La Curacao a Growing Family

Twenty years ago, Ron and Jerry Azarkman sold watches and electronic products door to door in the city’s Central American enclaves. Seated in the modest living rooms of customers, the Israeli-born brothers began an intimate study of risk and reliability.

“[Now] you call it credit. Then, it was ‘Take a watch. You have $5? I’ll come and pick up another $5 next Friday,”’ said Ron Azarkman, chief executive of what eventually became the La Curacao department store chain.

Today, the brothers’ empire has surpassed $100 million in annual revenue, employs nearly 1,000, and is poised for major expansion. A newly built store opened in South Gate last month, extending the company’s reach beyond the Central American community it once exclusively targeted to millions of Mexican-born consumers. As many as eight more Los Angeles County outlets are planned for the next three years.

Stores in Pico Union and Panorama City offer everything from furniture and appliances to computers, toys, books and music. But the Azarkmans have achieved dominance with initiatives that go beyond selection to the heart of immigrant needs.

An export program enables customers to purchase merchandise for relatives in their home countries. Music, food and entertainment are staples at the stores, where kids “can jump on the beds and we will not get upset,” Azarkman said. But most of all, La Curacao has won its following and much of its revenue through credit.

Throughout the years, the Azarkmans have mastered a system to assess the behavior of so-called phantoms--consumers with no credit history and no prayer of obtaining one through banks or traditional department stores. Today, the chain sells 97% of its merchandise on credit to a whopping 400,000 consumers who carry the La Curacao private-label card.

This year, the company began offering a general purpose Visa and MasterCard in collaboration with Arizona-based Direct Merchants Credit Card Bank. The cards open a world of options for La Curacao customers, only 10% of whom carried them before. The program also cements La Curacao’s position as a savvy middle man for banks eager to tap immigrant spending power. Promoted so far only in stores or by word-of-mouth, the initiative has attracted 35,000 cardholders.

“The purpose is to give our consumers the fairness of access to credit cards, like anyone else,” Azarkman said in the first interview he has granted about the company. “I am saying, ‘Here is a credit card. You can use it anywhere in the world, and I’m going to do everything in my power to be your first choice.’ ”

La Curacao has its critics. A bitter labor dispute has clouded the reputation of management. Some question whether the company’s interest rates are too high. And La Curacao’s partner in the new card, Direct Merchants Bank, is the subject of a consumer lawsuit for unfair business practices.

One thing is certain: La Curacao has successfully tapped a massive consumer base often ignored and misunderstood by retailers. Nearly 4 million shoppers a year pass through its Pico Union outlet, and 2 million have visited the Panorama City store annually since it opened in 1995.

“La Curacao has been a tremendous concept,” said Jose Legaspi, a Montebello-area commercial real estate broker and developer. “They have taken an overall department-store format, made it look like a mercado and manned it with people who understand the Latino consumer. They’re able to provide what the consumer wants.”

The brothers grew up in Tel Aviv, where they briefly operated a small retail store. Jerry arrived in Los Angeles in 1978 and started the door-to-door venture, West Coast Catalog. In 1980, Ron joined him, and they opened a tiny Burbank showroom. They spoke neither English nor Spanish but quickly found a loyal consumer niche.

“We figured out the Hispanic market was underdeveloped,” Azarkman said. “We found it easier to tap into; it was pretty sizable and not recognized by the mainstream.”

The following year, the pair moved to the heart of Pico Union, where they handed out televisions and stereos, often with no down payment and only customers’ first names as collateral.

The brothers got burned from time to time, but they learned from their mistakes. They also honed their Spanish and English skills. By 1985, they launched a formal credit department. Today, 11% of revenue comes from interest generated by credit operations, Azarkman said.

The civil wars raging in Central America fed a steady stream of immigrants into Pico Union through the 1980s and early 1990s. Most had shopped in their home countries at La Curacao, a Dutch-owned chain similar to the Azarkmans’.

The brothers took the name, working out a deal with the Dutch entity. The relationship continues today. Customers make selections here, and goods are delivered to relatives from stores in Central America and Mexico. Products not carried by the local stores are shipped directly.

For a mascot, the Azarkmans chose a family of penguins, animals who mate for life and nurture their young. The store slogan: Un poco de su pais, “a little bit of your country.”

Sales initially grew by 300% yearly, and recent annual growth has continued at 30% to 40%, Azarkman said. The success is due in part to the store’s practice of buying close-out merchandise from small vendors at rock-bottom prices and reselling it at a mark-up.

A 1991 expansion was thwarted when the Pico Union store was torched in the riots six months later. But the brothers moved back to their old space and promptly reopened.

That store was renovated last year, decorated with Aztec and Mayan motifs. Thousands turned out for the recent opening of the South Gate store to catch a glimpse of TV personality Don Francisco. Azarkman said he is scouting locations for six to eight more outlets.

