DE PRATI STORE PICTURES

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Following the IADS CEO meeting in Mexico City last May, where IADS members were able to visit the latest developments in El Palacio de Hierro’s flagships (Coyoacan, Polanco and Perisur), the IADS had the opportunity to travel to Ecuador to discover the De Prati stores. The purpose was to understand more about the market, the company and the vision of the CEO, Priscilla Altamirano.

A rather small country when compared to its neighbours (Colombia and Peru), Ecuador is classified as an upper-middle-income country, with a developing economy dependent on exports (agricultural products, oil). The country regularly topped the South American GDP growth charts in the 00s and even ranked the second most performing country in 2022. Since 1999, extreme poverty decreased significantly, and employment increased, fueling the growth of the middle class which aspired to consume.

De Prati, which was founded in 1940 in Guayaquil, the trading centre of the country, managed to fulfil these needs, becoming the largest department store company in the country, with 16 stores and an e-commerce website. Unlike its European counterparts, which had available resources to learn from each other and innovate (thanks to organizations such as the IADS, but also through a vast array of suppliers and brands, and the lack of regulation at the time which allowed unrestricted data exchange), De Prati, while always being the leader in the country, had to invent each step of its development by itself, by developing in-house what was needed and finding solutions on its own.

The result is a company that has been posting an average EBIT margin of 20% and a net profit margin of anywhere between 13 and 15% for the last decade, with a much-loved retailer brand and strong social involvement. This is not too bad for a business that has developed almost in a closed circuit, which makes it an interesting use case to review the company’s competitive advantages, as well as the stores that we visited.

Company history and background

De Prati was founded in 1940 by Italian entrepreneur Mario De Prati and his wife Domenica Cavanna, as a fabric store, which later also included homeware and tableware. After a fire destroyed the initial location, the first department store per se opened in 1951 in Luque Street, in Guayaquil, a location still in operation today. The company was a pioneer in many ways: it introduced the first payment card in the country, Credito De Prati, in 1968, the first national private label business in 1973, with local production, and the first Ecuadorian e-commerce website in 2007 (the website had already been launched in 2002).

The Credito de Prati card proved instrumental in establishing De Prati as a leader in the market, as it allowed it to capture and retain a significant share of the clientele who has access, in addition to credit, to special offers and perks (for instance, customers get a 30-day full guarantee with the possibility to return the product with no questions asked, a much-loved option that explains why, in the country, brands such as Apple and Samsung perform 80% of their business with Credito De Prati). Today, the program involves 1m active customers (Ecuador’s total population is 17m but the truly addressable target clientele base is much lower than that).

Also, when it comes to fashion, Ecuador has long remained isolated from the international brands’ sphere of attention, for its relatively small size as a market. For instance, Inditex came to Ecuador only in 2015 (introducing a new logic in the market based on markdowns and high-frequency seasonality). For that reason, De Prati’s private label business allowed them to develop a faithful client base, looking for interesting designs at low prices. 18 in-house designers develop the Women’s, Men’s and Kids’ private lines which are then manufactured in the country.

Today, the company operates 16 stores (7 in Guayaquil, 7 in Quito, the capital city where De Prati started operating in 1986, one in Manta and one in Machala, which opened in April 2023), and a website, to accommodate the needs of 18 million yearly visitors (online and offline), all powered by 2,300 associates. 50% of the total business is made in the historical location of Guayaquil, while Quito, more upmarket, represents 40%, and e-commerce close to 6% (this does not include digital activities related to stores, such as WhatsApp sales or instore iPad ordering, which are all attached to stores).

Every single store is positive and contributes to the final result of 20% EBIT margin on average, for a total turnover of $270m in 2022 (the same amount as the previous record in 2019) and an expected $305m in 2023. The whole business is 100% wholesale, as the company does not operate concessions or consignment (for big-ticket items, such as domestic appliances, the company “showrooms” the products and dropships them from the suppliers’ warehouses). In terms of categories, fashion represents 80% of the business, home 9% and tech 8%.

During the visit in Guayaquil, it was clear that each store had been developed according to a specific context, and for that reason, was perfectly adapted to its environment, while always keeping a very identifiable layout and branding.

Policentro: making the most of the opportunities in the company’s most profitable location

Policentro is the oldest mall in Guayaquil, and by far the most profitable location for De Prati. The specificity of this mall is that locations are not rented by retailers, but owned, which means that the mall itself is very similar to a condominium in terms of management (and this can create some inertia when it comes to renovating it or making sure that the brand and product offering remains relevant which raises some questions for the future).

