1 / 38

Brazil Retail: Drivers and Opportunities

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.

luisa
Download Presentation

Brazil Retail: Drivers and Opportunities

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Brazil Retail: Drivers and Opportunities Matt Bruck McDuff Advisors January 2012

  2. Retail and the Economy

  3. After an astonishing climb since 2004… Source: World Bank

  4. …GDP growth has slowed Source: IBGE

  5. This is still impressive; Brazil has outperformed all but China. Nominal GDP, US$ Billion Source: IMF World Economic Outlook Database

  6. 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

  7. 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

  8. 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

  9. Business optimism has fallen this year – but still remains high for the future. BCI The Future Current Conditions Note: Scale of 0 to 100; above 50 indicates confidence among entrepreneurs. Source: Banco Central do Brasil, 12/11

  10. Consumer confidence has fallen from its peak – but remains even higher. CCI 2010 2011 Note: Index is weighted average of current and future expectations; 200 is most optimistic. Sources: Fecomercio SP, CNI

  11. Brazilians continue to get richer. Source: World Bank

  12. 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

  13. …but the population and GDP per capita are growing in parallel. Population (x10,000) GDP per capita in 2010 R$ Source: IBGE

  14. Compared to peers, Brazilians spend… Savings as % of income, 2010 Source: Credit Suisse

  15. …and use credit cards. % of purchases by credit card, 2010 Source: Credit Suisse

  16. 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

  17. 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

  18. 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.

  19. Retail Segments

  20. Brazilian consumption by category Source: IBGE 2007

  21. Cars 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 TVs 9 million imported in 2009 Some booming products: Brazilian passenger car sales p.a. (millions) Sources: Vivo, Credit Suisse

  22. Brazilians have embraced appliances, but room for growth remains. % of households 2007 Sources: IBGE, Euromonitor

  23. 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

  24. Class D sees growing buying power: Rising minimum wage Government subsidies Lower inflation Access to credit To reach this segment: Local Affordable 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

  25. Foreign Retailers

  26. Taxes 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

  27. A strong Real also hurts foreign retailers. Source: OTC Interbank

  28. IN BRAZIL: Zara $282M sales in 2010 held liable for “slave-like” conditions at its local subcontractors; paid $1.8M fine Starbucks In Brazil since 2006, by acquisition. Approaching 100 stores. Targeting 1,000; struggling with locations. NOT IN BRAZIL: Topshop Opening first store Q1 ’12 H&M, Gap Not in Brazil Apple 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.

  29. 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…

  30. 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

  31. 2008 20 foreign luxury brands had established a store in Brazil 2013 an additional 50 brands will enter the market Chanel 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

  32. Appendix

  33. Interest Rate

  34. Business Confidence

  35. Inflation

  36. Online retail? Farfetch.com • 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

  37. 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,

  38. Consumption drives GDP growth. (GDP= C + I + G + X – M) Source: Credit Suisse

More Related