josé galló - ceo - mzgroup day_ing_final.pdf · source: valor econômico – accenture and plano...

José Galló - CEO

2

José Galló - CEO

Overview and growth opportunities for Renner

Marcos Gouvêa de Souza – Outside Consultant

Growth in retailing

Paulo Soares – Chief Operating Officer

Compact stores

Haroldo Rodrigues – Procurement Officer

Management of suppliers

Leandro Balbinot – Chief Information Officer

Management by processes

Clarice Martins Costa – HR Officer

People to support the expansion process

José Carlos Hruby – CFO

Financial services: credit and co-branded cards

DAY’S AGENDA

3

• Growth drivers

• Opportunities in the Retailing Operation vs international Benchmarks

• Potential Expansion by Region

• Consumer Market Potential

• Market Positioning

• Market Share x Share of Mind

• New Formats

• Compact Stores

OVERVIEW

4

374,2

39,3

63,5 72,4

107,5

142,5

184,4

286,0

311,4

42,9

16,3% 15,9%17,7%

12,8%12,5%11,3%

7,4% 8,6%7,3%8,8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

GROWTH DRIVERS

Note: 2005 includes Extraordinary Expenses from the Public Offering

EBITDA Evolution(In R$ MM)

EBITDA EBITDA Margin

Growth in Retailing

1

Reinforcing Presence in theExisting Markets

2

Geographical Expansion4

Additional Financial Services6

E-commerce7

Increase in Store Produtivity

New Formats5

3

5

2009 2008 2009 2008 2009 2008

% Taxes over Sales 24.9% 25.2% 14.6% 14.9% N/D N/D

% Gross Margin 47.5% 46.4% 61.9% 61.8% 57.1% 56.8%

% SG&A /Net Renvenues -34.6% -35.0% -37.8% -36.6% -35.7% -35.8%

% Retailing EBITDA Margin 13.1% 11.9% 24.1% 25.2% 21.4% 21.0%

Inventory Turnover 5,5x 5,5x 4,0x 3,8x 5,3x 3,5x

LOJAS RENNER INDITEXH&M

Source: Companies sites and Lojas Renner’s adjustments and estimates

OPPORTUNITIES IN THE RETAILING OPERATION

6

120

174

107

227

Total Stores

4 7 7 11Cap.

Int. - - - - 10 30 24 31Cap.

Int. 1 6 5 11

31 50 16 47Cap.

Int. 28 54 29 74

14 11 5 14Cap.

Int. 20 7 6 21

7 8 10 12Cap.

Int. 5 1 5 6

POTENTIAL FOR EXPANSIONnumber of stores by region

Source: Companies’Websites

7

Evolution of Social Classes Distribution - 2006 to 2009(as a % of the total urban population)

Source: Target and Exame Magazine. Calculated as a % of the total urban population of 154.0 million people in 2006 of 159.4 million in 2009.

22% of consumptionIncome in excess of R$8,100

42% of consumptionIncome R$2,300 to R$8,100

6% of consumptionIncome less than R$912

30% of consumptionIncome R$950 to R$2.300

From 37.0 to 43.4 million people




Classes D and

E

Class CClass BClass A

Renner’sfocus

5%5%

28%

48%

19%

24%

39%

32%

2006 2009

CONSUMER MARKETsocial income classes

8

Consumption per Income Level - 2009 and 2010 (% growth per household)

Sourcee: Barclays Capital

RennerTarget

CONSUMER MARKETconsumption evolution

9Source: Credit Suisse, Lojas Renner’s estimates and Companies’ websites

Fashion

Pri

ce

0% 20% 40% 60% 80% 100% 120%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

