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La Curacao Cashes In
By admin | July 18, 2008
With open-door policies, the Los Angeles-based department stores foster loyalty among Latinos, who build credit history and drive retail success
May 01, 2006
By Derek Reveron
After Teresa Rodriguez arrived in Los Angeles from El Salvador in 1984, she started shopping regularly at the La Curacao department store a few blocks from her apartment. With no credit history and her only identification documents issued by her home country, Rodriguez applied for and received a credit card with La Curacao two years later.
Eventually, Rodriguez began working as a nurse’s aide, and she and her husband used the card to buy kitchen appliances, televisions and furniture from La Curacao for their family, which now includes three children. She made timely payments and established a credit history good enough to obtain JCPenney and Sears credit cards and financing for a new car — all within five years of arriving in the United States — and went on to get a Visa and Mastercard and buy a house in 1998. She even used La Curacao’s export services to send a refrigerator and television to her mother in El Salvador.
“They give credit to everybody,” says Rodriguez about the chain’s willingness to help Latino immigrants become credit-worthy consumers. “Lots of friends shop there. The stores are close by, and they give a good price. It’s our community store.”
La Curacao (koo-ra-SAO) is a Los Angeles-based chain of six department stores that writes its own rules for marketing to Hispanic consumers. Most general-market retailers have policies that make it difficult for Latino immigrants to get credit. But La Curacao
approves 75 percent of credit card applications regardless of immigration status by using unconventional and confidential credit scoring methods and interviewing techniques. La Curacao targets cardholders and other Hispanic consumers with advertising and incentives to buy a wide range of products and services. La Curacao credit cardholders account for about 90 percent of the chain’s sales, much of which are consumer electronics, appliances and furniture, says Mauricio Fux, vice president of new business development.
Credit is the cornerstone of La Curacao’s success. The retailer has more than 500,000 active cardholders who pay an interest rate of 23.99 percent. That’s up to six points higher than rates at some general-market retail stores but lower than rates at others. Retail credit cards commonly carry high interest rates. Sears, for instance, charges 24.99 percent, and Kohl’s charges 21 percent. Macy’s rates are 21.6 percent or 24.9 percent, depending on credit history.
Targeting low-income consumers with easy credit and high interest rates is hardly a new retail concept. “[La Curacao] has taken an old business model and is applying it to a specific demographic where there is clearly an opportunity,” says Aubie Goldenberg, a partner in the retail group of Ernst & Young in L.A.
La Curacao caters its credit and other services specifically to the needs of Latino immigrants. In April, the company launched money transfer and home mortgage services. Customers will be able to use their cards to borrow the money they transfer. By the end of the year, consumers will be able to apply for credit cards online. Some services have their own brand names. CuraTel provides local and long distance telephone service. Pasito.com offers Internet access. The retailer also has a travel service, and its export service delivers merchandise to Central America and Mexico from warehouses in Mexico, El Salvador and Guatemala.
A unique combination of services and products makes La Curacao the largest and most successful U.S.-based retail chain that focuses exclusively on U.S. Hispanics, say retail and Hispanic marketing experts. La Curacao plans to open 15 to 20 stores over the next three years, including its first outside of Los Angeles in San Diego and San Jose, as well as branching out to Las Vegas, Phoenix and Tucson. Fux declined to reveal La Curacao’s sales, but in August Citigroup Venture Capital Equity Partners bought a 10.5 percent interest in the retailer for an undisclosed sum. Citigroup declined to comment.
Venture capitalists often make such investments in a company in anticipation that it will go public eventually and produce a big return on investment.
“We plan to grow the company over the next few years and then evaluate,” Fux says. “At that point, there are a lot of things that can be done and one of them is going public. At this point, it’s too early to tell.”
INIMITABLE STRATEGY SO FAR
Corporations would have to create a new business unit or separate subsidiary with business models and strategies not bound by the limitations of mainstream policies to compete with La Curacao’s strategies, says Terry J. Soto, president and CEO of About Marketing Solutions Inc. in Burbank, Calif.
