Empresas Almacenes Paris S.A.

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Empresas Almacenes Paris S.A.

Coyancura 2241
Providencia, Santiago
Chile
Telephone: (56) (2) 233-3302
Toll Free: (600) 400-8000
Fax: (56) (2) 336-7210
Web site: http://www.almacenes-paris.cl

Wholly Owned Subsidiary of Cencosud S.A.
Incorporated: 1973 as Inmobiliaria San Antonio S.A.
Employees: 3,500
Sales: CLP 422.52 billion ($758.02 million) (2004)
NAIC: 321912 Cut Stock, Resawing Lumber, and Planing; 452111 Department Stores (Except Discount Department Stores); 522110 Commercial Banking; 522210 Credit Card Issuing; 531120 Lessors of Nonresidential Buildings; 551112 Offices of Other Holding Companies; 561510 Travel Agencies

Empresas Almacenes Paris S.A. and its subsidiaries sell clothing and accessories and home supplies through a network of department stores in Chile. Through its subsidiaries, the company also offers investments in securities, bonds, and real estate and owns a bank. It is also engaged in personal insurance, tourism and travel, furniture manufacturing, and the development of shopping malls.

A Century of Retailing: 1900–99

Almacenes Paris got its start in 1900, when José María Couso, a Spaniard who had previously lived in Chile, returned and opened a furniture store in Santiago, then a city of 300,000 inhabitants. The small store, which originally had only five employees, was named Paris and carried Italian merchandise copied from French models. This was soon replaced by copies made by local artisans. Later the business expanded into rugs and tapestries, mattresses, and other bed furnishings. Still later, the business began selling more home furnishings, such as glassware, china, porcelain, cutlery, and bathroom supplies. After that it became a true department store, with clothing the principal area. Couso sold the business to his son-in-law, Antonio Gálmez, in 1910. The Gálmez family remained in charge of the store throughout the 20th century.

Despite a severe economic crisis, Almacenes Paris achieved an important goal in 1983 when it became the first Chilean department store to branch out from the center of Santiago, opening a store on Plaza Lyon. It added to these operations in 1991 by establishing branch stores in two Santiago shopping malls, Parque Arauco and Plaza Vespucio. After that it opened still another store in another Santiago mall, Plaza Oeste, in 1994, and its first store outside Santiago in Plaza del Trébol in Concepcion in 1996. All these establishments varied in size between 8,000 and 15,000 square meters (roughly 88,000 to 165,000 square feet). One of the smallest (if not the smallest) was the original Alameda store. Established before anyone gave a thought to parking, it had found a solution through an arrangement with a neighboring hotel.

In 1996 the Almacenes Paris chain consisted of seven department stores. It ranked second in its field, behind Falabella, and concentrated on middle-income clients. The company went public that year, selling 30 percent of its shares on the Bolsa de Comercio de Santiago to about 1,000 investors. It was now a holding company embracing more than a dozen subsidiaries. Almacenes Paris was, for example, heavily engaged in real estate, having taken percentages in Plaza del Trebol and Plaza Oeste. During the last months of 1996, it purchased a stake in the formation of two new malls where it was planning to open stores, one in the Puente Alto area of Santiago and the other in La Serena. The company also purchased a 50 percent share of Tecnopolis, a chain of computer stores.

Almacenes Paris was the first department store chain to issue its own credit card. By the end of 1998 it also had disseminated 1.3 million credit cards and was planning to open new stores in Temuco, Viña del Mar, and the Tobalaba neighborhood of Santiago. Almacenes Paris also had just signed an agreement with El Corte Inglés, Spain's leading department store, to offer travel and tourism services to Chileans in collaboration with the latter's travel agency. Finally, the company had opened Paris Express, a virtual store enabling prospective customers to shop by computer. In 2002 the chain was making one-third of its sales online.

Since Santiago—the metropolitan area holding half of all Chileans—was saturated with department stores, large chains were looking to services for growth. Almacenes Paris, for example, was offering insurance through an alliance with the giant U.S.-based company Marsh & McLennan Cos., Inc. In this respect it was taking advantage of its experience dealing with the public and the gigantic database that it had established on its customers. The financing that Almacenes Paris and other department stores had extended to their customers had reached 21 percent of all consumer credit in Chile and 2 percent of the gross domestic product by April 1998. More than ten million of the nation's 14 million inhabitants had a credit card from one of the multistore chains, who were carrying on a war not only among themselves but also against bank credit cards. Falabella, for example, was even offering motorists the convenience of paying their annual automobile tax by credit card.

The other important development in 1998 for Almacenes Paris was its purchase of the Chilean assets of J.C. Penney Company, Inc., consisting of a store in Santiago's Parque Arauco mall and another in the city's high-end Alto Las Condes mall. J.C. Penney had entered Chile in 1995 with a U.S. management team and a U.S. model for selling merchandise that did not take into account the more conservative tastes of the locals, or even, in considering the range of clothing sizes, their relatively smaller bodies.

Forming New Credit Alliances: 2000–03

As the 21st century dawned, Almacenes Paris was still Chile's second largest department store chain, with 14 stores and some 10,000 direct or indirect employees. The company celebrated its centennial by commissioning a new $17 million, 22-story corporate headquarters named Torre Paris in Santiago's high-end Providencia commercial district. The structure, which housed offices, commercial space, and five levels of underground parking for 200 cars, featured a curved glass facade shaped in a shiplike form that maximized the usable area of the small triangular site. Three smaller stores, in Calama, Los Angeles, and Talca, opened in 2002, giving Almacenes Paris's 16 outlets more selling space (about 1.5 million square feet) than any of its competitors.