Informal Market

C&A

Supermarkets

Zara

RENNER

Riachuelo

Marisa

MARKET POSITIONINGapparel retail

10

How people from different income levels define themselves

Source: Valor Econômico – Accenture and Plano CDE research

MARKET POSITIONINGconsumers self definition

Low middle class

Middle class

Rich

Poor

Upper middle

class

15%

1%1%

Income superior toR$ 6.001

Income from R$ 3.001 to R$ 6.000



Income from R$ 601 to R$ 1.200

Income up to R$ 600

4% 9% 15% 26% 47%2%

48%

35%

29%

59%

7%

1%

37%

51%

2%1%2%

32%

50% 53%

43%

10%

20%

A B C+ C- D E

11

SoutheastRegion

Midwest, Northeast andNorth Regions

South Region

Renner Card’smarket share as a percentageof the potential market

Potential increase

Total market

MARKET SHAREshare of mind x market share

Renner Card Penetration over the estimated Potential Market

12

NEW FORMATS

• Compact Stores

• Specialty Stores

• C / D Income Class

• Renner Home

13

• Fewer risks if compared to a greenfield project or aqcuisition

• Dilutes costs

• Uses the same support structure

• Consistency with Renner’s strategy and positioning

• Greater opportunities for stand-alone stores and in specific city zones

• Greater market penetration

• Greater brand impact

COMPACT STORES MODEL

14Source: Banco Itaú

RETURN ON INVESTED CAPITALP/E x ROIC

CBD

Guararapes

B2W

Lojas Americanas

Hering

Marisa

RENNER

6

11

16

21

26

31

36

41

46

5% 10% 15% 20% 25% 30% 35%

P/E

2010

ROIC

15

Paulo Soares - COO

16

KEY POINTSin store expansion

• Definition of target population and cities

• Measurement of attraction capacity between cities (metropolitan areas, regional capital and regional center)

• Definition of commercial location

• Estimate of degree of competition (brand and quality of operation)

• Definition of product mix

• Sales estimate

• Efficiency of store operation

17

Identify locations with consumption density

sufficient to justify new stores in the network

EXPANSION OBJECTIVE

21States

65Cities

123Stores

18

INCOME GROUP FOCUS A- B and C+

BRAZIL

• 5,565 municipalities

• 194 million inhabitants

• R$ 1.74 trillion in consumption potential

POTENTIAL CUSTOMERS

• Potential Renner Market: R$ 112 billionAnnual consumption of apparel, footwear, fragrances and cosmetics

19

• Increased sales at existing stores

• Opportunities at stand-alone stores

• New formats

IDENTIFIED OPPORTUNITIES

20

EXPANSION POTENTIALat stand-alone stores

44

123

38

8

129

109

69 115

Mall stores Stand-alone stores

Source: companies’ website

173

232

10712325%

53%

36% 7%

21

PRINCIPAL CHARACTERISTICScompact stores

• Same target public as the current model

• Average size of 1.2 thousand m2

• Smaller back office

• More frequent deliveries of supplies

• Differentiated equipment/greater display capacity

• Capex proportional to store size

• Returns similar to existing stores

22

STORE PRODUCTIVITYnet sales per m2

Potential of increase Current productivity

CurrentRenneraverage

Average Estimate ofCompact Stores

34 stores 72 stores 17 stores

SouthRegion

Souteast andMidwestRegions

North andNortheastRegions

23

POTENTIAL EXPANSION PLANcompact stores

Preliminary study indicates potential for opening between 80-100 new units in the compact store format in 5 years

Rollout rate of current stores continues unchanged at between 10-15 units per year 254

224

194

164

134

12011095

81

666258545449

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

24

Haroldo Rodrigues – Procurement Officer

25

Management of

Suppliers

26

• We buy 85% of our products in Brazil

• We have competitive industries

Jeans

Knitwear

Lingerie

Part of the footwear sector

• Advantages:

Responsiveness

Culture of Brazilian fashion

Shorter processes and leadtimes

HOW WE ARE IN BRAZIL

27

• Gradually developing this base

• Represents 15% of our businesses

• Very competitive in categories such asTailoringJacketsAccessories

• Advantages:

Prices

Volume of supply

Differentiated raw material

HOW WE ARE WITH IMPORTS

28

SegmentNumber of

companies bysegment

Averageannual sales /

company(MM USD)

Number ofemployees

Average numberof employeesper company

Comments

FibersFilaments

15 93.3 11,000 733

• Major companies• Capital intensive industry• Principal companies in the sector: Antex,

Avanti, Fit, Kordsa, M&G, Radici, Polyenka, Vicunha, Unifi, Invista

Spinning 417 13.7 78,300 187• Large or average companies• Scale is vital for diluting fixed costs

