There’s no denying Brazil is going through troubled economic times. With high unemployment, inflation and low expectations for growth in the near future, things are challenging. Divisive political leadership and clumsy government market interventions have often worsened the situation. Like many other world economies, the coronavirus is also taking its toll.
Despite all this turmoil, it’s remarkable how resilient online sales are in the country. 11% more online purchases were made in 2019 compared to 2018. Cross-border eCommerce buying increased in a similar period. Against all the odds, eCommerce remains on the up in Brazil.
In the last 6 years, there’s been a general contraction in consumer spending as the beleaguered economy impacts on household purchasing power. Brazil’s National Industry Confederation believes that up to 59% of households could have a lower purchasing power compared to only a few years earlier. Retail sales growth took a sizable hit when the economic crisis unfolded in 2014. But online activity has held up surprisingly well despite the wider economic recession.
To some extent, this makes sense. Even if Brazil’s economy hadn’t floundered, it’s probable that online sales, as a proportion of retail spend, would have increased during the post-2014 period. After all, that’s been the case in nearly all world economies during this time. And no matter how much of a crisis the economy is in, people do still want to buy things.
The coronavirus pandemic has abruptly changed consumer habits. Unlike the many world economies that are enforcing centrally-imposed lockdowns to contain the coronavirus threat, Brazil’s President, Jair Bolsonaro, is attempting to fight against regional lockdowns and persistently downplays the crisis – effectively sacrificing lives in favour of economic health.
Local leaders and individuals have made their own decisions about the wisdom of this approach and many Brazilians are staying indoors anyway. Many shops and malls across the country have been closed to discourage the spread of the virus. As a result, consumer spending behaviours have abruptly changed.
As in other countries, Brazil is, therefore, seeing less spending in brick-and-mortar retail stores and more online commercial activity as a result.
Lojas Renner, one of Brazil’s major fashion retailers, closed physical stores but continued online activities in the third week in March. In São Paulo, malls and gyms are to be closed until the end of April 2020. As in many other parts of the world some consumers will be buying online for the first time, motivated by health concerns. In the third week in March Reuters reported some websites had seen a surge of up to 180% in sales over the last week.
It remains to be seen how persistent this change in consumer behaviour may be. Prior to the virus entering global consciousness, ABComm had predicted a healthy eCommerce growth of around 18% in 2020. Consumers that were already turning to online shopping in greater numbers are now even more motivated to change to online spending because of virus concerns. It remains to be seen if this behaviour will persist once the immediate crisis is over.
In the future, Brazil may see a number of forces impacting consumer behaviour. Inevitably, the economy will contract as the unavoidable downturn caused by the virus takes full effect. But consumer behaviour is likely to have been permanently changed, with a new set of consumers now having tried online shopping for the first time.
There’s every reason to be optimistic about eCommerce retaining its share of consumer spending despite all the turmoil. But the virus will still dampen overall household income despite Bolsonaro’s best efforts to deny the problem and forge ahead with economic recovery.
A change in habits
Present concerns are impacting on the nature of online shopping in Brazil. Some of the new online spend is category-specific, with greater spending on healthcare-related items as well as food taking place online. In common with other developed economies, this reflects the fact people are eating out less and cooking at home for themselves, as well as preferring to order groceries for delivery rather than going to the store. This reflects Brazil’s advice that older people should stay indoors during the pandemic.
During an economic recession, spending patterns tend to change as well as contract in volume. The classic example is lipstick sales going up during a recession. Economists speculate this is because people treat themselves to smaller purchases rather than splurging on bigger ticket items when times are hard. Consumers might buy more groceries because they are cooking at home rather than eating out – a phenomenon also seen during coronavirus lockdowns.
Where they spend their money also changes. In the UK, consumers responded to a recent rise in inflation (and by extension, food costs) by switching away from established supermarkets such as Sainsbury’s to budget food retailers Aldi and Lidl. It’s likely that Brazilian consumers may also change where they allocate their spending at this time.
One impact may likely be the types of goods bought online. In normal times, fashion represents a large share of Brazilian online spend. Around 33% of sales are in the fashion category, with homewares responsible for close to a fifth of sales. Other popular areas of spend include electronics and computing products. This picture changed very suddenly with the advent of the coronavirus, with food and healthcare suddenly taking larger shares of spend.
Under normal circumstances, these categories were responsible for between 8 and 10% of consumer spend online – that’s according to E-Commerce Brasil and Sebrae. We will probably see these categories temporarily taking a much larger share of online spend.
On the other hand, retailers specialising in durables have performed less well than food or healthcare retailers. This reflects the reality that households often postpone purchases such as electronics or homewares when faced with economic difficulties. This pattern is probably being seen all around the world right now as the coronavirus affects many economies in a similar way.
