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1 November, 2012
Magazine Luiza Day
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
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
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
5
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
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
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
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
9
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
10
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
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
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
13
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
14
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
15
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
16
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
17
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%
18
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
19
Opportunities for 2013
Multi-channel Delivery Project
Magazine Você (Magazine You)
Chip Luiza (Luiza Simcard)
20
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
21
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
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
23
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
24
1 Reduction of Delivery Time
Faster delivery time than the competition
Benefits
Competitors Delivery Time (Proposed)
Day
s
Northeast
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
26
Opportunities for 2013
Multi-Channel Delivery Project
Magazine Você (Magazine You)
Chip Luiza (Luiza Simcard)
27
In a world of
fragmentation
and change,
we took our multichannel strategy to a
new level
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
29
70 Million
internet users
85%
have social networks
30 Million
Facebook users
29 Million
Orkut users
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
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
33
Anyone can get a store
55,000
stores
12,100,000
friends
blogs
Conversion rate
40% higher
the website
34
Opportunities for 2013
Multi-Channel Delivery Project
Magazine Você (Magazine You)
Chip Luiza (Luiza Simcard)
35
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
36
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
37
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
38
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
39
Q&A Section
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
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
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
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
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
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
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%
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
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
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
50
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
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
52
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
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
54
Overview – Supply Chain
Assortment Demand Planning
Stores Supply
Lifecycle Management
Price Management
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
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
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
58
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
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
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
61
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
62
Q&A Section
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
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
65 November, 2012
Magazine Luiza Day