For historical reasons based on real estate opportunities, De Prati operates three different units in the mall, each dedicated to a category: a women’s store (RTW, accessories, shoes and beauty), a men’s and kids one, including sport and electronics, and a home & decor store, for a total of 5,000 sqm. The core business is fashion (women, men and shoes), of which 70% is done with private labels. Women’s fashion itself represents 27% of the business, and Cosmetics and beauty 11%. For that category, even though brands are supplied by third parties, De Prati keeps firm control of the brand selection, price point, quantities in stock and promotions.

All three units have been designed with standardization and flexibility in mind, in order to be able to change the store overnight. This approach proved instrumental in dealing with the Covid-19 pandemic and allowed them to transform stores in e-commerce fulfilment centres during the 3 months of lockdown-related closures.

In the women’s store (due to be refurbished next year), most of the RTW space is dedicated to private labels, but third-party brands, such as Springfield or Veromoda, are presented in either dedicated branded spaces or a multi-brand testing space for the smaller ones.  In shoes, 80% of the business is achieved with third-party brands (Steve Madden, Michael Kors).

The men’s store was recently refurbished with the help of a Mexican designer and includes more visible third-party brands, such as Springfield or Aeropostale, presented in a very dynamic and airy concept, that slightly differs in the formal section, compared to the contemporary or the sport ones. The kid’s section is a mix of branded locations and generic displays. The category is extremely competitive in the country. Finally, a small electronics location presents a selection of products, completed by an “infinite aisle” option on digital screens, where customers can order from a wider selection and then pay at the cash desk.

The home stores are located on the first floor of the mall, where many services are available (banks and post offices). The location used to be the kid’s store in the past and that was the most profitable location of the whole mall. In the home category, 40% of the business is made with home textiles.

Overall, Policentro is a surprising location as all categories are spread over the mall in different locations. The fact that De Prati was able to purchase the locations (and amortize them) explains the high profitability of these operations overall, however, the disadvantage of split spaces is felt in terms of cost of people and refurbishment.

San Marino: a “lab” store in an upmarket mall

San Marino is a mall located 5 minutes away from Policentro by car and is very different. While inertia related to the ownership is felt at Policentro in terms of overall customer experience, San Marino feels much more dynamic, thanks to a very different set of tenants (including fashion names ranging from Pull & Bear, H&M to Polo, Tommy Hilfiger or Esprit) and a permanent renovation that allows the mall to look very modern, even though the mall layout is very disconcerting in terms of brands adjacencies.

The brand assortment implies that in that mall, the competition is harsher than in Policentro, which is why the De Prati store is relatively small, 2,500 sqm (vs. 6,000 sqm on average for the rest of the stores), and pushes a “curated’ assortment, only focused on women, men and young fashion.

Here again, the store fixtures are very flexible but they allow customers to understand where they stand in terms of product categories, which is not specifically the case in Policentro.

This store, significantly smaller than the others, is mostly used to show De Prati’s relevance in terms of fashion in a mall where the brand offer is one of the edgiest in the country. For that reason, this is where the company tests new brands, and also new ideas for its own private labels. This is also where De Prati can test the adequacy of its basics offer, which is planned to grow by a double-digit rate of up to 30% of the business in fashion, in order to make the most of the fact that these items are never marked down.

Plaza Navona: build-a-store

Plaza Navona is a real estate program that has been developed by De Prati, up north in the city on the way to Samborodon, a very wealthy suburb. This is why the relatively modestly sized mall (26,000 sqm) is positioned as a family shopping centre, aimed at the posh neighbourhood but also the middle class that started to relocate to Samborodon a few years ago. The mall is managed by De Prati itself, with a new team that has been created on the spot.

This also explains why the De Prati store concept of 7,000 sqm is slightly different from the other ones visited so far, and it is the most recent one (the new store in Machala, opened in April 2023, takes on this concept). The fixtures are lower and allow visitors to embrace the whole store easily, while also giving an impression of lightness and modernity. Third-party brands are much more visible than in the other stores (and in higher proportion), including some specific to this location (Oscar de la Renta, Chaps for men).

Plaza Navona is also the store where De Prati tests its innovative processes, both in customer-facing solutions and in behind-the-scenes improvements:

-    In customer-facing solutions, digital screens allow them to scan a barcode and check the stock availability of the product in all De Prati stores, book it, and pay for it with a nearby salesperson. Also, mobile POS is being tested in the store.

-    In the behind-the-scenes improvement, the store has been the one in the chain to have real-time visibility on its stock updated every 15 minutes thanks to a system developed internally from an SAP platform. The development team is currently deploying a solution allowing store staff to be able to immediately locate a product in the stockroom, which also gives useful data in terms of forecasts and auto replenishment, in addition to significantly reducing the waiting time for customers when asking for a specific size or colour.