By the end of 2002, however, financial analysts regarded Almacenes Paris as falling behind its rivals, and this judgment was reflected in falling prices for its stock shares. In August of that year management hired the U.S. consulting firm of McKinsey & Co. to draft a five-year strategic plan for the chain, to suggest new areas of business and store formats, to study the possibility of using the company's credit card to establish alliances with other retailers, to implement the new bank that Almacenes Paris—like rivals Falabella and Ripley—was organizing, and to consider expanding into other countries. In addition, the chain reorganized itself, establishing four independent divisions for retail, industry, real estate, and financial services. The goal remained to emphasize payment by credit, which accounted for more than half of consolidated profits.

By this time the number of credit cards issued by Almacenes Paris had reached 2.9 million. The goal had always been to finance the sales of the chain's own merchandise, which represented 75 percent of total sales. The company also had established, however, pay-by-credit-card alliances with Farmacias Cruz Verde, the Dental Free clinic, and Todocuenta, which was responsible for collecting the telephone bills issued by Telefónica CTC Chile and the cellular telephone company Smartcom. In this respect it was also holding conversations with the Santa Isabel supermarket and Shell service station chains.

In 2003 the company's new Banco Paris established an alliance with the 32 branches of Banco Santiago Express that gave it more than 40 offices dedicated to financial services, a portfolio of 70,000 customers, and annual revenue of some $130 million. The agreement called for Banco Santander-Chile, the nation's largest private bank, to transfer its Santiago Express division, including all of the division's assets, to Banco Paris. This was valued at a little less than $50 million. In return, Almacenes Paris turned over to Banco Santander-Chile assets corresponding to those of Paris's credit card customers denominated "prime" and gave its customers access to Santander-Chile's automatic teller machines. Paris also extended to Santander-Chile clients access to its debit card facilities and financial products, plus the same store benefits enjoyed by its own customers. The agreement was for a term of at least five years. In spite of the new alliance, Almacenes Paris, in 2003, fell to third place, behind Ripley, in revenue among department store chains.

Key Dates:

1900:: A furniture store, named Paris, opens in Santiago.
1983:: Almacenes Paris is Chile's first department store to open a branch outside central Santiago.
1991:: The company opens branch stores in two Santiago shopping malls.
1996:: Almacenes Paris, Chile's second largest department store chain, goes public.
1998:: The company purchases the two Chilean stores of J.C. Penney Co., Inc.
2000:: Almacenes Paris celebrates its centennial by commissioning a new headquarters building.
2003:: The company forms a credit alliance with Chile's largest bank, Banco Santander-Chile.
2004:: The Gálmez family sells a substantial stake in the company to outside investors.
2005:: Cencosud S.A. purchases Almacenes Paris.

Under New Ownership: 2004–05

In August 2004, in what the Chilean business magazine Capital called the deal of the year, the Gálmez family sold 52.4 percent of Almacenes Paris to Inmobiliaria e Inversiones Aconcagua S.A. The purchaser represented Quiñenco S.A., the holding company owned by the Luksic group, whose founder, Andrónico Luksic Abaroa, was the richest man in Chile; Consorcio Nacional de Seguros S.A., the nation's largest insurance group, representing Eduardo Fernández León and Juan Hurtado Vicuna; and Jorge Gálmez Puig, the largest individual shareholder, a great-grandson of the founder of Almacenes Paris and a brother of the company's general manager. Jorge Gálmez became president of the company (the equivalent of chairman of the board). The new general manager (equivalent to chief executive officer) was Pablo Turner González, who had been serving in the same capacity for Falabella but defected because he was offered not only a salary but also stock participation. Public stockholders reacted enthusiastically to the changes, lifting company shares 60 percent in value.

By the end of the year Turner had brought in a new but seasoned management team headed by two executives from Ripley's Peru operation. They quickly departed to Asia, with the mission of diversifying Almacenes Paris's sources of merchandise, in large part derived from the United States and Europe. Turner put another Ripley executive in charge of the home-products division and an old friend and fellow University of Chicago alumnus in charge of sales channels. The company vowed to open new stores and upgrade the existing ones, stock a better mix of products, and offer attractive end-of-season discounts.

But Almacenes Paris was soon rocked by another shakeup, apparently unforeseen, when Gálmez, who held 27 percent of the company's shares, decided to accept a buyout offer for the company from Cencosud S.A., the largest retailer in America's Southern Cone (Chile and Argentina). Cencosud's founder, Horst Paulmann Kemna, had been seeking to acquire the company for two years. After unpublicized talks with Gálmez, Paulmann issued a tender offer for all the shares in February 2005. Quiñenco and Consorcio rejected it and, backed by the real estate firm Parque Arauco S.A., made a counteroffer that was 15 percent higher. Paulmann then successfully sweetened his own offer with an addition of about $50 million. The deal closed in mid-March 2005, with Cencosud committed to paying for 72.67 percent of Almacenes Paris by issuing one share of its own stock for every 1.1144 shares of Almacenes Paris. Cencosud was to pay CLP 960 (about $1.63) for each of the other 27.33 percent of the shares. Almacenes Paris would cease to be a public company and would presumably become another subsidiary in Cencosud's retail empire, which included the Chilean supermarket chains Jumbo S.A. and Santa Isabel S.A.

Principal Subsidiaries

Administradora de Creditos Comerciales ACC S.A.; Almacenes Paris Comercial S.A.; Paris Corredores de Seguro Ltda.; Sociedad Comercial de Tiendas Ltda.