Business

Online retail slows down in the USA and China: It's time to look at Brazil

With a less competitive market and consistent expansion trend, Brazil is consolidated as a secure terrain for retail e-commerce

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The two largest e-commerce markets in the world, the United States and China, are suffering a constant slowdown in growth of sales in online retail. Thinking of a trade war? Well, yes, the struggle between the two powerhouses is partly responsible for this scenario, yet it doesn’t explain it completely.

Developed markets are more saturated and more competitive. The dispute for consumers is more heated than ever and there just isn’t much space for innovation left — this makes the searchlights focus on emerging countries, like Brazil. In contrast with other world powers that will gradually obtain smaller growth rates on online retail sales, the biggest economy in Latin America will likely register a growth of 16% in e-commerce in 2019.

LABS discussed the saturation of developed markets and the promising future of Brazilian e-commerce with the president of the Brazilian Association of Electronic Commerce (ABComm), and one of the salient experts in e-commerce in Brazil, Maurício Salvador, and with Victor Noda, CEO and co-founder of Mobly, a Brazilian e-commerce focused on retail that grew 50% in 2018.

Understand why now is the time to take a serious look at Brazil.

World Powers Decelerating

US-President Donald Trump – Mohegan Sun Arena. Photo: Shutterstock

For the first time since the end of the economic recession of 2008, sales in online retail in the United States registered a significant slowdown. July marked four consecutive trimesters of contraction in the growth of the sector, according to research 2019 Online Retail Forecast completed by FTI Consulting. This data should not be overlooked.

Not in vain, the regression was classified as “unexplained” by experts and sites specialized in e-commerce. It is a rapidly evolving market, with the lowest rate of unemployment since 1969 and more than 120 months of consecutive growth in the economy, the longest period of expansion in the history of the country.

Although the reasons for the retreat aren’t clear, the data provided by FTI Consulting seem to indicate that sales in online retail in the country could have entered a period of timid growth, due to the reduction in numbers linked to e-commerce. While online sales grew 16.1% in 2018, the increase of sales in the last four quarters only rose 13%, with a forecasted drop to 5.9% in the next ten years.

A similar scenario is playing out in China, another powerhouse in retail. The effects of the trade war with the United States has been affecting retail sales in the Chinese market, primarily in e-commerce. The estimated growth of 3.5% for the sector in 2019 is hardly recognizable in comparison with the 7.5% growth forecasted by the company eMarketer during the last quarter of 2018. As a result, China will not overtake the United States in retail sales in 2019, as was expected – something that is now predicted to occur only in 2021.

There can be no doubt as to the effect that the trade war between both global powerhouses is having on retail sales, given how the markets have been taken as hostages in the mutual retaliations of the commercial struggle. The high levels of turnover in both countries also suggest a certain lethargy in the growth percentages. The bigger the turnover, the more difficult it is to grow in two digits, for example.

Other important factors also structure this scenario and suggest that more mature markets are increasingly competitive and, thus, more saturated. All the meanwhile, emerging markets seem to be following a growth trend, brimming with opportunities.

For the president of the Brazilian Association of Electronic Commerce (ABComm), Maurício Salvador, the different levels of e-commerce maturity in countries help explain the inversion in the growth curves. “More mature markets, primarily that of the United States and those in Europe, already have a high penetration of e-commerce in the population. There aren’t many new consumers, in contrast with the situation in Brazil,” he emphasizes.

Salvador highlights that the exponential growth in the number of Brazilians with Internet access in the last few years is one of the drivers of uninterrupted growth in Brazilian e-commerce. “The penetration of the Internet in Brazil has reached 50% of the population, and there are still many Brazilians that will soon begin to access the Internet. Among those that already have access, there is a large number that has yet to make an online purchase. With those newcomers, we estimate 4 million new consumers per year. They help increase the growth of [e-commerce in] Brazil,” he explains.

There are reasons to believe that this prosperous path will continue. Brazilian e-commerce was not affected negatively by the country’s biggest economic recession from 2014 to 2016, not even by one of the most turbulent electoral periods of its history. The ABComm expects an increase in 16% in Brazilian e-commerce in 2019, in comparison with 2018.

