.com)
The risk of selling for long periods
Elektra managed to consolidate its presence among buyers thanks to credit; however, by initially opting for 24-month terms, the income was insufficient to meet payments to suppliers and maintain the wide range of products. Faced with the need to obtain liquidity, the company resorted to financing granted by Bank of America, which boosted a 40% growth in sales, according to the company.
However, difficulties arose in the 1970s. In 1976, the devaluation of the peso, which went from 12.50 per dollar to 20 pesos per dollar, complicated Elektra's financial situation, since it had incurred debts in dollars. To face this crisis, Hugo Salinas proposed the opening of stores that made cash sales.
The situation worsened in 1981 with the drop in oil prices, which led to an inflationary increase in Mexico of up to triple digits. Elektra could not meet its high level of debt and was forced to suspend payments to banks and suppliers, choosing to cancel credit sales.
The company resumed sales on credit in 1987, a scheme that continues to this day through Banco Azteca, the financial entity created in 2002. However, this model has been criticized by users due to the high interest rates. associates.
"Its financial model responds to risk. The interest rate is determined through a risk model and is adjusted to establish the credit offer for consumers. This model will continue to evolve, as credit remains a fundamental tool for development families," says Rafael Castelltort, director of the Center for Retailint at the Tec de Monterrey Business School.
The 'small subscriptions' scheme
Castelltort highlights that one of the drivers of the business model based on credit purchases, like that of Elektra, is the limited long-term savings capacity in Mexico.
"Credit methods are highly efficient in satisfying these needs with faster access to these assets. They are paid gradually, as individuals have resources, thus settling their commitments. This approach is widely adopted throughout the industry," says the director of the Center for Retailing of Business School of Tec de Monterrey
These stores are presented as a channel to access durable goods, such as stoves, refrigerators or rooms, which are difficult to acquire in a single payment for many Mexican families. However, the reach of these stores goes beyond simply providing access to durable products. According to Julián Fernández, an independent stock analyst, this business model also makes it easier to obtain credit for people who would face difficulties obtaining it in other stores or financial institutions.
"Interest rates are notably higher due to the associated risk (the possibility of non-payment of loans), and with the increase in population and the presence of people with unfavorable credit histories in the Bureau, convenience stores. Elektra are presented as a viable option for the acquisition of this type of goods," says the analyst.
The direction of Ricardo Salinas
Ricardo Salinas Pliego assumed management of Elektra in 1987, reinvigorating the payment scheme on a weekly basis. Under his leadership, the company was listed on the Mexican Stock Exchange in 1993, Banco Azteca was established in 2002 and extended the successful business model to Central America. In addition, it has maintained disputes with the Mexican authorities due to its disagreement with the collection of certain tax credits.
The international expansion process began in 1997, when the chain's stores reached Guatemala, El Salvador, Honduras and the Dominican Republic. By 1998, Peru joined, although the company closed its 60 stores in July 2021 by selling operations to a group of local investors.
In 1999, Ricardo Salinas Pliego took advantage of a valuable opportunity by acquiring Salinas y Rocha for $77 million. The company, founded by his family, had been sold by banks after facing corporate governance problems.
The future of the chain of 6,000 stores
Until September 2023, Grupo Elektra maintained 6,218 points of contact, a slight increase compared to 6,207 units the previous year. While continuing to expand its physical presence, the company has been boosting its e-commerce presence since 2018. Additionally, it has transformed its sales environment, evolving from a 'warehouse' model to a more comprehensive experience.
According to Julián Fernández, the Elektra Group will continue to sustain its business model in the future thanks to the growth of the population base in the Mexican economy. However, it identifies a key challenge for the chain: diversifying its product offering, with the aim of not depending exclusively on sales of Italika motorcycles.
On the other hand, Castelltort highlights the e-commerce model, implemented through kiosks in stores. This approach allows us to attract customers from the base of the pyramid who venture to make purchases digitally. Simultaneously, e-commerce reaches customers who could eventually opt for other chains, but find an attractive offer at Elektra.
"Today, all retailers are making significant investments to better satisfy their customers, on the terms they want and through the devices they prefer. Growth is coming from the bottom of the pyramid shopping online, and retailers are looking capture this segment. Chains are exploring how to improve the shopping experience in all points of sale, which has generated the creation of more attractive environments for customers and has fostered loyalty," concludes Castelltort.
Originally published in Expansión.