May 26, 2009 Lock, Stock, and Barrel

Volume 12 | Issue 3

In Brazil, manufacturing locks is a big business. As Michael Sommers discovers, the key to Stam’s successful strategy has been to go after e

Brazil is not one of those places where citizens brag about being able to sleep with their doors unlocked. With overall crime rates estimated to be four times that of the United States, it’s little wonder that when fortifying their homes, even the most humble households weigh their lock options seriously. Although in a country where a monthly minimum wage of $180 means that many working class Brazilians can’t afford to invest in state-of-the-art security systems favored by the wealthy, the fact that nobody can afford to skimp on safety is well understood by Stam Metalúrgica, a leading manufacturer of locks.

During its four decades of activity, the company based in Nova Friburgo, Rio de Janeiro, has steadfastly focused on developing low-priced products geared towards consumers with reduced purchasing power (the so-called “C, D, and E classes”) without sacrificing their security. According to Stam’s commercial director Gustavo Faria, such a feat isn’t as easy as it might seem. “Keeping prices affordable without compromising quality is actually quite difficult,” he says. “Many other companies in this sector are drawn to the low-end market due to its size; in recent years, Brazil’s poorer segments have seen a major increase in spending power. Attracted by this opportunity, competitors often readapt products to sell at lower prices, but in doing so they compromise on quality. Something that really sets Stam apart is that, for us, it doesn’t matter whether you’re spending 700 reais or 17 reais on a lock. We never forget that price has to be aligned with performance.”

CONSTANT INVESTMENT
Keeping this mission in mind is one thing, but making a profit while doing so is quite a challenge. Over the years, what has allowed Stam to meet this challenge head on has been its fearless drive to invest. When they first started the company in 1971, Stam’s founding partners possessed plenty of experience in metallurgical and mechanical industries, but their technical expertise couldn’t defend them from the cycle of economic crises that wracked Brazil throughout the 1970s and ‘80s. “The ‘80s were really tough,” recalls Faria. “We had extraordinary levels of inflation. You’d make a product for one price, and by the time it had been manufactured, the price would be completely different.”

During these years, Stam discovered that the best solution for any crisis was constant investment. The fledgling company consistently poured money and energy into improving and expanding its production capacity, work force, and product lines. By the time Brazil’s economy had opened up and stabilized in the early 1990s, Stam had not only weathered the storm, but was ready to take its propensity for investing to a whole new level.

“In the ‘90s, we adopted a policy of ‘pulverization’,” says Faria, referring to the decision to target all markets, including thousands of small neighborhood hardware stores throughout the country. As a result of adopting this strategy, the volume of sales to small clients is equal to that made to large retailers. However, in its pursuit of new clients, Stam is careful to leave no market segment unturned. In terms of retailers, it sells to hardware and construction material stores as well as large home centers located in major cities. It also sells directly to industrial clients – manufacturers purchase its locks to outfit doors made out of both metal and wood – as well as to wholesalers and distributors that possess the dual advantage of an extremely wide product mix and an enormous sales force that can reach markets that Stam can’t access on its own.

“It’s often cheaper for many small businesses to purchase a large mix from one wholesale supplier that carries everything they need instead of buying directly from the manufacturer,” explains Faria. “Ultimately, however, we aren’t seeking to create exclusivity with any one market niche. On the contrary, what we strive for is to maintain good relations with all players.”

PULVERIZING STRATEGY
“Pulverization” took the company to new levels of growth – in the last several years, annual growth rates have ranged between 15 and 30 percent – and became the company’s guiding mantra. It was the motivating force behind the complete restructuration of Stam’s commercial sales force, which now boasts close to 90 offices throughout Brazil, as well as a major expansion of its production facilities – currently comprising 98,000 square feet of constructed area – that was undertaken in order to meet suddenly increasing demand. Pulverization was also responsible for the company’s ongoing commitment to developing a much larger product mix.

“In 2004, the company was purchased by one of the original partners,” says Faria. “As a result, operations were streamlined and became much more rapid and efficient. We hit record speeds in terms of launching new products that, in turn, allowed us to enter entirely new market segments.” To wit, Stam’s electronic locks are carried in electronics and security equipment stores, the locks it makes for glass doors, cabinets, and windows are sold by glasscutters, and the locks featured on furniture such as desks and filing cabinets are stocked by furniture stores.

And just when it seems that Stam may finally have the marketplace covered, the company has decided to “pulverize” in a whole new direction by going after the high-end (“A and B class”) market. In spring of 2009, the company is launching its Classique line of locks whose added value features – sophisticated mechanisms and design, top-of-the line materials, and highly attractive finishes – have been developed to appeal to wealthier consumes who can afford to pay for such extras. “This marks our first foray into the A Class market,” says Faria. “But it’s all part of a shift to reposition ourselves in the marketplace by exploiting new consumer niches.”

“In this industry, the Brazilian marketplace has always been divided into two distinct segments,” continues Faria. “You have some manufacturers that cater to the high end and others that make products for the more ‘popular’ classes. The consensus has always been that the manufacturers of less expensive products were always less efficient and capable simply because the products they made were cheaper and less sophisticated. However, we’ve never subscribed to this notion. Our historical emphasis on the C, D, and E classes merely represents a different focus. What have given us a strong presence are our competitive prices together with the quality and technical assistance we offer. We believe that even if a client doesn’t spend a lot on a product, he or she still deserves the best service possible. This philosophy has distinguished us in the marketplace and it will continue to distinguish us as we enter into this new segment.”

Stam is not the only player to go after both high and low-end markets, but the company is banking on the fact that its years of experience in the latter will set it apart from its new competitors in the former. According to Faria, the company’s prowess at making quality products for low prices will ensure that its Classique line is more affordable than what its rivals can offer. “All the clients who come to visit our plant are very impressed with us. They think our factories are the most modern in Brazil,” he declares. “Although I haven’t visited competitors’ facilities, I do know that our large production capacity combined with high automation reduces costs considerably and this is something we pass on to our consumers.”

In 2008, Stam produced 20 million units and took in 215 million reais (roughly $100 million). While a small percentage (less than 10 percent) of its business is derived from exports to Latin American and African countries, the company’s main focus is the domestic market where, according to Faria, the demand is “absurd.” “In Brazil, people lock absolutely everything,” he says. “So making locks is an enormous responsibility.”

Ironically, for a company whose products are all about keeping people out, Stam’s modus operandi is all about openness. When asked what distinguishes the company, Faria dwells upon its accessibility and inclusiveness. “We have people who have been working here for 30 years, and the reason they stay so long is that we provide opportunities to all of our workers. Everyone is invited to participate in the process and to give his or her feedback,” says Faria. “This aspect extends to the way we’re perceived externally as well. We attend many trade fairs and industry events and our clients always comment on our approachability. We make a point of presenting our products and doing business in a very relaxed and transparent manner. Even though we manufacture security products, ultimately we’re a company that’s known for its easy access.”

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