Brazil’s fashion retail sales are firming as an ambitious economic reform agenda lifts economic growth and boosts consumer confidence in Latin America’s largest economy, analysts said.
“The economy as a whole is getting better,” said Rafael Camargo, investor relations director at upmarket retailer Restoque, adding that the firm — one of the biggest victims of Brazil’s 2015 to 2018 recession — could grow 5 to 10 percent this year.
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Analysts agreed trade is looking up as consumers increase spending amid strengthening economic growth. Brazil’s Central Bank recently raised this year’s growth forecast to 2.2 percent from a prior 1.8 percent, while 2019 is also expected to gain 1.2 percent versus a previously estimated 0.9 percent.
Mariana Vergueiro, a retail analyst at XP Investimentos, noted the improving outlook has fueled growth at C&A Brazil, which floated in São Paulo last October, and Lojas Renner, widely seen as a benchmark of apparel retail industry performance, which logged a 43 percent stock jump in the past 12 months.
“One of the segments we have highlighted as benefiting from the improving economy is apparel, one of the consumer segments that was most negatively impacted during the recession,” Vergueiro said.
C&A, which raised 1.8 billion reals, or $440 million at current exchange, in its initial public offering, should see same-store sales leap 7 percent to $5.8 billion this year versus 5 percent in 2019, Vergueiro forecast. Brazil’s largest apparel-focused banner Renner, in turn, will post a 10 percent gain to 9.7 billion reals, versus 9 percent last year.
The analyst echoed views that Renner continues to outperform the market, growing 5.6 percent from 2016 to 2018, when many retailers struggled or folded, compared to the industry average growth, which hovered three to four percentage points below that figure.
“It’s important for companies to get collections right because the economy can be improving but if you don’t have a good collection in your store you won’t sell,” Vergueiro explained, adding that some of the harder-hit chains in the downturn, such as Riachuelo or Lojas Marissa, failed to seduce consumers spooked about the downturn in the economy. “They suffered from collection mistakes as well as operating and inventory issues,” the analyst said of the retailers.
With 550 stores, Renner has invested heavily in so-called push and pull strategies that mirror Spain-based Zara’s ability to quickly replenish top-selling items in its stores. “They got the collections right and were able to automate their distribution and logistics through major software upgrades,” Vergueiro said, adding that no other retailer in Brazil has made such large capital expenditures
Renner, however, is lagging behind Brazil’s online frenzy, which has seen rivals such as Magazine Luíza acquire smaller players to boost their presence in the budding market.
“Brazil’s online apparel penetration is around 5 percent compared to 11 percent globally,” according to Vergueiro. “For Renner, this is not very high, at 3 to 4 percent.”
Analysts said fashion retailers, aware of e-commerce’s huge potential in a country of nearly 200 million people, are rushing to grow in the space, especially after Brasilia slashed interest rates to cheapen money and inflation has stabilized.
One such retailer is Magazine Luíza, which bought footwear chain Netshoes, which has a leading online presence, for $115 million last summer, to grow its online footprint. Arezzo, which sells upmarket shoes through a string of brands, is making e-commerce growth a top priority.
The São Paulo-based firm has been investing 40 million to 50 million reals annually to bolster Internet sales, and it is also muscling into the U.S., where rolling out physical stores has been more challenging than previously envisaged.
Analysts said Arezzo is doing a good job navigating Brazil’s huge logistics challenges to sell clothes digitally, with its market share now above 5 percent.
“Logistics are very complicated in Brazil where brands have to rely on Correios [as the still inefficient postal service is called], which is not like in the U.K. [or other developed markets] where it’s very easy to order clothes online and if you don’t like them, easily ship them back,” Vergueiro mused.
To tackle the problem, merchants including Magazine Luíza, B2W or Lojas Americanas have been investing to buy their own delivery fleet, she added.
Arezzo investor relations director Aline Ferreira confirmed that much, adding that the 700-strong chain is working to streamline its e-commerce platform by adding stores as delivery agents on top of warehouses to boost its top line.
“During the last year, we added 100 stores to be able to deliver our online products and now 100 percent of our 700 stores can deliver them,” Ferreira said. “The closest store to you can send you an item and vice versa. If you go to one of our shops and they don’t have your size, our sales people will help you find it online.”
Added Ferreira: “We expect a 1 to 2 percent same-store sales increase from this strategy, on top of 5 percent growth this year.”
Arezzo, which runs several footwear brands including eponymous Arezzo, Schutz and Alexandre Birman, among several others, expects its top line to grow in the single-to-low double digits in 2019, depending on final Christmas accounting.
Ferreria remains cautiously optimistic about the extent of Brazil’s economic recovery, which she said could still turn fragile.
‘We did really well during Black Friday but then Christmas was not that good,” she noted, adding that some Brazilians, skeptical that the economy is actually turning the corner after years of losses, may have hedged their Christmas shopping to benefit from Black Friday sales, providing a distorted picture about real consumer confidence.
“Consumers are a little bit more optimistic because they have a little more money but the fact that Christmas was not as good as expected” gave some merchants room for pause, added Ferreira.
Arezzo also remains a bit cautious about its U.S. expansion, which it slowed last year to open four stores instead of the six it targeted. Ferreira said the retailer was unable to secure top locations, deciding to analyze its market performance before rolling out more locations.
Despite that, it intends to inaugurate three shops in unspecified New York and Dallas shopping malls in coming months, Ferreira concluded.