The retail shakeout has reached Brazil, where local players are starting to restructure and consolidate amid stiff competition from foreign giants like Amazon, MercadoLibre Inc. and Shein Group Ltd.
Though e-commerce reshaped retailing in the US and Europe even before the pandemic, a confluence of economic, financial and logistical circumstance kept the South American nation insulated from the trend until later. That means the bankruptcies, mergers and strategic shifts that have rippled through the sector elsewhere are now coming for some of the biggest Brazilian chains.
Marcelo Noronha, the top executive at Banco Bradesco SA, flagged retail as one of the weakest segments of the Brazilian economy right now. “When compared with other sectors, there are more challenges for retailers,” he told reporters Thursday.
Last weekend, Grupo Casas Bahia SA — one of country’s most popular chains — filed an out-of-court recovery plan to reschedule around 4.1 billion reais ($802 million) in debt payments. And credit has been tight ever since the downfall of Americanas SA in an accounting scandal last year, which put the entire sector under the microscope.
There’s also a growing wave of tie-ups. Pet Center Comercio e Participacoes SA, known as Petz, agreed to be bought by its rival Cobasi last month. And in February, Arezzo Industria e Comercio SA purchased Grupo de Moda Soma SA in a bid to create a retail giant.
For their part, local executives say they are managing the fallout. “There are no plans to close more stores. We have closed several deficient ones and we are now following some that are in ‘intensive care,’” Elcio Ito, chief financial officer at Casas Bahia, said in an interview Monday. “The bulk of that work was done last year.”
Arezzo’s deal for Soma is being finalised with a 20 percent discount since its announcement earlier this year. But the companies, which both turned a profit in 2023, “are confident in the growth of the retail sector for this year,” they said in a written statement to Bloomberg News.
Once dominated by billionaire-backed blue chips, Brazil’s retail sector is teetering under piles of debt. Many local operators who spent big on digital platforms to compete with global e-commerce behemoths are now also fending off Asian fast-fashion firms Shein and Sea Ltd.’s Shopee.
“Foreign companies like Amazon and Shopee have funding and local companies don’t,” João Pedro Soares, an analyst at Citigroup Inc., said in an interview. “You had a first moment of low interest rates, and local companies spent a lot of money to grow. When interest rates went up, they were caught off guard.”
Americanas, a nearly century old firm backed by Jorge Paulo Lemann and two other billionaires, filed for bankruptcy protection in January 2023. “Amazon and MELI greatly benefitted from the exit of a player like Americanas,” said Renato Donatti, an analyst at Fitch Ratings, referring to MercadoLibre’s stock symbol. “Balance sheets were bruised and companies are having to implement changes that will lead to a slow recovery.”
Names like Magazine Luiza SA, owned by the billionaire Trajano family, and Casas Bahia, which ping-ponged between the late Abilio Diniz and the Klein family, have seen their market value collapse from pandemic highs. Cia Brasileira de Distribuicao SA — known as GPA and founded by Diniz before he lost control to a French rival — has sold assets including its Sao Paulo headquarters and raised capital to slash its debt load.
At its peak in 2020, Magazine Luiza had a market capitalisation of 164 billion reais. After borrowing costs started to rise the following year, the retailer saw 90 percent of its value evaporate and is now worth 10.9 billion reais. The market value of Americanas, meanwhile, dropped from as much as 63.8 billion reais to just 505 million reais.
The shakeout isn’t limited to Brazil. Falabella SA — Chile’s second-largest retail group by sales — is considering several “major” asset sales this year after divesting its stake in a mall owner.
It all mirrors what happened in the US, where the rise of Amazon spelled the end of once-revered brands like Sears and JCPenney, whose former stores became warehouse space for e-commerce competitors. In Brazil, the carnage only began in the past few years as local companies took advantage of historically low rates to pile on debt, build out digital and offer more credit to their customers. Delivery logistics also proved a bigger challenge to overcome than elsewhere, delaying the e-commerce onslaught.
“Retail has been through a roller coaster ride in the last four or five years,” said Luiz Felipe Guanais, an equity research associate at BTG Pactual. The inflation surge followed by high interest rates crimped consumption and boosted debt levels, “shrinking” an industry that traditionally has lower margins, he added.
Foreign players have muscled in to fill the void, helped in part by lower barriers to entry. One government programme, for example, lifts import taxes on purchases up to $50 for participating companies including Shein and Shopee.
To gain traction in Brazil, the Asian retailers have adopted a more “local flavour,” testing pop-up stores and attracting local sellers, Guanais said. Last year, Shein announced it would invest $148 million in a partnership with 2,000 textile factories across Brazil — a way to build its presence in the region.
MercadoLibre, meanwhile, has established itself as Brazil’s largest e-commerce platform and shows no signs of slowing down. Unlike Amazon, Shein and Shoppee, it’s focused solely on Latin America. Its profits surged in the first quarter, driven in part by strong growth in the Brazilian market.
The Uruguay-headquartered firm plans to invest nearly 23 billion reais in Brazil to open distribution centers across three states, to elevate its infrastructure and logistics in the country, where it already has the advantage of being able to deliver within 48 hours. “MercadoLibre is a consolidator,” said Soares, the Citi analyst. “It has gained market share and learned how to navigate the Latin American market.”
More consolidation may yet be in store as competition intensifies — even if pressure on local retailers dissipates with looser monetary policy, lower household debt and a rebound in consumer spending.
The scene could get also get even more crowded soon, with Chinese e-commerce app Temu weighing plans to land in Brazil in the first half of the year. “If confirmed, the launch of Temu could further intensify competitive risks to local retailers,” UBS analyst Vinicius Strano said.
By Giovanna Bellotti Azevedo, Leda Alvim and Rachel Gamarski