Weaving 596 18.3 101,000 170• Large or medium size companies• Scale is vital for diluting fixed costs

Knitwear 2,511 2.6 122,000 49 • More competitive market and with fewer entry barriers (less equipment)

• Larger number of small companies competing in the marketClothing 23,276 1.7 1,224,000 45

Source: Brasil Têxtil 2008 (IEMI). Information relates to 2007

STRUCTURE OF TEXTILE COMPANIES

29

• Corporate approximation with suppliers with a view to developing joint policies

• Training of suppliers through the Renner University Program

• To share medium and long-term planning with a view to sounder investment decisions on the part of suppliers and a reduction in costs

• Triangular raw material transactions

• Strategic management of the principal suppliers

• Development of new suppliers

• Certification of Renner Quality with support of SGS

INITIATIVES IN THE DOMESTIC MARKET

30

Objective:

• Make virtual courses available to our suppliers (supply chain) given them conditions to develop themselves and to achieve greater technical capacity, aligned to the Renner quality requirements.

Public:

• Suppliers from the Procurement Department. Currently 29 companies were already contemplated.

Methodology:

• Development of a schedule of courses for self development;• Technical Courses of Quality.

31

• Services rendered to Renner

Manufacturers inspections / auditingOrder inspections

• Swiss multinational company. Global leader in inspections, tests and certifications;

Established in Brazil since 1938;Has 29 branches and 16 laboratories;More than 2,000 employees;Started working with Renner in July, 2005

32

• Development of new markets ThailandIndonesiaVietnametc...

• Development of new suppliers

• Consolidation of work with the largest suppliers

• Consolidation of negotiations involving large categories

INITIATIVES IN IMPORTS

3333

Leandro Balbinot – CIO

3434

A Company’s Strategy only takes place with Execution Discipline

CORPORATE PROCESSESstrategy & execution alignment

Execution

Strategy

3535

CORPORATE PROCESSESexecution discipline

• Lojas Renner Corporate Processes focus on Execution Discipline and Productivity Culture for the entire company

• As a Execution Company, we have a NATURAL PACE on processes execution, delivering consistent results. This pace has to be not only kept but also accelerated to support growth.

• Execution is guaranteed through :

• DISCIPLINE

• Taking in account ALL ELEMENTS affecting results

• Having STANDARD PROCESSES, adapted to current situation but ready for the future, supporting growth

3636

CORPORATE PROCESSESvalue creation

Corporate Processes Standardization & Management allows :

Operational Efficiency Increase : Shorter Execution Cycles, Lower Costs, Higher Work Capacity without staff increase

and Quicker Decision Process

Control & Compliance : Real-time control over processes, promoting standardization through the entire

company, emphasizing policies, regulations and best practices

Leverage Scale and Synergy while growing : New Business Units aggregation, New employees and new procedures in a standard

way, safely and efficiently

3737

� Guarantee link between strategy and

execution

� Power for Expansion

� Market and Customer Driven

� Productivity Increase

� Increase Customer Delight

Stores

Distribution Centers

Headquarters

BUs

Pragmatic Actions aiming

processes improvement

Renner Management Methodology

Renner Management Methodology

Goals & Benefits

Process Transformation through Management

CORPORATE PROCESSESprocess transformation

3838

CORPORATE PROCESSESproven benefits

Processes Standardization and Consistent Execution :

