03 Mar 2016

Consumer Protection & eCommerce Growth in Brazil

With 200 million inhabitants and online retail growth of over 15% in 2015, Brazil offers huge potential for eCommerce vendors. But is tight consumer protection limiting inward investment and constraining growth?

It’s already the world’s second fastest growing online market, and internet usage is rapidly rising. There’s a booming mobile market and consumers are increasingly confident and active online. It’s by far the liveliest online market in the Latin American region, and online retail sales are growing faster than the US despite Brazil’s offline economic slowdown.

But Brazil is a unique market and consumers there have a unique set of legal protections and expectations to consider. High consumer protection can curb activities and you need to be fully aware of all the restrictions on your operations before you venture into this huge market.

Many Brazilians came relatively late to eCommerce and have high expectations for their online experience. As a result, these demanding customers expect a seamless cross-channel experience. Brazilian consumers also fully expect to have an eCommerce service that’s in their own language and tailored to their cultural expectations. Brazilians are comfortable using credit cards, although online retailers are advised to offer the local favoured payment method – Boleto, a payment process similar to wire transfer or cash payment methods. There are also other quirks in this market.

Brazilians show some reluctance to pay using mobile apps, and they are distrustful of peer to peer sales, preferring to buy from professional businesses rather than via C2C.

Most Brazilians seem to start their online shopping with a web search, so retailers are well advised to invest in SEO or use PPC ads as part of their campaign in the region. Brazilians are also keen bargain hunters who respond well to offers such as 2-for-1 promotions. It’s perhaps no wonder that Brazilians like to feel they’ve got a bargain. High import tariffs mean that consumers can face extremely high prices on many goods, in particular consumer electronics.

Brazil’s business burdens

Saying that Brazil is bureaucratic is a massive understatement. You face several hoops to jump through before you can even begin trading in Brazil. If you’re selling to Brazilian customers from outside the country, going through the company registration process is not required. But there are some product categories that cannot be imported, or which face high import taxes, so selling into Brazil from overseas may not always be a viable business model.

If you’re aiming to be based in the country, opening a company there is not a quick and easy process and you’ll also need to register for a taxpayer ID. The domain registration process requires you to produce certain documents, such as ones proving you have a local representative in the country. Not only does your eCommerce site need to be registered with the Brazilian board of trade but this also needs to be done in each state where you plan to operate a physical infrastructure. Doing your Brazilian taxes is extremely time consuming and you’ll find this adds a significant drain to your business compared to other parts of the world in which you operate.

Brazil also offers a unique consumer protection environment which vendors will inevitably find challenging.

Brazil’s marketplace is much stricter than that of other countries. It’s important to approach the market only with the proper preparation, knowledge of the rules, and ideally with proper legal advice from an experienced set of advisors with local knowledge and experience.

If you’re selling online in Brazil, you need to display a physical address and clear information about any delivery charges, as well as meeting the strict criteria for data protection. You’ll find there are also other specific rules depending on the type of products you sell.

To add further complexity, the tax laws can be very specific. As an example, if you are selling software then you may find your products can be classified as an off-the-shelf product, a service, or a subscription. Each of these will have a unique tax situation and this may vary according to which part of Brazil it is sold in.

Brazilian bureaucracy and taxation tends to be tortuously complicated and it’s advisable to truly understand the complexity before you wade into this market. Complying with the regulations and taxation environment may take a significant chunk out of your profits. The best advice to companies considering entering this market is to commit for the long term. Brazil offers a great deal of opportunity in the long term but it may be painful to get established in the short term because of the demands of this specific business environment.

How Walmart tackled Brazil

Multinational retailers that are taking Brazil seriously include Walmart, which has a local team based in the country to support efforts in the market. Walmart has poured investment into logistics, acquisitions, and customer support, and run campaigns aimed at establishing the brand and the quality of customer care it offers. Walmart’s Brazilian site now boasts the highest traffic volumes of any e-commerce platform in the country and Walmart has experienced huge growth in sales in the region.

But Walmart has yet to get a return on its investment in the market. Recently the brand has closed stores in the region and the head of Wal-Mart’s international operations has described performance there as “a roller-coaster ride”. Partly this is because of Brazil’s recent economic problems. Other problems include the challenges to the supply chain associated with operating across such as huge country.

Walmart’s attitude seems to be that it’s important to stick things out in the country. With such huge potential in the market it makes sense to take a long-term approach.

Taking a long term approach is good policy for any foreign brand thinking of entering Brazil. Although the country is facing economic travails at present, there’s huge potential in this market and eCommerce is performing better than offline retail by some measures. As with any new market you approach, it’s wise to do your homework carefully and be prepared to commit for the long term. Brazil’s huge market has its quirks but there’s serious potential there for brands who are willing to stick things out.



 
 

Sign up to our newsletter

Get our blog articles straight to your inbox.