In 1953, in the southern city of Arequipa, in Peru, Exito was founded by the Rodriguez family, with the purpose of trading home appliances, with the first store being opened in 1956. The following year, the company extended its operation into Lima, the capital city. However, in 1958, a strong earthquake hit Arequipa. In order to help the less favored population, Exito focused its commercial efforts in these segments, extended their payment terms in a way that their customers could pay their purchases in up to 30 months.

Exito developed a competitive advantage in assessing, providing and managing credit to these segments that were not taken care of by the traditional banking system, as they were perceived as too risky. The paradoxical situation is that those less favored segments did not miss their payments; given that they were not subject of credit by anyone else, these customers did their best to not fail the only source of credit they had: the rate of defaulted credits of the Exito portfolio was lower than that of many traditional banks.

The company became a strong leader in the industry, expanding their operations throughout the country. They became a gray market operator for the Sony brand; they bought the products from distributors mainly located in Panama and imported them into Peru to be commercialized in their stores. They also imported Samsung products and completed their assembly in free-trade zones in the peruvian jungle, before completing their import process in the country. Exito also became the distributor in the country for the audio brand Aiwa.

Their success was such that they decided to diversify their portfolio of businesses. They explored opportunities in the textile industry, in agriculture, in car dealership and in some others. In 1992, they adopted a corporate structure, with a portfolio of business units that focused in the following business

• Exito: chain of stores focused on trading appliances
• Hyundai: the company obtained the representation in the country of this auto brand and established a network of dealerships throughout the country
• Kasa: commercialized construction materials
• CreditPlus: they developed their financial business to an extent in which they established a bank to finance the credit provided to their customers in all of the other businesses
• ElectroService: tech-support for their portfolio of electronics brands

The mission of the corporation was to "have in every household in Latin America a durable good sold on

credit". Accordingly, the company expanded its operations to Bolivia, Ecuador, Colombia and Chile.

Curtains and Carpets (C&C) and Its Acquisition

By the late 60's the Johanson family opened a store called Curtains and Carpets, that came to be known as C&C, initially with one store but grew to become the most recognized brand in their business, with a

chain of stores that spread through the most affluent neighbourhoods in Lima. You can compare the C&C stores to something similar to Pottery Barn here in North America: a high-end retailer of home furnishing and decoration products. The company expanded its operations to Santiago de Chile. But during the 90's the company went into a severe financial stress due to poor management. The payment commitments with the suppliers were defaulted in many instances and some suppliers stopped their deliveries to the stores.

By the mid 90's, C&C was approached by the Chilean chain of department stores Ripley, with the intention to explore an acquisition option. However, the acquisition did not materialize after their due diligence. Shortly after, Ripley opened their own stores in Lima and became a competitor. Another big competitor was the also Chilean chain of stores Saga Falabella and a few other smaller national retailers.

After Ripley, Group Exito approached C&C to explore an acquisition. The negotiations with the family were successful; C&C also reached an agreement with more than two hundred product and services suppliers and financial banks that had outstanding, unpaid debts from previous deliveries and loans to C&C.

From Exito's perspective, the acquisition went along their mission: to have in every household in Latin

America a durable good sold on credit.

C&C Under New Administration

In 1997, Exito started to operate C&C stores, with CreditPlus, its bank and financial business, providing consumption credit for their customers. Traditional credit cards were also accepted at the stores.

The success of this type of business is based on the availability of innovative, creative and fashion products, different from those offered by the competition. The supply of products and services was resumed by the suppliers, who were eagerly waiting to restart business with the new administration.

With the availability of new products and an intense advertising effort, the sales of the chain started to increase significantly. The payment terms with the suppliers (mostly based on 60 and 90 days) and the financial institutions were honored, as per the restructuring agreements.

However, in 1998, Peru began to suffer a recession. The economic activity in the country decreased significantly. We have to have clear that in a country like this, quality education is not provided by the government but by the private sector. The quality of the health system also depends on who is the provider; on the same token, health services provided by the government are of a very low quality; people who wanted to have a quality health care service have to go the private sector and pay for it or for private health insurances. As you may conclude, the last concern that people had when difficult economic times are taking place is the renovation of home dcor, new furniture, Persian rugs or new imported china. The focus of customers turned to cover the basic needs of their families.

The sales of the chain of stores decreased notably; the result was that the payment terms with the suppliers and the financial institutions couldn't be filled. Suppliers started to discontinue filling C&C's purchase orders.

The company tried to extend the payment terms to 90 and 120 days, but this attempt turned out to be counterproductive: suppliers stopped providing the company with so much needed product to keep the business going.

The problem was not limited to local suppliers; the company had in customs several containers of imported merchandise ready to be nationalized but the company did not have the financial resources to pay for them.

The Product Team was made up of 8 Category Managers, who had the responsibility of determining which products should be brought into the stores and the prices to charge for them. Basically, they had the commercial decisions on their hands.

The Purchasing team was made up of a Purchasing Manager, eight purchasers -each one of them responsible of keeping the right inventory levels of the products of one or tow categories- and the right allocation of them among the stores. The team also included a statistician, who was in charge of preparing the commercial reports for management and decision-making purposes.

It was obvious that the company was headed into another restructuring process that required protection from creditors, which is something that could take a long time. In the meantime, the business needed to be kept alive.

The Problem

You are the Purchasing Manager and your responsibility is to assure the continued supply of products to the stores.

1. Think of innovative ways to make sure there is a continuous flow of products into the chain.
2. As a result of these new ways of to assure supply, what payment terms would you propose to your suppliers
3. Do you think you would you require a change in the structure of your team?
4. How do you think the changes you may be proposing affect the relationship of your team with other areas of the company (finance, accounting, HR, sales, etc.)