Credito Hispano
Trust in Poor Built Consumer Empire For Israeli Brothers at La Curacao in Los Angeles

By MIRIAM JORDAN
Staff Reporter of The Wall Street Journal

LOS ANGELES -- In a matter of minutes six years ago, Guatemalan immigrants José and Soyla Flores applied for and received their first credit card. Never mind that they had no credit history or that Mr. Flores's job as a janitor earned them just $800 a month.

The couple's punctual payments to La Curacao, a Southern California electronics and furniture retailer, paved the way for them to get a Sears credit card. Next came a Bank of America Mastercard. Then a car loan. The two hope to land a mortgage soon.

Whom do the Floreses have to thank for the chance to pile up credit debt? It isn't entrepreneurs hailing from Mexico or Central America. La Curacao is the brainchild of two Israelis who share a similar experience with many of their customers: They were once illegal immigrants searching for a better life in the U.S.

Small Empire

Jerry Azarkman, a 51-year-old former door-to-door peddler, and his brother Ron, 48, have built a small retail empire that caters to newcomers who are eager to join the consumer market but sometimes feel alienated from it. What the Azarkmans have grasped is that the poor can be good credit risks, if the retailer gives them reason to be grateful someone has taken a chance on them.

The brothers have also shown that a more personal approach can work in this marketplace. The chain's slogan is "Un Poco de Su Pais," or "a little bit of your country." Everything about the stores -- from the exterior emblazoned with Mayan and Aztec statues to the piped-in salsa music, Spanish-speaking sales staff and Spanish-language sale signs inside -- is designed to make the customers feel as if they're back home.

Every La Curacao store also has a stage, where mariachi bands, clowns and other family entertainment are featured, especially on weekends. "These families can't afford to visit Disneyland," says Eli Barak, senior vice president for marketing. The result is that the customer develops a high level of customer loyalty.

"La Curacao developed a model for a segment that the rest of the industry doesn't understand," says Felipe Korzenny, a retail consultant who specializes in the Hispanic market. "Now, they are one of most powerful retailers in California." The chain plans to expand, and its methods are being looked at by national retail chains such as Sears, Roebuck & Co.

Store credit cards are used for 95% of the purchases at the four La Curacao outlets in Southern California. And for eight out of 10 of these customers, the La Curacao credit card is the first one they've ever had, the retailer says.

Because most customers pay their card balances gradually, credit-card interest charges contribute significantly to the closely held company's bottom line. The average balance on the cards is $700 and the average monthly payment on those balances is just $70, according to the store.

Steep Rate

The interest rate on its cards is a steep 23.99% -- higher than the rates of 19% to 23% offered by many mainstream department stores. "Our interest rate is commensurate with the risk," says Mauricio Fux, senior vice president for business development at La Curacao. "It's a market where we're taking a risk on customers that may not appear on any credit bureau." The retailer offers most customers the option of paying in four interest-free installments.

The rate doesn't bother customers like Maria Camarena, whose husband, Lorenzo, a freelance mason, earns an average of $1,400 a month. "In other places, they don't give credit to people like us who are poor and don't have papers," she says.

Since its first store opening in a downtown Hispanic neighborhood in 1981, the La Curacao chain has issued more than a million store credit cards. The flagship store rings up $70 million in annual sales. That's more than any single Sears outlet in the area, say people close to the Chicago-based retailer.

The average income of La Curacao's roughly 500,000 credit-card holders is $1,500 a month. Not everyone thinks it is a great idea to extend credit to people of such limited means. "Some families get in over their heads because it's so easy" to obtain credit, says Bea Stotzer, president of the board of New Economics for Women, a nonprofit organization that helps poor Hispanic women.

Pastor Herrera, director of the Los Angeles County Department of Consumer Affairs, said the few complaints the government agency received about La Curacao since 2003 concerned "routine" issues. "All the complaints were resolved," he said, adding, "The store serves a [community] that wants to fulfill the American dream."

The prices at La Curacao aren't necessarily the lowest. "I used to shop there," said Rosa Gonzalez as she scoured the small appliances on sale at a Wal-Mart in Panorama City, in the same mall as a La Curacao outlet. "Then I started to compare prices." In early June, the same Mr. Coffee 12-cup automatic coffee maker that cost $29.99 at a Target store sold for $39.99 at La Curacao.

The Azarkman brothers say they never promised to have the lowest prices. They also say their high ratio of salespeople to customers makes their operating costs significantly steeper than those of mainstream retailers. Still, last month they instituted a price-matching policy for the first time in their 25-year history.

La Curacao is an outgrowth of Jerry Azarkman's attempt to start a new life in America. He was the son of a Jewish physician from Iran whose credentials weren't recognized in Israel. He sold the family's Persian rugs to help feed his children. Jerry struck out for America at age 23 for a fresh start. Unable to afford a ticket all the way to the West Coast, he flew to New York, then took a job ferrying a car to Los Angeles. "I had no job and I was undocumented," he says.

It was 1977, and Central American immigrants fleeing political and economic unrest were flocking to Los Angeles. To survive, Mr. Azarkman tried selling door to door, persuading an electronics wholesaler in downtown Los Angeles to sell him a handful of videogames. He could speak neither English nor Spanish, but "I felt more comfortable going to the Latinos," says Mr. Azarkman. "They seemed to have an Israeli style. They are warm people."

