Star World, which opened its first store last year in Los Angeles, aims to revolutionize retailing for Hispanics by offering omni-channel retailing and attractive credit terms. This new department store, launched by Jerry Azarkman, founder of the Curacao department-store chain that caters to Latinos across California and Arizona, was born from his belief that brick-and-mortar retailers must overhaul in the face of expanding online shopping. Azarkman started Star World after leaving Curacao on the heels of what he says was a disagreement with the board over his vision for the company’s future.
That vision now belongs to Star World. Indeed, the new business model calls for stores displaying apparel, cosmetics, jewelry, appliances and home furnishings in bright, modern-designed spaces, as is expected in any brick-and-mortar environment. But the omni-channel nature of the Star World experience also makes for something of an in-store and online hybrid. Customers shop here normally, as they would in any store. But they may also browse for merchandise unavailable in-store, by using one of 15 interactive screens installed at kiosks throughout; they access makers’ full product catalogs and compare items across models, colors and styles. Once these have been selected, they are placed in the virtual shopping cart, a salesperson anywhere on the floor is notified by means of a tablet he or she is carrying, and the transaction is completed for delivery to the customer within seven days. Of course, any items purchased in-store may be processed that same way. Those tablets are significant also because any shopper eligible to apply for consumer credit may consult a sales clerk and have the application approved on the spot by means of that tablet. This is important because over half the store transactions involve consumer credit.
“Retail is changing rapidly, and the majority of department stores and retailers are being affected, not so much by e-commerce but by the fact consumers can compare prices on the spot online, particularly for electronics,” Azarkman said. “We designed a fully automated system that complements the store’s right mix of merchandise, all in a nice retail environment. If consumers only buy online because of price and convenience, let’s create a hybrid between e-commerce and a mall.”
Granting instant credit to customers, even those without a social security number or a credit history, is a key component of the company’s overall strategy — and this strategy in fact helped build the 40-year-old Curacao store into a chain that was generating some $300 million in annual sales by 2014. Star World employs an algorithm that assesses an applicant’s payment risk based on income stability. Shoppers are thus offered a revolving credit line or a fixed schedule of installments until the balance on a purchase is paid off (not a layaway plan).
“With Curacao, I was one of the first to grant credit to Hispanics without a social security number,” Azarkman said. And he estimates that as many as one-third of U.S. Hispanics lack a credit record. “At the store, I do not need to send the consumer to a credit department to fill out an application. All the work is done by one salesperson, who can give A to Z to the customer.” He asserts that his experience has been that if the shopper has a job, lives with family and has rented housing for over a year, the risk is minimal. If an applicant does have a credit problem caused by extreme circumstances, such as health-related expenses, a salesperson can still issue credit, Azarkman says.
Azarkman, who began Curacao as a door-to-door sales business, says he has zeroed in on Hispanic consumers because they represent an underserved, growing market that he knows well. Nielsen estimates that U.S. Hispanic buying power reached $1.5 trillion last year, up by 50 percent from 2010. Hispanics numbered 55.4 million in 2014, accounting for 17.4 percent of the U.S. population.
A smaller sales floor (the initial store measures 30,000 square feet, but the company is planning to create stores as small as 5,000 square feet) and a lower overhead helps push down the cost of doing business, allowing the retailer to match online pricing, Azarkman says. “Prices are competitive because I don’t need a warehouse or an operations department,” he said.
The first Star World is located in Huntington Park, a city in California’s Los Angeles County with a population in excess of 59,000, of which 97 percent is Hispanic. The city’s median household income averaged $36,397 annually between 2009 and 2013, according to the U.S. Census Bureau. Since opening in October, Star World’s sales have been growing sharply, according to Azarkman, who is projecting that sales (excluding financing revenues) the first year will total some $14 million to $15 million.
Though 92 percent of its shoppers are Hispanic, the company opted for a non-Spanish name after focus groups in San Diego, San Francisco and other cities revealed that Hispanics tend to mistrust retailers with Spanish names, says Azarkman. Little wonder, perhaps, given that most retailers catering to the credit-underserved Hispanic population typically charge between 35 percent and 39 percent interest, according to Azarkman. By comparison, Star World’s average financing rate is 21 percent, and at least 65 percent of its sales are financed, he says. The average purchase is $470, and the top sellers are TV sets and tablets. But though many of the shoppers might be of modest means, the range of the merchandise tends to run to the high end; consumers may order and finance custom-made jewelry with precious gems, for example, and aside from mass-oriented goods, shoppers may also purchase such top-tier brands as Viking, which manufactures kitchen appliances.
Star World has plans to open about 75 stores within five years. The fairly small format will make it relatively easy to find space in Hispanic neighborhoods, Azarkman says. This year Star World will open only two or three stores, beginning with a 30,000-square-foot store in Oxnard, Calif., set for this summer. Total investment in the store that opened last year came to about $10 million.
“We are looking for cities with a high percentage of Hispanics and a large need for products, service and credit,” Azarkman said. “Shopping centers with a good Hispanic demographic are a good target location, as we have store models ranging from 5,000 to 30,000 square feet,” he said. “We estimate California alone has a potential for at least 160 Star World stores.” But the company has identified roughly 400 potential markets throughout the U.S. that offer sizable populations of its main target group: non-acculturated Hispanics — Spanish-speaking immigrants who prefer to navigate within the U.S. Latino culture.