“It also means an approach to doing business that requires an understanding and empathy for the immigrant mentality, something few mainstream organizations have. It simply doesn’t work as a sub-strategy because mainstream operations are not geared to deliver in a manner that is required to really connect with this consumer,” says Soto, who also penned Marketing to Hispanics: A Strategic Approach to Assessing and Planning Your Initiative.
General-market retailers that prize loyal Hispanic consumers may not want to copy La Curacao’s entire strategy, but some try to pick up pointers on scouting trips to the company’s stores, Fux says. “We see them all the time — small groups of white people in their 30s and 40s dressed in suits. They stand out.”
Fux considers Sears, Best Buy and Target to be among La Curacao’s competitors. Says Sears spokesman Chris Brathwaite, “The Hispanic market is one-fourth of our business. In terms of that particular business model, we wouldn’t feel comfortable commenting on it because Citigroup owns [Sears'] credit card business.” Target and Best Buy did not return phone calls.
La Curacao charges more for many items than its competitors, although the company launched a price-matching policy two years ago. “In some areas we are equivalently priced; in some areas we are higher,” Fux says. One reason for the higher prices: La Curacao has more salespeople per customer than its competitors, Soto says, so customers do not have to wait long to be helped.
La Curacao also believes its customers are willing to pay some higher prices because the retailer delivers good service in nontraditional ways. For instance, the retailer guarantees deliveries to Mexico and Central America. Recently, a crew was taking a refrigerator from a warehouse in Mexico to a more rural area when the group encountered a washed-out river bridge, Fux says. The crew crossed over on a boat without the truck and rented a mule-drawn wagon to make the delivery.
Customers who buy computers receive individual attention with free installment and a two-hour training class in their homes. Consumers also can call a toll-free number to get assistance from Spanish-speaking service employees. “These services are very successful traffic builders and contribute strongly to the bottom line,” Soto says.
La Curacao believes it has pioneered a unique three-pronged approach to the Hispanic market. “To put together the expertise of a retailer, the expertise of a financial institution and the expertise of specializing in the Hispanic community, you don’t find a lot of people who have the expertise or the will to focus on all three at the same time,” Fux says.
The business development vp stresses the key to La Curacao’s success is treating U.S. Hispanics as the most important market. That belief is reflected in La Curacao’s motto and advertising tagline, “Un Poco de Su País,” and in details such as the company’s recorded answering service. It says, “Para Español, oprima el uno. For English, press two.” Most employees are Spanish dominant.
Mexican immigrants are the backbone of La Curacao’s business, accounting for 65 percent of cardholders. Salvadorans and Guatemalans make up 20 percent to 25 percent, and the rest come from Honduras, Nicaragua and South America, Fux says. Customers can choose one of three payment plans that best fit their budget and pay no annual fee. Some applicants qualify for zero-interest financing for up to 18 months. To qualify for a card, customers must be at least 18 years old, have a valid address and phone number in the U.S., and a minimum monthly income of $400. La Curacao also requires valid identification such as a U.S. driver’s license or official documents from an applicant’s native country, such as a voter registration card. Matricula consular, a form of ID issued by the Mexican, Argentine and Guatemalan consulates in the United States, also are accepted.
Easy credit is just the beginning. La Curacao provides one-stop shopping for 85,000 brands in 100,000-sq.-ft. stores with an authentic Latin American ambiance to make customers feel comfortable so they will shop longer and return. The colorful stores feature Mayan and Aztec architecture and décor and Spanish-language signs. Mariachi, banda and merengue music plays on the loudspeakers. Sometimes live bands perform and adults dance while their children amuse themselves in play areas supervised by La Curacao staff. And each store has a Pollo Campero, a Central American fast-food chain owned by the founders of La Curacao, brothers Jerry and Ron Azarkman.
BUSINESS BORNE OF IMMIGRANTS
Like La Curacao’s customers, the Azarkmans are immigrants. Jerry came to the United States from Israel in 1977, at age 23, and sold electronics and other consumer goods door-to-door in Los Angeles neighborhoods, including Hispanic communities. The younger Ron arrived soon after and teamed up with his brother.