Plaza Navona being closer to a place where many wealthy customers live, is a store destination for them when they want to equip their homes. For that reason, the share of home and electronics is higher in that store when compared to the other ones, with the pick-up section for online purchases is on the first floor, in the home and electronics section. In terms of stock management for these two product categories, De Prati only buys on firm conditions a certain stock amount in order to be able to display products in stores, and also guarantees larger stock quantities in the supplier’s warehouse. In that way, the stock imported for Ecuador will be reserved as the first priority given to De Prati.

This store represents the state-of-the-art savoir-faire at De Prati today, as well as a first incursion in the domain of mall development and management. A larger project of 90,000 sqm, is planned for 2026 and will also be a premiere in the country with such a scale.

Downtown: where everything started

We had the opportunity to visit the first historical location of the company as well, which allowed us to measure the level of innovation and progress made by the company between its first location and the latest store in Guayaquil, Plaza Navona.

The nature of the location has changed with time, as the area evolved, from being mainly residential in the ‘40s, to being more of an office and banking area. As a consequence, traffic patterns are different from the other stores which are close to the places where customers live.

Due also to its history, the store is spread across different buildings with different levels, leading to having floor differences on some floors. Only one building has windows, which also explains why the feeling is different, less airy than the other stores, an impression reinforced by the low ceilings and the rather old concept.

The last floor of the store is dedicated to the outlet section, as well as the customer service desk.

The specificities of the business at De Prati

De Prati is special for many reasons, as it has developed its own way in several areas of operation, to reach efficiency: private labels, BOPIS, and social commitment.

Private labels represent 70% of the total business and are designed in-house, fabrics are bought in Asia and products are made in Ecuador. Collections are kept in store according to a very simple calendar: they remain at full price for 90 days (in fashion) or 120 days (in home), then they are automatically marked down at 30%, 50% and then 80%, before being taken out of stores. This scheme allows the company to avoid having seasonal sales in the store (including third-party brands): during seasonal events, it is not about product clearance, but a maximum of 30% discount off fresh products, to which customers can add an additional 10% discount if they own the De Prati card. Given the size of the private label business in the fashion category, which represents 80% of the total business, this system allows them to have a very healthy margin structure, as overall the company enjoys 70% of sales at full price and promotions capped at 30% of the business. However, in order to remain relevant with the younger clientele, the plan is to introduce more third-party brands (international labels), from 19% today to 55% in 2026.

When it comes to picking up online sales, the store pick-up is the only free option, which allows 60% of all e-commerce orders to be picked up in stores. For that reason, e-commerce operations are profitable and total logistics costs for the company are limited to 6% of total sales. Also, returns are kept at an extremely low level (less than 1% in-store and 3.3% online) thanks to this approach and in spite of the 30-days-no-questions-asked return possibilities offered by the De Prati Credito card.

Finally, De Prati is also very much involved socially speaking, in addition to remaining committed to Ecuadorian production for its private labels. In 2014 it launched the ‘Mujeres Confeccionistas’ training program which allows women to grow and become independent. The program focuses on 3 pillars:

-    Improve self-consideration and provide a way to generate new life opportunities,

-    Teach entrepreneurship and basics in management,

-    Teach how to use social media to develop a business.

This program is open in every city where De Prati has a store and less than 5% of graduates work in factories after attending it, as they prefer launching their own activity and becoming more empowered. De Prati has also made agreements with national and Latin American universities in order to help its employees to validate their knowledge with diplomas.

Going further: for the sake of evolution

The most striking point about De Prati is the notion of permanent adaptation. The context is challenging: more brands are entering the country, prices are becoming an issue for most customers, and from a social point of view, violence is increasing, to the point of influencing customer behaviour as they now come earlier in the day and avoid staying until 6:30 pm when it is unsafe in the streets.

In order to face those realities, the company bets everything on its teams and their capability to develop and deploy new ideas, from customer processes to new systems. De Prati is currently developing an app which will provide a new purchase option for its customers, while also sticking to the needs of the younger clientele it wants to attract, in complement to a new brand offering including more international labels.

That permanent capability of adaptation has created a sentiment of pride to belong to such a company, which is palpable when discussing with the teams, and reinforced by the larger commitments of De Prati, which announced in 2022 a commitment to invest $80m in the country, in order to contribute to its development. Feeling this pride was probably the most impressive during the visit, as it really appeared as a true competitive asset for De Prati in the future.

Credits: IADS (Selvane Mohandas du Ménil)