His first customer was a Salvadoran named Marta Carballo who couldn't afford his asking price of $20 for the videogame. Mr. Azarkman says he agreed to take $16 and return for the rest in a few days. Most important, in exchange for a small gift, he encouraged her to gather friends and family for a demonstration of the game during his next visit. Mr. Azarkman's clientele multiplied as customers spread the word about him.

Soon, he was attracting more customers than he could handle alone. "It took me a year to cover just four streets," he recalls. He began to recruit his best customers to sell stereos, radios and other electronics for him in exchange for a 15% commission. He told the sales force to give customers brand-new items if they complained after a purchase. "His biggest concern was to keep the client," says Mario Romero, who bought a stereo from Mr. Azarkman and later joined his sales team.

He was joined by his brother in 1980 and the two opened their first outlet in downtown Los Angeles. The Azarkmans named it La Curacao, a suggestion from customers who had shopped at a Dutch-owned store bearing that name in Central America. The Azarkmans, who by then employed a few dozen people, got green cards in 1981 under a government amnesty program.

The first marketing blitz consisted of fliers that featured pictures -- sketched by the brothers -- of electronic items in their store. They advertised 12-hour promotions that lured shoppers willing to endure lines that snaked around the block. The Azarkmans didn't know what a financial statement was when they applied for their first bank loan at then-Security Pacific Bank. "The loan officer suggested we hire a CPA," says Ron Azarkman. They did, and a few months later, in 1983, the loan officer gave them a $1 million credit line.

The next year, the Azarkmans pioneered a retail concept that turned out to be crucial to their future. Later emulated by small regional competitors, it enables customers to select and buy goods in the U.S. for delivery to relatives in their home countries. In 1985, they established a formal credit department. Sales grew roughly threefold annually in the 1980s.

In 1992, in the riots that decimated downtown Los Angeles, La Curacao was torched. The next day, it opened for business. Customers persued a catalog of television sets and stereos displayed on a curbside table. "Customers came by asking how to make their payments," recalls sales supervisor Byron Lopez, whose job then was to don a penguin costume -- the store's mascot -- and hand out balloons to customers' children.

Within a month, the Azarkmans had rented space in what would eventually become their current headquarters, two towers on the edge of downtown with a 100,000-square-foot store in the lobby. In 1995, they opened a second store in Panorama City, a heavily Hispanic suburb north of Los Angeles. A crowd estimated at 70,000 thronged the opening.

The Azarkmans' initial technique for gauging creditworthiness was largely instinctive. "If I saw packed luggage in a corner I knew this person couldn't be trusted to pay later," says Jerry Azarkman of his early door-to-door days. Now they use a confidential formula based on behavioral and lending models that is constantly being tweaked by La Curacao software engineers.

While mainstream retailers rely mostly on a credit bureau's score, La Curacao "tries to get a three-dimensional picture of the customer," says Hector Perez, senior vice president of finance. Just 7% of the applicants are homeowners, and only half hold bank accounts. Most are new to the U.S.

To get a complete picture, La Curacao asks detailed questions in face-to-face interviews. One recent afternoon at La Curacao in Huntington Park, credit attendant Dina Marquez interviewed Carlos Ortega, a 22-year-old construction worker and father of two earning $360 a week. He and his wife, Lia, were eager for credit to buy a $700 bed to replace their broken one.

Mr. Ortega's only identification was a voting card from Mexico. When he told the interviewer he paid $525 a month to rent an apartment in Long Beach, she asked if he split it with relatives. Indeed, he said, his brother Egnacio was paying half -- an important distinction.

The fact that the brother had a store card and that Mr. Ortega had lived in the U.S. for many years helped his case. Still, there was a major obstacle: His employer could be reached only by cellphone. The contractor confirmed that Mr. Ortega was on his crew, but declined to supply a fixed-line phone number.

The company says seven out of 10 credit applicants at La Curacao are approved. Ultimately, Mr. Ortega wasn't. But Ms. Marquez, the interviewer, gently encouraged him to have a talk with his employer. "I hope it works out in the future," she said.

Today, the Azarkmans preside over a business that spans their four department stores, a fast-food-chicken chain, a long-distance phone company, an Internet-service provider and a phone company, which together generate about $250 million in annual revenue. They employ 2,000.

"It's different from any store I've ever seen," says Jack Grau, a Sears executive who visited La Curacao's flagship outlet early this year.

Personal service extends to the other businesses. Eight out of 10 La Curacao computer buyers are acquiring their first machine, the brothers say, and get six months of free Internet service through the La Curacao Internet-service provider. Store technicians visit the homes of customers who buy a computer, install it, load it with software and then provide a two-hour lesson on using it. Customers can then call a toll-free number where Spanish-speaking attendants offer additional support.

The Azarkmans hope to open 15 more stores in the next five years, and are considering taking the company public if they go forward with plans to move into other states that are heavily Hispanic.

Though La Curacao advertises heavily on Spanish-language TV and radio, it also relies on the loyalty it has bred.

When the Flores family visited La Curacao recently, sales associate Gloria Montoya greeted them with an embrace and asked about their first trip home since getting their green cards. With their La Curacao card, the Floreses have spent about $15,000 at the department store, outfitting their Los Angeles apartment with appliances and furniture, as well as sending a stereo and other items to relatives in Guatemala. Despite their new credit options, they remain faithful to La Curacao. To Mr. Flores, "It's like family."