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.