La Curacao does not carry toy guns and holds a swap each year during which children trade them for other toys. It spent hundreds of thousands of dollars to airlift goods to Central America in the wake of Hurricane Mitch.

The store also pushed computer literacy at a time when immigrant Latinos lagged. Today, the store sells several hundred PCs per month and offers tutorials to children as young as 4 years old in a secured play area.

On a recent day, half a dozen kids perched before computer screens in the Pico Union store, their legs dangling from the chairs. Nearby, credit analysts interviewed consumers, reminding them to report side income and only list the amount of rent for which they are responsible, common mistakes among credit novices.

Responses are analyzed by a risk-assessment program that models issues such as the gaps in ages between children and the amount of time that lapsed between jobs or apartments, Azarkman said.

The operation is not without controversy. Some question whether interest rates are exploitative. But Azarkman and others familiar with the industry say they are comparable or lower than other department store and general purpose cards.

Annual interest rates on the private-label card range from zero on short-term debt to 24% for longer-term purchases. Azarkman said the average rate of the portfolio is below 20%. The standard rate on Mervyn’s, Target and Sears cards is 21%.

Annual rates on La Curacao’s Visa and MasterCard are 17.99% or 22.99%, depending on the customer’s credit profile. That’s in line with other cards, particularly those serving subprime markets. An educational video accompanying new cards offers instructions on how to read and pay a bill. But it does not encourage consumers to pay off their balance or warn them of late fees, instead referring them to the fine print of their contracts for financial terms. Late payments more than twice in any six-month period, according to the contracts, can boost rates as high as 28.99%.

Still, David Bazart, executive director of the Consumer Credit Counseling Service of Los Angeles, said La Curacao provides a crucial service. The store initiated a program with the group in 1998, since discontinued, to offer Spanish-language credit education.

“They are reaching a niche in the market that’s really not being reached by anyone else,” Bazart said. “People new to this country with no credit basically have no place to go other than to check-cashing or payday outfits.”

Some consumer groups, however, are critical of the alliance with Direct Merchants, a subsidiary of Minnesota-based Metris Cos. In some states, annual interest rates of the entity, which specializes in subprime portfolios, have climbed above 32% for delinquent customers. James Hood, president of ConsumerAffairs.com Inc., a consumer information and advocacy site, said Direct Merchants is among “the top five companies we get complaints about.”

A class-action lawsuit filed earlier this year alleges “overly aggressive . . . and unlawful business practices” including unauthorized consumer charges, inappropriate late fees and misleading interest rate promotions.

Metris President and CEO Ronald N. Zebeck said the suit has no merit. “You can’t service 12 million customers and continue to grow at 50% a year if you don’t have your customers in mind,” he said.

He added that Metris, which recently acquired the U.S. credit card operation of Puerto Rican-based Banco Popular, is making aggressive strides to become the leading card issuer to Latino consumers.

Azarkman said La Curacao chose Direct Merchants because “we found them understanding of the vision we have for this market.” Under the deal, La Curacao is conducting all promotions, customer service and billing to control the treatment its customers receive, he added.

Treatment of La Curacao employees has also become the focus of controversy. Workers at the company’s Vernon warehouse recently voted to join the International Brotherhood of Teamsters, citing abuse by supervisors, unsafe working conditions, forced overtime and substandard pay.

Azarkman denied those conditions, stressing that all employees receive full medical, dental and vision coverage as well as a 401(k) plan introduced during the union organizing effort. He said La Curacao will respect the union. But the company aggressively fought the organizing effort, filing numerous unsuccessful complaints to stave off certification.

Last week, the company agreed in a National Labor Relations Board settlement to reinstate with back-pay six workers who were fired after they took lead rolls in the union effort. The board had found merit in the workers’ complaints, compelling the settlement.

Three of those to be reinstated were fired after participating in a union rally on their time off. Those who voted “No” on the organizing effort, meanwhile, received a letter lauding their “loyalty” and urging them to report direct or indirect physical or verbal threats from pro-union workers.

“We were looking for protection in the union, security on the job and the end to mistreatment for all employees,” said Juan Rodriguez, a truck driver for the Vernon warehouse.

Azarkman insists La Curacao treats employees “like family,” and that the employees were fired for threatening co-workers, allegations not substantiated by the labor board. As he walked through the store on a recent day, he was met by smiles, hugs and a few nervous greetings.

“We at La Curacao are extremely loyal to our employees,” he said.

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At a Glance

La Curacao has grown from a door-to-door catalog company into an empire with 1,000 employees and more than $100 million in annual revenue.

* Type of business: A department store featuring appliances, furniture, electronics, music, books and more.

* Locations: Pico Union, Panorama City and South Gate, with plans for six to eight more Los Angeles County stores.

n Special services: Export program. Credit for consumers with little or no credit history. Secured children’s play area providing computer training.