DIA closes 313 underperforming stores in Brazil in 2019

Date : 12 November 2019

Oliver Butterworth

Retail Analyst

In the first nine months of 2019 DIA closed 757 underperforming stores across the group. Most of these closures were in Brazil (313) and Spain (374). In Brazil closures consisted of 44 DIA owned stores and 269 franchised sites.

In 2019 DIA has embarked on a large-scale de-franchising process to improve the quality of its franchisee network. At the start of the year franchises accounted for 58% of its stores in Brazil, which has since reduced to 41%.

                                             DIA store São Paulo, Brazil

                                             Source: IGD Retail Analysis

‘Make DIA a Champion’ five-year rescue plan

In February 2019 L1 (LetterOne) Retail, which owns 69.76% of the share capital of DIA, announced a comprehensive rescue plan to secure the future of the retailer. The business had been undergoing serious financial difficulties. L1 believed that under the right leadership and governance, DIA could deliver a transformation and re-establish its leading retail position. Subsequently L1 launched its ‘Make DIA a Champion’ rescue plan, part of which included a six-pillar strategy aimed at turning the business around over the next five years.

                                             DIA store with an on-the-move proposition, São Paulo Brazil

                                             Source: IGD Retail Analysis

Renewed focus on Brazil

Sales at DIA Brazil account for 26% of group turnover. Mikhail Fridman, owner of DIA, said its future strategy is to treat its operations in Brazil with a similar level of importance to its home market, Spain. He sees Brazil as “a very relevant market” and one that could be “an engine of growth for the company in the medium-long term, subject to receiving investment and having a clear leadership.”

As of September 2019, there are 883 DIA stores in Brazil, but Fridman believes there is the potential for thousands in the market. Despite this, the business opened a modest 24 stores in the first nine months of 2019. If it does receive the right level of investment, this could encourage a significant increase in the number of new store openings, particularly as it currently operates over 4,000 stores in Spain.

                             Source: DIA

DIA Brazil’s nine-month sales fall by 18%...

In the first nine months of 2019, DIA’s gross sales in Brazil fell by 17.6% from EUR1.2 bn (US$1.3bn) to EUR999.7m (US$1.1 bn) (-15.6% in local currency) with like-for-like sales down by 10.3%. The decline has partly been driven by the large number of store closures, but also the other initiatives launched in H1 in order to improve its operations and commercial proposition.

In its statement to the National Market of Commission (CNMV) it stated, "the company has been operating in a highly volatile and complicated business, financial and corporate context that has generated a significant cost."

For more information on DIA’s results see our article here.

…but sales are showing signs of recovery

Sales are starting to show signs of early recovery. Like-for-like sales were -3.6% in October, compared to a record-low in June of -29.1%. Fridman is confident this turnaround will continue and has projected an increase of 8.6% in sales by 2020.

Improving the range in stores…

As part of its strategy to turnaround the business, DIA has carried out a range rationalisation of its estate. A reduced number of SKUs will help it to simplify its offer, improve productivity and promote its best value-for-money proposition to customers. 

                                             Source: IGD Retail Analysis

…and streamlining operations

The business has also undergone a massive restructure, which saw a significant headcount reduction in Brazil. DIA expects this to improve productivity in stores, warehouses and head office locations.

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