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How Wal-Mart profits from Chilean debt

Marketplace Staff Nov 12, 2009
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Kai Ryssdal: From Bentonville, Ark., today came these updates. Wal-Mart reported a better-than-expected quarterly profit. But same-store sales, that is, sales at stores open longer than one year, fell. That bodes ill for a quick rebound in consumer spending here in the United States.

But there is at least one country where people don’t mind shopping a bit. The Chilean economy has become much more consumer-centric over the past few years. Not always with positive results. Chileans are slipping into the same problematic personal debt patterns we did. Sometimes with the help of the world’s largest retailer. Annie Murphy has the story.


ANNIE MURPHY: It’s Saturday morning at Santiago’s open-air market. Vendors started arriving here before dawn, bringing with them products from all over the country, crates of avocados and apples, sides of beef, and barrels of olives.

Customers like Pilar Aval are packed in shoulder to shoulder, bargaining for their weekly staples.

PILAR AVAL: I buy everything here — fruit, vegetables, dried goods. I’ve got a large family, so I come because of the prices, and because I know what I’m buying.

These markets are a direct link between farmer and consumer and part of daily life across Latin America. But as Chile courts Western development, big stores are changing all that.

Last year Wal-Mart bought the popular Lider chain. Like Wal-Mart, Lider sells everything from electronics to bedsheets, and that includes groceries. But Pilar Aval is sticking with the outdoor market.

AVAL: Here you have as many choices as a supermarket, but the fundamental difference is everything is fresher.

And yet Chileans are increasingly walking away from traditional markets. A big reason is access to easy credit. Megastores like Lider also offer store credit cards to almost anyone.

Across town, a Lider store is full of people doing their Saturday shopping, including schoolteacher Fanny Fuentes.

FANNY FUENTES: I hate going to the open air markets. I like the supermarket. It’s easier, because you have everything right in the same place.

The tomatoes in Fuentes’ cart cost twice what they’d run at an outdoor market. She says she doesn’t mind paying more for the convenience. But the problem is, Fuentes is struggling to pay off a large debt she racked up on her store credit card. Those cards carry interest rates starting at 20 percent and can go almost as high as 50 percent.

FUENTES: You can get credit, but the interest is really high. I ran up a debt on my Lider card of about $2,000.

That’s a lot of money in Chile, where the average annual income is around $10,000 a year.

And this is a common problem. The average Chilean family spends two-thirds of their disposable income paying off debt. Last year, Chileans owed $9 billion on personal credit cards, and they defaulted on about a quarter of that sum.

University of Chile economist Esteban Puentes says interest rates hit working-class cardholders especially hard.

ESTEBAN PUENTES: If you’re unemployed, and you want to buy something, you could do it and eventually pay later, that’s the good part. The bad part is people don’t know exactly how much they’re paying in interest rates. There is a higher interest rate for poor people, that’s for sure.

Puentes says large retailers like Wal-Mart/Lider make most of their profits from interest earned with these cards.

Lider declined to comment on air. In a written statement, the company confirms its rates do increase based on the risk level of clients. And that practice is legal in Chile. The company also says credit lets low-income customers own luxury items like TVs and computers.

But many Chileans say they’re using that easy credit just to purchase basic necessities.

Luis Munoz is an unemployed day laborer. He was at his local Lider with his family. He says he’s getting a credit card so he can buy groceries.

He says, sure, I worry about generating a debt I can’t pay off. But not all of us have easy access to cash. You have to worry about your stomach first, he says, and later about how to pay.

From Santiago, Chile, this is Annie Murphy for Marketplace.

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