• Increase productivity

• Reduce errors, improving quality

• Increase Customer Delight

• Allow Imediate actions to relocate resources

• Allow management of Peaks

• Reduce substantially employee frustration and elevate moral

3939

Existing Processes

Alignment with Company’s Strategy

Process Standardization

Best Practices Observation

New Defined Process

CORPORATE PROCESSESworking model

4040

Drivers for Proposed Model

1. Design of Existing Processes

Proposed Model

2. Processes Analysis to identify Improvement Oportunities

5. Proposed Model Definition

4. Organizational Detailed Analysis

3. Productivity Mapping and Time Counting

Threads

Processes Organization & Sizing

Technology Training & Communication

CORPORATE PROCESSESworking model

4141

DIMENSIONS INDIVIDUAL OBJECTIVES

Enchantment

Productivity

Confidence

Maturity

• Productivity Analysis of each process

• Service Level and Availability of each process

• Enchantment Polls with Costumers

• Maturity Degree of each process

Adherence • Adherence to defined standard process

CORPORATE PROCESSESdimensions

4242

- Agenda -

- Adherence Checklist -

- Basic Execution -

Efficient

Execution

Process Management & Basic Execution

• Checks Execution Quality

• Measures adherence to each process

• Daily Activities by management profile

- KPI Panel -

• Daily Check of KPIs

CORPORATE PROCESSESprocess management

4343

Standard Processes

The Renner Way on ours Process Books

Sales & Quality Maximization

More Enchantment to our Customers

More Enchantment to our colleagues

Best Practices Sharing

CORPORATE PROCESSESprocess books

4444

CORPORATE PROCESSESprocess books

4545

“GOAL is to be the best on what we do. There are NO alternatives.”

Prof. Vicente Falconi

46

Clarice Martins Costa – HR Officer

48

Formation of Leaders andSuccessors

CEO Officers Managers

HR policies and practices

Leader as a catalyst for forming leaders

Sustainabilty

49

GAPHigh Performance

Group

TraineeSupervision

Program

PLFFundamental

LeadershipProgram

PLEExecutive

LeadershipProgram

Employee Supervisor Manager

Continued Essential Formation

Supervisors’IntegrationProgram

ManagementTraineeProgram

WelcomeProgram

ESSENTIAL FORMATIONof the Renner leader

50

PLE – Leadership Levels – Learning and Environment

EnterpreneuerFormation

External

Internal

Focus on cultural integration and on theessencial knowledge of the business

Focus on autonomy, criticalthinking and on innovation

EnvironmentOriented

LearningOriented

CompleteFormation

EssentialFormation

BasicFormation

51

Value Proposition:• Business and Value Chain

• Sustainability

Management:• Management Model

• Management of People and Leadership

Culture:• Philosophy and Values

Pillars of Formation

EXECUTIVE LEADERSHIP PROGRAM

52

SUCCESSION PLAN

Performance Evaluation PDIs

SuccessionCommittee

CalibrationCommittees

Performance Matrix

Phases of the process

Assessment

Annual process

3rd year of the complete cycle (2008 - 2009 - 2010)

March December

53

José Carlos Hruby - CFO

54

General Manager

Risk &Fraud Prev.

FinancialPlanning

Operations &Back Office

Credit &Collection

Loan& Services

CardsChannelsCRM

ORGANIZATION CHART - 2010

55

� Installation of the New Collection

Platform

� Integral Centralization of Credit

� Realize – Unification of Customer Service

� Renner Mastercard / Visa Card

� New Loan Products/Insurance

� Financial Institution

Implemented

In progress

2009 2010

� Realize – Unification of Customer

Service

� Renner MasterCard / Visa Card

� New Loan Products/Insurance

� Financial Institution

� Relationship Program

�

�

�

�

�

�

�

�

�

�

�

�

�

PROJECTS

56

Risk Indicators1Q10

57

� Installation of New Collection Platform

� Integral Centralization of Credit

� Risk Clusterization by Region and Stores

� Improvement in Credit Policy

� Change in collection strategy

2009

GREAT INITIATIVES IN CREDIT, RISK AND COLLECTION

58

JAN FEV MAR ABR MAI JUN JUL AGO SET OUT NOV DEZ

2008 2009 2010

Change in collection strategy

Change in limits policy

Improvement in quality of credit (Risk clusterization )

Updating of BehaviorScore models

Sensitivity Curve

M+

5 P

riva

teL

ab

el

RISK INDICATORS

59

0+

5 P

rivate

Lab

el


2008 2009 2010


2008 2009 20100+

8 P

rivate

Lab

el

RISK INDICATORSM+5

60


2008 2009 2010

M+

5 P

rivate

Lab

el

RISK INDICATORSM+5

61


2008 2009 2010

*FPD II (First Payment Default) = Customers that have failed to make the first installment payment after 60 days.