Brazilian consumers have responded to the long-running economic concerns by investing more time in shopping around for bargains and also changing the way they shop; buying in bulk in order to save money overall. Both of these activities are enabled by the internet.
Consumers can order bulk purchases directly to their doorstep to avoid having to carry bulk shopping home themselves. The internet also supports simple and effective price comparison. Perhaps these two factors help explain why eCommerce has remained relatively resilient despite the pressure on household budgets in recent years.
Ripe with opportunity
For global brands, the buoyancy of Brazil’s eCommerce channel may seem like good news. It’s worth bearing in mind however that Brazil’s eCommerce landscape has its own idiosyncrasies and you’ll need to approach it in the right way if you’re to make a success there.
Its financial infrastructure is unique even in Latin America. For example, Brazilians expect to be able to pay for larger purchases in instalments via credit card. In 2018, just under half of online purchases were paid for in instalments. You’ll need to be able to extend customer credit to your audience if you’re to penetrate Brazil. If you’re unsure about doing this one option is to try a partnership with a bank.
This Brazilian habit of paying by instalment can offer opportunities for luxury retailers. The instalment habit opens up luxury brands to consumers with a more modest household income, meaning middle-income consumers may be more open-minded about buying luxury items than a household with comparable income in a different market. But some things are more of a problem.
Brazilian import taxes can be ruinously expensive, leading to some brands experimenting with different business models, such as local assembly, in order to remain competitive. Although payment by instalment can soften the blow for consumers buying big-ticket items, the Brazilian market remains a price-sensitive one.
Many Brazilians don’t have a credit card and those that do usually don’t have one that can handle international purchases, which can be a challenge when it comes to cross-border eCommerce. In addition, most local debit cards won’t handle online payments. Paypal isn’t very well established here but there are local online payment systems, such as PagSeguro.
Whilst 25% of online sales already happen via mobile, in Brazil’s quirky market this is less likely to happen via iPhone than in comparable markets. That’s because Apple retains a low market share here, despite its best efforts to challenge the difficulties of doing business in Brazil.
Your brand really needs to offer Brazilian Portuguese language services if it’s making any kind of move into the Brazilian market. You’ll need to translate things such as your product descriptions, as well as offer post-sales support in the local language. It may seem a big effort but for a market of this size, but it’s definitely worthwhile.
Few Brazilians speak English or Spanish so you’re not likely to reach them without offering content and support in Brazilian Portuguese. As in most other countries, consumers strongly favour brands that serve them in their own language.
You should also be wary of approaching this market as one homogenous unit. Brazil’s huge territory is divided into five culturally distinct areas and these vary in terms of factors including climate, demographics and household income. In addition, the different administrative areas have their own regulations, tax codes and contract rules.
You’ll find it a lot easier to do business in some areas than others. Different local holidays are celebrated in different parts of the country. The south of Brazil, with its long history of German immigration, marks Oktoberfest whilst Brazilian folklore influences the festivals of the northern part of the country. Don’t make the mistake of approaching the market with a one-size-fits-all localisation approach.
Many foreign brands opt to form a partnership with local manufacturers in order to overcome some of the barriers to trade in Brazil. This is the approach taken by brands including Apple and Burberry. It’s also common for Brazilians to buy electronics whilst on trips overseas in order to avoid very high import taxes in Brazil.
In order to be more competitive with Brazilian domestic electronic brands, Apple sought to explore local manufacturing options in this market around 2011. It was thought that Apple might be able to avoid the punishing import taxes of around 60% on imported smartphones. However, this strategic move brought a lot of challenges including slow technology transfer times.
There’s not really a simple solution to the challenges of entering the Brazilian market – particularly for electronics manufacturers.
Brazilians tend to favour local online businesses including dominant Latin American platforms such as Mercado Livre, Americanas.com and Magazine Luiza. Some of the most popular sites in Brazil are the online growth of local bricks and mortar retailers such as department stores. Foreign entrants will inevitably have their work cut out if they are to compete against these familiar household names.
There are also some successful specialist retailers such as sporting goods retailer Netshoes. These types of players understand their niche and the local market extremely well, making it hard for incomers to compete effectively against them on their home turf. Although ripe with potential, Brazil’s large and tempting market remains a tricky one to navigate and one where brands need to take a carefully tailored approach.
Unfortunately, the fact is Brazilian passion for eCommerce has to be tempered by the realities of household income. If economic problems persist this will put a dampener on eCommerce growth. But there’s every reason to be optimistic that eCommerce will really take off once economic recovery gets underway.
Part of the reason why there’s much room for optimism about Brazil is the favourable demographics of this market. Some 40% of Brazilians are under 25 years old and internet penetration is already high at around 75%. These figures alone suggest a thriving online consumer base is likely to emerge in the next few years. And with around 210 million people the market is certainly a large one. Despite Brazil’s present economic woes, there remains huge potential in this market into the future.