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Brazil Retail: Drivers and Opportunities. Matt Bruck McDuff Advisors January 2012. Retail and the Economy. After an astonishing climb since 2004…. Source: World Bank. …GDP growth has slowed. Source: IBGE. This is still impressive; Brazil has outperformed all but China.

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brazil retail drivers and opportunities

Brazil Retail: Drivers and Opportunities

Matt Bruck

McDuff Advisors

January 2012

this is still impressive brazil has outperformed all but china
This is still impressive; Brazil has outperformed all but China.

Nominal GDP, US$ Billion

Source: IMF World Economic Outlook Database

retail sales have slowed too
Retail Sales have slowed too…

Annual Retail Sales: % Change Year over Year

  • April 2010: +15.7%
    • October 2010: + 8.7%
    • September 2011: + 5.3%
    • October 2011: +4.3%

Source: IBGE

but sales are still growing
2012 Projections:

Continue decelerating trend through H1

Stabilize and possibly pick up late in 2012.

Longer Term Projections

Total Retail 2011: $792B

Total Retail 2015: $1,162B

Growth: 47% in 4 years

…but sales are still growing.

Sources: Roubini Global, IBGE, Moody’s Analytics, BMI Brazil Retail Report

inflation and the central bank response remain an issue for retail
Inflation – and the Central Bank response - remain an issue for retail.
  • 5 rate hikes in early 2011 to restrain domestic demand
  • Sales fall
  • 3 cuts in August to counter Europe malaise
  • Strong sales rebound in November (+6.8% vs 2010)

Annual % Change in Consumer Prices

Sources: IBGE, FGV

business optimism has fallen this year but still remains high for the future
Business optimism has fallen this year – but still remains high for the future.


The Future



Note: Scale of 0 to 100; above 50 indicates confidence among entrepreneurs.

Source: Banco Central do Brasil, 12/11

consumer confidence has fallen from its peak but remains even higher
Consumer confidence has fallen from its peak – but remains even higher.


2010 2011

Note: Index is weighted average of current and future expectations; 200 is most optimistic.

Sources: Fecomercio SP, CNI

the wealth is not uniform the majority still earns less than 1 000 per month
The wealth is not uniform: the majority still earns less than $1,000 per month…

% of population earning less than US$1,000 per month, 2010

Source: Credit Suisse

but the population and gdp per capita are growing in parallel
…but the population and GDP per capita are growing in parallel.

Population (x10,000)

GDP per capita

in 2010 R$

Source: IBGE

compared to peers brazilians spend
Compared to peers, Brazilians spend…

Savings as % of income, 2010

Source: Credit Suisse

and use credit cards
…and use credit cards.

% of purchases by credit card, 2010

Source: Credit Suisse

a demographic shift toward a middle class favors retailers
Older and more affluent:

Better educated; increased access to information:

Smaller, more urban households:

More sophisticated products, health-oriented products

More discerning consumers

Consumption as a topic; need for small packages and more convenience

A demographic shift – toward a middle class - favors retailers.

Sources: Euromonitor, IBGE, CIA, Ernst & Young

the broader environment also appears favorable
Substantial investment in infrastructure enhances convenience.

Foreign capital inflows, encourage foreign vendors.

Tax reductions and bureaucratic improvements ease business burden.

The broader environment also appears favorable.

A.T. Kearney Global Retail Development Index, 2011

Source: A.T. Kearney

risks to sales growth exist but appear manageable
Global Factors:

Global slowdown infects Brazil’s economy.

Exchange rate makes shopping vacations irresistible.

Brazil Factors:

Inflation/interest volatility

Credit bubble

Slowing job creation

Social unrest

Corruption scandals

Risks to sales growth exist – but appear manageable.
some booming products

2.2 million new purchases in 2009.

Domestic airline tickets

From 80 million in 2005 to 100 million in 2009

Cell phones

200 million by 2012 – in a country with a population of 190 million


9 million imported in 2009

Some booming products:

Brazilian passenger car sales p.a. (millions)

Sources: Vivo, Credit Suisse

brazilians have embraced appliances but room for growth remains
Brazilians have embraced appliances, but room for growth remains.

% of households 2007

Sources: IBGE, Euromonitor

supermarkets owned by global firms have boomed
Companhia Brasileira de Distribuicao (CBD)

largest chain

Diniz family and Casino (French)

Q4’11 revenues + 8.7% vs 2010.