Facing the slowdown in e-commerce and online retail sales in the big economic powers, the searchlights tend to return to emerging markets, like Brazil. It is a prosperous ground for investors that decide to use it, and that isn’t such a recent scenario. In the last few years, those e-commerces that wagered on an expanding market, less competitive and without signs of saturation; have today much to celebrate.

Who saw it coming?

CEO and co-founder of Mobly, Victor Noda. Photo: Fernando Cavalcanti

At the beginning of the decade, when e-commerce was starting to gather striking numbers in Brazil, CEO and co-founder of Mobly, Victor Noda, saw an opportunity: to open a furniture store that was 100% online. It was no easy task. The first big challenge was to convince the industry in the potential of a completely virtual furniture store.

The venture was on a cross-docking model – a model in which the company acquires the product after the consumer purchases it online – something that until then was hardly known in Brazil, but which turned out to be feasible. The marketing and communication channels available at the time, still at early stages, were enhanced throughout the endeavor. And it worked.

Today, with almost 10 years behind it, Mobly is a common name in the list of the most successful Brazilian e-commerce businesses in the market. A brand that processed about BRL 300 million in 2018, an amount 50% greater than that registered in 2017, and it is expected to repeat this again in 2019.

The terms of innovation summarize Mobly’s trajectory. Gradually, it managed to develop strategies to sidestep the resistance of Brazilians to purchasing furniture without touching it prior. For Victor Noda, the brand’s success is the outcome of the advantages that it offers, such as the large variety of products available, the convenience of buying from anywhere in Brazil with flexible payment options (credit card, boleto, and installments), and an inspiring buying experience, with tailored suggestions that match the consumer’s profile.

“We believe that our primary differentials are our ability to innovate and the speed at which we incorporate strategies and we adjust the bearings of our initiatives. That gives us a big competitive advantage that puts us always at the forefront of trends and keeps us one step ahead in terms of efficiency,” emphasizes Noda.

Although online retail sales in Brazil still have some ways to go – most people still buy in physical stores – Noda underlines that the market reached a point of maturity regarding the offers available to clients. “There are big players in all areas, big marketplaces that already perform in an omnichannel model, and well-developed payment methods,” he affirms.

It would be up to e-commerces, then, to develop strategies geared towards gradually gaining the trust of those Brazilians that are still getting adjusted to the idea of buying online. And these potential consumers grow year after year.

On that point, Mobly is also advancing and has just opened its first physical store. “We opened a guide shop, with some displayed products, but that retains the experience of buying 100% digital. That way, we can relay a degree of trust to our clients, showing we are a serious business with quality products and, at the same time, delivering all our distinguishing features in terms of value, all of which are only possible thanks to technology,” emphasizes Noda.

This promising scenario is also challenging the market of online retail in Brazil, and it wasn’t just the local players that figured this out. In January of 2019, the biggest digital retail in the world – Amazon – looked to expand its services in Brazil, a project without precedents in the country.

The company started selling another 11 categories of products in the country and created a Center of Distribution for products with an equivalent size of 10 soccer fields in the city of São Paulo, the largest one in South America. This expansion was also followed by a series of reformulations, so as to adjust to the profile of Brazilian consumers. Once it launched its project, Amazon began its process of implementing the methods of local payments, such as boleto and payment installments.

Brazil’s time to shine

Beyond being the largest market in Latin America, with more than 200 million people, Brazil is slowly establishing itself as a promising flag for the online retail market. With a middle-class that is becoming all the more assertive and a population more connected to the Internet than ever, the country has become a stage for exponential growth in a variety of e-commerce that bet on its traits and adapted to the culture of Brazilian consumers.

Brazil has gained even more visibility the very moment that global economic powers began to suffer a slowdown in growth, due to trade wars and to the saturation and stiffer competition in their markets. Today, a careful analysis of trends and growth forecasts in Brazil are more than an alternative: they are a step in the right direction, that of growth.