By FERNANDO NOGUEIRA DA COSTA*
It was evident, both for specialized opinion and for public opinion, the strategy adopted by the commercial retail chain
Economists do not have a laboratory with NTP (Normal Temperature and Pressure Conditions) to test their hypotheses. Therefore, living reality is its field of applied analysis.
A crisis case study, unlike those who suffer its consequences, makes them “happy as a chick in the trash”. Some idealists say they work in the abstract with the unrealistic hypothesis of equilibrium or “what should be”, precisely to demonstrate that reality is anomalous. Others, materialists, work with the “concrete thought”, after abstracting their hypotheses from the concreteness of reality, that is, “what is”.
The opportunists take advantage of the case to hastily promote themselves, like a fan at the end of the game when he raises the “I knew it!” sign. They practice “reverse prophecy”, that is, they judge the process from the finish line.
I avoid this supernatural practice of omniscience. But I cannot resist quoting, for those who wish to detail the study of the case of the Americanas in greater depth, my text for discussion, “Time and Money in Term Purchases and Sales”, posted on the Unicamp Institute of Economics website in July 2022.
For what reason? In it, I defend the hypothesis, based on facts and logical arguments, that “the difference between the time of payments and the time of receipts is decisive to remain in the retail trade business. The aim is to obtain enough time for payments from suppliers to have already obtained sufficient revenue from sales of the goods purchased from them”.
Once again the hypothesis was tested, this time in the real world. It corresponds to the risk withdrawn from the Americanas stores, also called “lump sum” (missing an appointment), used in the rollover of financing to suppliers.
It was evident, both for specialized opinion and for public opinion, the strategy adopted by the commercial retail chain. It was to operate more with the capital of others instead of its own capital. The most skilled capitalist in this game will be able to leverage, go public, associate and raise equity as a guarantee of the use of third-party capital. Increasing scale and profitability with this financial leverage is the secret of capitalist business.
It would not be uncommon for merchants to seek to extend the payment period to suppliers and shorten the payment period for customers. Paradoxically, in Terrae Brasilis, the seller forces the buyer to pay in installments with credit cards!
The buyer reasons: I like that he thinks he is deceiving me with a forward price equal to the spot price, but by paying later I will have more interest income, in theory, lost by him, the seller. “Time is money” according to a maxim of finance theory, related to future cash flow brought to present value, that is, discounted from the expected opportunity cost during the period.
The problem with this “mirroring inversion” is that the cost of living in the country is higher in relation to an economy with a difference between spot and forward prices. It occurs due to the transfer of the cost of credit sales to all buyers with the same price, whether or not they use credit cards with future “anniversary dates”.
Many non-financial companies trade with time – not money, because they don't have it! They seek to pay in installments and discount receivables to obtain cash. Then, with the money advanced from sales, they pay for purchase commitments. In order to use third-party resources to leverage their business financially, they seek to anticipate buyer-client receivables from commercial banks. Before, sales were through checks, now they are through credit cards.
The name commercial banks had its historical origin in these discount operations, that is, charging a commission for advancing money to the merchant for his sales to be received in installments. The so-called rediscount, made by the Monetary Authority, was the liquidity loan granted by it to the banks, guaranteed by the commercial securities received in the payment commitments.
Partnerships between large retail chains and banks, to also advance these resources to their suppliers, are multiplying. However, those with less bargaining power – the small business owner of a single commercial establishment – need to negotiate the conditions at discount rates, in order to obtain some advantage in this “industry of receivables”, and immediately help the cashier.
What was the crucial decision, capable of irreversibly altering the context, if not at the cost of assuming a loss, or of “disrupting the economy's stable equilibrium”? Last year, retailers and service companies tried to resume their sales, but felt a relevant deterioration in the level of indebtedness, because the inflation target regime, below the current world reality, led the Bank's COPOM (Monetary Policy Committee) Central do Brasil to raise the real interest rate to 8 percentage points (roughly, 13,75% – 5,75%), the highest in the world!
The expectation of a world recession, due to the widespread phenomenon of rising inflation and high interest rates, contaminates investment decisions. Weak cash generation can complicate the financial leverage of commercial activities.
The analysis of the balance sheets of a representative sample of commerce and services companies shows that, while the net financial debt of the groups almost doubled, operating cash generation increased much less, increasing the pressure on the level of indebtedness. It raised the degree of financial fragility.
In the same range, the value of earnings before interest, taxes, amortization and depreciation (EBITDA, the acronym in English) advanced at a lower pace, at about 1/5 in the year. As a result, the ratio between net debt and operating income (EBITDA) more than doubled, although with rapid acceleration in the short term it is still at a level below twice, which is considered the critical level.
With the projection for GDP to grow less in 2023 compared to 2022, due to the global recession and local fiscal adjustment, such as “brakes for housekeeping”, the scenario is also weak revenues. As a result, companies will have more conservative investment plans for this year, in order to protect cash and maintain cost and expense reductions as a priority. They will still need to continue to swap (refinance or roll over) debt on unpayable terms in this high interest rate environment.
Although the Selic has a positive effect on financial income, financial expenses grow more quickly compared to revenues. Companies pay, in their lines of credit or debentures, percentages of the CDI. With post-fixed interest, they are always above the income obtained in their financial income with fixed interest.
Working capital has hurt the cash flow of these retail companies. It should improve if they adjust their inventories to a more restricted consumption environment.
Thousands of minority shareholders, small investors in stocks, withdrew amounts from their savings, the result of sacrifice in consumption, trusting in Americanas robustness and high level of corporate governance. They were deceived by the announced good growth prospects, recorded in the analysis of their released balance sheets, and acquired shares in it, until then the largest retail chain in the country.
However, inconsistencies were detected in accounting entries, reducing the debt account with suppliers, made in previous years. After seeking a preliminary injunction in preparation for its judicial recovery, Americanas begins to structure a plan to sell assets – ways of maintaining wealth –, not all of which are so liquid.
Pressured to raise capital in the midst of one of the biggest crises in Brazilian corporate history, the retailer will place subsidiaries or affiliates in negotiation. The sale of assets, to restore cash (availability), is a mandatory move, a pillar of the tripod completed with capitalization and debt renegotiation.
To get more time to pay off debts, its management received a series of demands, the main one being an immediate capitalization by its controllers, the billionaire trio 3G – Jorge Paulo Lemann, Marcel Telles and Beto Sicupira.
However, creditor banks were surprised by the news that Americanas had obtained an injunction in court, suspending any payment of total debts, declared at R$ 40 billion. "It's a shame, it shows the character of the 3G guys," said a bank spokesman. He promised not to do any more business with the trio: “with us never again!” The world turns, Americanas turns… And who balances?
*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Support and enrichment network. Available in https://fernandonogueiracosta.wordpress.com/2022/09/20/rede-de-apoio-e-enriquecimento-baixe-o-livro/
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