Annual sales to $25B

Operated in traditional Brazilian style: replacing typical yo-yoing discounts and mark-ups

Walmart Brazil

Established 1994; active since 2004

Invested $1.2B to open more than 100 shops in 2010; plans 80 for H1 2012

2009 revenues $11B

Introduced its trademark “everyday low prices” in early 2011

Focus on middle class needs: organic products produce, generic drugs, cut-price computers.

Expects Brazil business to grow at 1.4x its international average over next 5 years

Supermarkets – owned by global firms - have boomed.

Sources: The Economist, NASDAQ, Dow Jones, FT

a large under served lower economic class promises 64 million more market customers
Class D sees growing buying power:

Rising minimum wage

Government subsidies

Lower inflation

Access to credit

To reach this segment:



Less expensive

Smaller packages

Family appeal

Quality emphasis

Benefits education

Trust branding

A large, under-served lower economic class promises 64 million more market customers.

Sources: Boston Consulting Group, Euromonitor

global retailers have found brazil challenging

exorbitant import duty (eg 30% on foreign cars)

25 % luxury goods tax

Bureaucratic red tape

Currency controls and exchange rates

Stringent local content requirements

Turbulent history

Global retailers have found Brazil challenging.

Unit Labor Cost Index, US$

Sources: Ernst & Young, Banco Central do Brasil

some globalists are in brazil but many have hesitated


$282M sales in 2010

held liable for “slave-like” conditions at its local subcontractors; paid $1.8M fine


In Brazil since 2006, by acquisition.

Approaching 100 stores.

Targeting 1,000; struggling with locations.



Opening first store Q1 ’12

H&M, Gap

Not in Brazil


Launched itunes Brazil in December 2010.

31 "premium" resellers (19 Herval stores), closely controlled by Apple

Still considering a flagship store

Some globalists are in Brazil – but many have hesitated.
brazilians expect high prices and in return demand quality and service
Carlos Jereissati – CEO of Iguatemi

“Service has become a crucial factor… Brazil is very different from the Middle East and Asia… Things are very expensive and that creates a difficult market. In order to sell, you need amazing service...”

Richard Barczinski, general director in Brazil for Hermès:

“The consumer here is highly sophisticated and informed. People here appreciate not just the value of something expensive, but the value and pleasure of good design and materials.”

Brazilians expect high prices – and in return demand quality and service…
so luxury brands work particularly well
30 billionaires

137,000 millionaires (more than Russia or India)

Over 1 million families with income above $80,000

Doubled 2006 to 2010

Grew 22% in 2011

Will grow from 1% of the global luxury market to 6% ($63.5B) by 2025

Louis Vuitton grew Brazil sales 50% in 2009.

Tiffany and Gucci count Brazil among their top performing markets worldwide in 2010

…so luxury brands work particularly well.

Sources: Forbes, Goldman Sachs, MCF Consultoria, World Wealth Report

foreign luxury brands are now opening their own stores

20 foreign luxury brands had established a store in Brazil


an additional 50 brands will enter the market


Chanel closed franchise store in Daslu; opened boutique in Cidade Jardim in 2011

Removal of middleman allowed 30% price cut.

Diane von Furstenberg

São Paulo store is her most successful outside US

Louis Vuitton

The 4 Louis Vuitton stores in Brazil grew 4 times faster than their average store in 2011

Foreign luxury brands are now opening their own stores.

Sources: Bain & Company, Forbes

online retail farfetch com
Online retail?
  • In Brazil since late 2010
  • Amalgamator - online sales for 80 luxury stores (25 Brazilian)
  • 2,000 global labels, 50 Brazilian labels
  • Local payment systems and split payments
  • Assisted, fast customs clearance
  • All taxes prepaid by vendor
  • Easy returns
  • Native language customer-service team
age trends
Age trends
  • the majority of the population will still be concentrated in the age group of 15 - 44 through 2050 – but aging quickly
    • average age in Brazil is 28.6
    • 67% between the ages of 15 and 64
    • 27% younger than 14
    • population over 40 growing (+4.2% 2003-7)
    • Birth rate is decreasing. Population under 14 fell by 0.7% (2003-7)
    • Percentage of elderly has doubled since 1960; by 2020 Brazil will rank 6th in the world in percentage of elderly
  • life expectancy has increased (now 73, likely to reach 80)
  • due mainly to improvement in quality of life and advances in health care.
  • Aging and more affluent population tends to favor more sophisticated and health-oriented products

Sources: Euromonitor, IBGE, CIA,