Transcript document

Brazil Retail: Drivers and Opportunities
Matt Bruck
McDuff Advisors
January 2012
Retail and the Economy
After an astonishing climb since 2004…
Source: World Bank
3
…GDP growth has slowed
Source: IBGE
4
This is still impressive; Brazil has
outperformed all but China.
Nominal GDP, US$ Billion
9 000.0
8 000.0
7 000.0
6 000.0
China
5 000.0
India
4 000.0
Russia
3 000.0
Brazil
2 000.0
1 000.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012
Source: IMF World Economic Outlook Database
5
Retail Sales have slowed too…
Annual Retail Sales: % Change Year over Year
18
16
14
12
10
8
6
4
2
0
Fe
b1
Ap 0
r- 1
Ju 0
n1
Au 0
g1
O 0
ct
-1
De 0
c1
Fe 0
b1
Ap 1
r- 1
Ju 1
n1
Au 1
g11
O
ct
-1
1
April 2010: +15.7%
October 2010: +
8.7%
September 2011: +
5.3%
October 2011:
+4.3%
Source: IBGE
6
…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
Sources: Roubini Global, IBGE, Moody’s Analytics, BMI Brazil Retail Report
7
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
7.00
6.00
6.24
6.07
6.36
4.93
4.60
3.95
5.00
4.00
2.05
3.00
2.00
1.00
0.00
2005
2006
2007
2008
2009
2010
2011
Sources: IBGE, FGV
8
Business optimism has fallen this year – but
still remains high for the future.
BCI
80.00
70.00
60.00
The Future
50.00
Current
Conditions
40.00
30.00
20.00
10.00
No
v
Se
p
Ju
l
ay
M
ar
M
Ja
n
No
v
Se
p
Ju
l
ay
M
ar
M
Ja
n
0.00
Note: Scale of 0 to 100; above 50 indicates confidence among entrepreneurs.
Source: Banco Central do Brasil, 12/11
9
Consumer confidence has fallen from its peak
– but remains even higher.
CCI
166.00
164.00
162.00
160.00
158.00
156.00
154.00
152.00
150.00
148.00
146.00
144.00
Jan Mar May Jul
2010
Sep Nov Jan Mar May Jul
2011
Sep Nov
Note: Index is weighted average of current and future expectations; 200 is most optimistic.
Sources: Fecomercio SP, CNI
10
Brazilians continue to get richer.
Source: World Bank
11
The wealth is not uniform: the majority still
earns less than $1,000 per month…
% of population earning less than US$1,000 per month, 2010
70
66
57
60
50
50
39
40
30
20
10
0
India
Brazil
China
Russia
Source: Credit Suisse
12
…but the population and GDP per capita are
growing in parallel.
25 000
Population (x10,000)
20 000
GDP per capita
in 2010 R$
15 000
10 000
5 000
0
90
9
1
92
9
1
94
9
1
96
9
1
98
9
1
00
0
2
02
0
2
04
0
2
06
0
2
08
0
2
10
0
2
Source: IBGE
13
Compared to peers, Brazilians spend…
Savings as % of income, 2010
35
31
30
25
20
17
13
15
10
10
5
0
India
Brazil
China
Russia
Source: Credit Suisse
14
…and use credit cards.
% of purchases by credit card, 2010
25
20.6
20
19.3
16.2
15
14.6
13.6
9.4
10
7.2
5
0
Saudi
Arabia
Brazil
Egypt
China
Russia
Indonesia
India
Source: Credit Suisse
15
A demographic shift – toward a middle class favors retailers.
1.
Older and more
affluent:
More sophisticated
products, healthoriented products
2.
Better educated;
increased access to
information:
More discerning
consumers
Smaller, more urban
households:
Consumption as a
topic; need for small
packages and more
convenience
3.
Sources: Euromonitor, IBGE, CIA, Ernst & Young
16
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.
A.T. Kearney Global Retail
Development Index, 2011
Country 2011 Rank 2010 Rank
Brazil
1
5
Uruguay
2
8
Chile
3
6
India
4
3
Kuwait
5
2
China
6
1
Saudi Arabia
7
4
Peru
8
9
U.A.E.
9
7
Turkey
10
18
Source: A.T. Kearney
17
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
18
Retail Segments
Brazilian consumption by category
Source: IBGE 2007
20
Some booming products:

Cars
 2.2 million new
purchases in 2009.

Brazilian passenger car sales p.a. (millions)
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
Sources: Vivo, Credit Suisse
21
Brazilians have embraced appliances, but
room for growth remains.
% of households 2007
100
90
80
70
60
50
40
30
20
10
0
95
91
78
32
television
refrigerator
telephone
microwave
27
computer
Sources: IBGE, Euromonitor
22
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 $11B
Introduced its trademark
“everyday low prices” in early
2011
Focus on middle class needs:
organic products produce,
generic drugs, cut-price
computers.
Expects Brazil business to
grow at 1.4x its international
average over next 5 years
Sources: The Economist, NASDAQ, Dow Jones, FT
23
A large, under-served lower economic class
promises 64 million more market customers.

Class D sees growing
buying power:

To reach this segment:
 Local
 Rising minimum wage
 Affordable
 Government subsidies
 Less expensive
 Lower inflation
 Smaller packages
 Access to credit
 Family appeal
 Quality emphasis
 Benefits education
 Trust branding
Sources: Boston Consulting Group, Euromonitor
24
Foreign Retailers
Global retailers have found Brazil challenging.





Taxes
Unit Labor Cost Index, US$
 exorbitant import duty (eg
180
30% on foreign cars)
 25 % luxury goods tax
160
Bureaucratic red tape
Currency controls and
exchange rates
Stringent local content
requirements
Turbulent history
100
155.5
134.92
140
107.5 103.42
120
76.7
80
60 40.44
40
52.95
118.68
84.26
62.64
20
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: Ernst & Young, Banco Central do Brasil
26
A strong Real also hurts foreign retailers.
Source: OTC Interbank
27
Some globalists are in Brazil – but many have
hesitated.
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
28
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.”
29
…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
Sources: Forbes, Goldman Sachs, MCF Consultoria, World Wealth Report
30
Foreign luxury brands are now opening their
own stores.

2008

 20 foreign luxury brands
 Chanel closed franchise
had established a store in
Brazil

store in Daslu; opened
boutique in Cidade Jardim
in 2011
 Removal of middleman
allowed 30% price cut.
2013
 an additional 50 brands will
enter the market
Chanel

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
Sources: Bain & Company, Forbes
31
Appendix
Interest Rate
33
Business Confidence
34
Inflation
35
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

36
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,
37
Consumption drives GDP growth.
(GDP= C + I + G + X – M)
Source: Credit Suisse
38