How Mexico's Poor Buy 20-Inch Sonys

Young Alfredo Flores and his wife recently had a new baby, so their modest income of 450 pesos (about $50) a week left no room for movies, concerts, or dinners out.

But the couple still thought they deserved some entertainment in their life. So last December Mr. Flores, a Tupperware data processor in this small town west of Mexico City, signed a contract at one of the Elektra appliance stores that have mushroomed in Mexico. In exchange for a small down payment and 39 weekly payments of 106 pesos, or about $11 a week, he took home a 20-inch Sony television.

Every day Elektra's jingle "Si se puede!" - "Yes it's possible!" - flows into millions of Mexican homes, much the way "Attention Kmart shoppers!" worked in Kmart stores in the United States.

"Too many families are being fooled by the snappy slogans and claims of low prices to buy unnecessary products, even before putting enough food on the table," says Arturo Lomeli, president of the Mexican Association for Consumer Protection. "If it's a product of first necessity, it can be worth it; otherwise, it's better to wait and pay cash."

Yet Elektra's chain of familiar red and yellow stores has grown from 59 in 1981 to almost 600 in 271 Mexican cities today. And Elektra plans to open 200 stores in South America - starting in Chile and Peru - and 150 in Central America by 2000.

Elektra is not the only appliance chain offering low weekly payments in Mexico. The country has a tradition of aboneros, vendors of household goods on the installment plan. "Elektra is a modern manifestation of the abonero's clever understanding that even poor families that spend 90 percent of their income on food have needs and desires they're willing to pay for," says Carlos Welti, a sociologist specializing in low-income family spending habits at the National Autonomous University in Mexico City.

Recently many conventional sources of credit in Mexico have simply dried up as the country's interest rates have rocketed - from 40 percent in January to 60 percent today - in response to the deepening international financial crisis. Now a Mexican seeking a bank loan pays almost the same interest rate in a month that a bank borrower in the US pays over a year.

But so far Elektra's trademark credit system remains unchanged. "The idea of Elektra is to sell basic hard goods - TVs, washers, refrigerators, stoves, VCRs - to the 92 percent of Mexican society that earns less than $4,500 a year," says Gonzalo Garca De Luca, Elektra's director of corporate finance.

The credit isn't cheap. Elektra sets a rate at 10 points above a commercial credit card. But, unlike Mexican credit-card rates, all Elektra credit is at a fixed rate. With volatile interest rates for more than a decade, knowing that a 100-peso payment is going to stay 100 pesos is a big draw for families on tight budgets.

Some critics say the Elektra system perpetuates a paternalistic culture where lower-income groups owe their lives or earnings to a central father figure - in this case Elektra owner Ricardo Salinas Pliego instead of the old hacienda owner. For example, Elektra employs 4,000 "investigators" so every potential credit client can be visited at home before a credit sale is approved.

But most customers aren't bothered by the practice. "They're extending credit to people who often don't qualify for conventional credit, so they have to ascertain somehow that the customer is the reliable risk he claims to be," says Alfredo Cruz Garca, a Mexico City credit officer.

As for Mr. Flores, on a recent Saturday he made his next-to-last payment on the Sony. Walking out of Elektra's Metepec store, he talked about the credit system: "It allowed us to take home something that otherwise we would have only dreamed about."