Business became so successful that in 1981 they opened a small outlet in downtown Los Angeles. The Azarkmans named the business La Curacao after a store in Central America that was popular with some customers from the region. In 1983, the Azarkmans moved their fast-growing business into a larger space and set up a credit department to offer cards. Sales flourished. The second La Curacao opened in 1995, another followed in 2000 and another in 2002. Two more opened last year, for a total of six. Both owners were out of the country and unavailable for comment.
Despite its growth, La Curacao does not have an advertising agency. An in-house advertising and marketing staff of more than 12 employees creates strategy, scripts and copy. The staff also selects the products to include in ads and direct mail and makes media buys. La Curacao may eventually hire an agency. “We are definitely thinking about it,” says Eli Barak, La Curacao’s vice president of marketing. “We will continue thinking about it for the different markets we are planning to grow into.”
GETTING THE WORD OUT
La Curacao advertises on local Univision and Telemundo affiliates and at least five Spanish-language radio stations in the Los Angeles area. The company does little print advertising, occasionally running an ad in Spanish-language daily La Opinión. Twice a month, La Curacao mails cardholders a 24-to-48-page catalog that promotes a wide range of merchandise. Each mailing goes to an average of 300,000 people, Barak says.
The biggest advertising campaigns are centered on new stores. Leading up to openings, La Curacao runs 30-second television and radio spots that feature Don Francisco, host of Univision’s Sábado Gigante. The openings attract thousands of people waiting in long lines to enter. The retailer’s advertising spokesperson is Renán Almendárez Coello, host of the popular syndicated radio show El Cucuy de la Mañana, which is broadcast out of the Spanish Broadcasting System’s KLAX-FM in Los Angeles. El Cucuy appears in all of the approximately 20 different ads that La Curacao runs every year, Barak says.
The company also runs what Fux calls “image” and “hard-sell” television and radio ads. The hard-sell ads pitch merchandise such as electronic products, jewelry and appliances. “The image commercials stress our 25 years serving the community, our growth and our attachment to our market,” Fux says. The company declined to disclose its advertising budget. But, Barak notes, “Our ad budget grows as a percentage of sales to a certain degree, but there’s not a direct correlation.”
Advertising is aimed at low-income Latino immigrants that general-market retailers and financial institutions consider bad credit risks. The average annual income of cardholders is about $20,000. La Curacao is the first credit card for about 90 percent of its cardholders. Ten percent of credit card applicants own homes, and only 20 percent have bank accounts.
La Curacao’s Puntos Program encourages cardholders to buy with plastic instead of cash. Customers accumulate points with each purchase and can exchange them for gifts. The retailer sometimes promotes double or triple points for certain items and offers even more points based on the purchase amount for customers who buy with La Curacao credit cards.
CREDIT, DOLLARS AND SENSE
Some customers, especially those who get more cards after obtaining La Curacao plastic, overburden themselves with debt, says Fux. But the percentage of cardholders who default on their payments is on par with that of the credit card industry, he adds. Fux declined to be more specific.
However, the company reportedly has about a 7 percent payment default rate due to its proprietary credit screening methods, says About Marketing Solutions’ Soto. Many immigrants say they feel grateful for La Curacao’s trust and the chance to establish credit and feel an obligation to make payments on time, she adds.
The company does not rely on credit scores because many of its customers lack Social Security numbers and don’t have the ratings. Instead, La Curacao creates its own lender profiles and credit scores based on applications and one-on-one interviews that include non-traditional questions.
Interviewers seek information such as whether applicants share rent and household expenses with relatives and friends. Such factors can give applicants disposable income that is disproportionately higher than their salaries, Fux says. Interviewers also ask for pay stubs and utility bills as proof of income and the ability to make payments. Other factors include how long applicants have lived in the United States, family connections in the area and length of employment.
La Curacao uses the information to create “behavioral scores” that predict which customers are most likely to be delinquent. The company’s credit collections staff uses the data to determine which new cardholders to call before their first payment is due to remind them.
Most customers who pay late do so because they don’t know how the U.S. credit system works, Fux says. “The calls are a form of education.”
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