Consumer finance: installment war to end?

There are signs that the trend for ever more generous consumer payments terms may be slowing or ever reversing in Brazil. Shorter installments are going to bring some rationality to competition in the sector as well as providing a much-needed helping hand to margins and cash flow.

Bricks and mortars, and more particularly online retailers, have been offering installment plans for the most banale of purchases (thing $10 toys) for as long as 30 months with no interest. The purchase of Casas Bahia, which lured in customers with long payment terms, by Pão de Açucar just made things worse. In a dash to grab more market share, generous payment terms were extended to other lines.

Today, newspaper Valor showed that installments have been trimmed from 24 months to 19 months at Casas Bahia. Carrefour, which had been offering installments of up to 30 months has reduced its maximum offering down to 15 months as well.

The timing is surprising as retailers are jostling for position in the lucrative Christmas period, with most analysts expecting a reduction in terms only well into 2011, once remaining Christmas stock had been unloaded.

It's welcome news for the sector. Although top line sales have been growing strongly, margins and cash flow have been squeezed by over-reliance on installment plans to drive sales. More selective policies on who gets credit on what products and for how long are overdue.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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