FPD II (First Payment Default)

RISK INDICATORS delinquency

62

Total credit-denied customers during the month

fev/0

8m

ar/0

8abr

/08

mai/

08jun

/08

jul/0

8ago

/08

set/0

8out

/08

nov/0

8dez

/08

jan/0

9fe

v/09

mar

/09

abr/0

9m

ai/09

jun/0

9jul

/09

ago/0

9se

t/09

out/0

9nov

/09

dez/0

9jan

/10

fev/1

0

Indicador Inadim. Renner Indicador Inadim. Serasa Experian

Indicator shows major volatility in theseasonally-adjusted period.

Reports decliningtrend due to goodcollection mgment

-34.52%

-2,22%

-4.96%

4.46%

8.01%

-20.23%

Reported the largest year onyear drop for the months ofFebruary since 2004.

*Percentage change on the same month for the preceding year

RISK INDICATORS credit-denied customers

63

Renner Card Approval Rate


2009 2010

Results of adopted strategies:

• Standardization of the processes;

• Risk Clusterization;

• Better quality of proposals;

• Greater accuracy of scoring models.30.27% 13.64%

6.56%

Increase in credit approval

20% 100%

Centralized credit decision

CREDIT INDICATORRenner card

64

6 88 3

1 0 912 8 1 3 6

20 0 5 2 00 6 20 07 2 00 8 2 0 09

C art õe s (m il h õ e s )

�+2 2 ,3 %

�+3 0 ,8 %

�+1 7 ,6 % �

+9 ,0 %

1 1 51 42

1 7 421 5

2 5 5

20 0 5 2 00 6 20 07 2 00 8 2 0 09

F a t u ram en to (R $ b i lh õ e s )

�+2 3 ,0 % �

+2 2 ,5 % �+2 3 ,8 %

�+1 8 ,9 %

Cre

ditc

ards

: Am

ex, D

iner

s,

Mas

terC

ard

and

Vis

a

� Brazil and United States are experiencing diametrically

opposite situations in relation to the cards market.

� In the US, the financial crisis, high personal debt and the

high leverage of issuers via a vis credit limits has resulted in

a shrinking market;

� In Brazil, the strengthening domestic market has been

driving growth;

� In the US market commercial establishments receive in

D+2. In Brazil, in D+30.

� The US issuers are highly leveraged in terms of credit

and have a greater need for capital;

� Margins in the US market are significantly lower than in

Brazil.

Source: Market

64 3 6 68 70 9 67 65 76

20 0 5 2 00 6 20 07 2 00 8 2 0 09

C art ões (m il h õ e s )

�+4 ,0% �+6 ,0% �-4 ,6 %

�-14 ,9%

1 .8 28

2 .00 6

2 .1 66 2 .17 4

1.88 8

20 0 5 2 00 6 20 07 2 00 8 2 0 09

F atu ram ento (U S$ bi lh õe s )

�+9 ,7 %

�+8 ,0%

�+0 ,4%

�

-1 3 ,2%

Cre

ditc

ards

: Am

ex, D

isco

ver,

M

aste

rCar

dan

dV

isa

COMPARISON cards market

65

Share in personal Brazilian consumption

Cards in US* : 29% 45% 47%

Brazil x US : 0.31 0.56 0.91

**

* Share of credit and debit cards in personal US consumption.

** Forecasted value for the year 2013, maintained constant up to 2019 on a conservative basis.

Source: Central Bank/ ABECS / Nilson Report

Constant values base=2010 (IPCA – IBGE)

BRAZILIAN MARKET POTENTIAL

Cards OthersCheckCash + Pre-Paid

202020102000

1,433 2,202 3,704Total (R$ billion):

66

7,8% 8,4% 9,3% 10,2% 11,5% 12,7%

3,2%4,0%

4,4%4,8%

5,6%6,4%

1,7%2,0%

2,4%2,7%

2,8%2,9%

1S

04

1S

05

1S

06

1S

07

1S

08

1S

09

12.7%14.4%

16.1%17.7%

19.9%

22.0%**

Source: Central Bank and BIS

*

*

OPORTUNIDADE

Source: ABECS and IBGE**

CARDS INDUSTRY IN BRAZILcurrent situation

Branded

Credit

Debit

Private Label

Card Payments as % of Household Consumption (2008)

20%

22%

37%

40%

56%

57%

Brasil

Turquia

França

EUA

Coréia do Sul

Reino Unido

67

Issuer Acquiring

EntityProcessorBrand

Card Entity

Card

Market

% of EBIT(2008)

• Annual fee and charges;

• Refinancing;

• Delayed payment charges;

• Interchange.

