Coronavirus crisis fuels Brazil e-commerce shift as malls suffer

Brazil’s battered retailers are starting to reopen after weeks of coronavirus lockdown but may exit the crisis transformed, with the e-commerce sector strengthened and brick-and-mortar chains facing an uphill path to normality.

That is potential good news for major local online retailers B2W Companhia Digital SA, Magazine Luiza SA and Via Varejo SA, despite increasing competition from international players Mercado Libre and Amazon.com  in Latin America’s largest market.

All still have room to grow their marketplace platforms for at least two more years, said Thiago Macruz, retail and e-commerce analyst at Itaú BBA, who said the rising migration of customers to online shopping is likely to overshadow economic headwinds.

Shares in B2W, which operates under brands like Submarino and Americanas.com, have risen more than 16% so far this year, outperforming an almost 30% slump in Brazil's benchmark index Ibovespa and rivals Magazine Luiza and Via Varejo, which own more than 1,000 brick-and-mortar stores each.

“Amazon has not yet challenged its local rivals because its organic strategy in Brazil is not so capital-intensive, but they have deep pockets to change the competitive scenario here whenever they want,” Macruz added.

Brazil’s online sales growth accelerated to 30% in the past five weeks, according to local e-commerce association ABComm, with stay-at-home measures luring consumers and pushing retailers to migrate online.

The group estimates that 80,000 online platforms have been launched since March, while the number of customers shopping via the internet grew by almost 1 million.

“Looking back, we see that in Brazil like everywhere else, e-commerce has never stopped growing regardless of economic hardships,” ABComm’s president, Maurício Salvador, said in a phone interview.

He noted, however, that online sales may slow from the pace seen in March and April as looming unemployment curbs consumption and a political crisis further rattles confidence.

ABComm has kept its initial 2020 growth forecast at 18% to 106 billion reais ($19.50 billion).

A BUMPY ROAD

Mall-based retailers that sell apparel and other goods face a bumpier road. Department store operator Lojas Renner SA, Brazil’s largest fast-fashion retailer, has seen shares slump some 30% this year.

Only 60 of Brazil’s 577 malls have reopened, and the tenant stores of all 577 malls are estimated to have lost 20 billion reais ($3.51 billion) in sales since the onset of the pandemic, industry association Abrasce said. Another 13 malls were expected to resume activities by May 4, according to Abrasce.

“We adopted some new protocols but customer flow is still well below levels seen in the same period a year ago,” Abrasce’s president, Glauco Humai, said.

Demand is unlikely to recover to pre-pandemic levels this year, said Victor Beyruti, economist at brokerage Guide.

“Being the first one to reopen has its advantages, but this move must be carefully thought out,” he said. “If even China has taken a while to see demand recover, here this should take even longer,” Beyruti warned.

Mall operators are in talks with state-run development bank BNDES to create a credit line to help them overcome the crisis after renouncing 1.5 billion reais in rent payments from their tenants so far.

Upscale operator Iguatemi Empresa de Shopping Centers SA is cutting spending on expenditures like renovations by 40% this year and others may follow.

“We have been working quite hard to reduce our spending and grant discounts to ease (tenants’) cash restraints in April and May,” Iguatemi’s chief financial officer, Cristina Betts, said in a recent call with analysts.

Iguatemi has reopened a single outlet mall in the southern state of Santa Catarina, one of the first to relax social-distancing measures. Rival Multiplan has also only resumed activities in one mall in southern Brazil and expects unemployment to weigh on sales this year.