• POS rental;

• Commission;

• Anticipation of receivables.

• Fees

Source: Bank reports, Redecard, Merril Lynch, Goldman Sachs reports; BCG Analysis

CARD MARKETprofitability of the players

0%

100%

62,6%

33,4%

4%

0%

20%

40%

60%

80%

100%

68

� Adjustment to the PCI (Payment Card Industry);

� AML (Anti-Money Laundering);

� KYC (Know Your Customer);

� International Guarantees;

� Implementation of Compliance Area.

Anti-Money Laundering

Payment Card Industry

Relationship

Meeting Requirements of Branded Card and Acquiring Entities:

RENNER CARDa new product

69

� Survey shows that the majority of the customers are receptive to the substitution of the Private

Label for the Renner Credit Card;

� Market Opportunity: there are regions where 1/3 of the customers polled had no credit card;

� Visa & MasterCard: majority of the customers possess the two brands. Renner will offer a choice

to the customer;

� Customer views the Credit Card as important:

� Payment Locations – We will have various payment locations;

� Payment Date – Six payment dates for the customer to choose from;

� Credit Limit – We will offer from 80% to 110% of the customer’s

presumed income;

MARKET SURVEYRenner credit card

70

� Increase in sales and increased share of the Renner Card;

� Adds value to the credit card which already exists;

� Diminishes the dormant card base;

� Diminishes the financial overheads of third party cards;

� Allow us to track the extra-Renner buying habits of our customers;

� Enhances the relationship with our customers;

� Helps consolidate the brand and furthermore

� Developes a new sales channel for other Financial Products.

Reasons for Renner’s decision to launch the Credit Card co-branded withVisa & Mastercard


71

� Amalgamates current (payment voucher system) with the new functions (billing) at Renner

� At Renner: the customer can choose freely and simultaneously;

� Other establishments: the same as the traditional cards;

� Card with CHIP: greater customer security;

� International use

� Option to choose MasterCard or Visa branded cards;

� Various credit lines:

� Payment voucher function limit (exclusive to Renner);

� Billing function limit (portion exclusive to Renner) and

� Emergency withdrawals limit through the ATM network.

� Six payment date options;

� Inclusion of dependents at principal card holder’s option

Principal Characteristics


72

Acquisition of Customers

� Market: more than R$ 100 per new customer (depending on the channel

used)

� Renner: optimizing the current base of already existing customers

�Processing

� Renner: has scale sufficient for achieving low costs

More signficant costs


73

Private label: “point of entry for new customers”

� Risk: minimized

First conversion:

� Internal Customers: May 2010

Other conversions:

� 1st Base: June 2010

� 12-month estimate: 1 MM cards

� 5-year estimate: 5 MM cards

Conversion Strategy


74

“Selected” Target Public: Evaluation of group utilization and exposure

PRODUCT STRATEGY

75

“Selected” Target Public: Evaluation of group utilization and exposure

Opportunity: Excess of the limit will be an additional gain.

OFFERING STRATEGY

76

1st year result of customer portfolio

“Payback” Renner “Payback” Market

5-YEAR VISION

Accumulated profitability of a portfolio (*)

(*) net present value)

77

Any statement made during this presentation referring to the Company’s business outlook, projections and financial and operating goals represent beliefs and assumptions of the Management of Lojas Renner S.A and are based on information currently available to the Company. Future considerations are not a guarantee of performance. These involve risks, uncertainties and assumptions since they refer to forward-looking events and, therefore depend on circumstances that may not occur. The audience should understand that general economic and industry conditions, as well as other operating factors may affect the Company’s future results and lead to outcomes that may be

materially different from those expressed in such future considerations.

josé galló - ceo - mzgroup day_ing_final.pdf · source: valor econômico – accenture and plano...

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