In 2013, for the third consecutive year, Brazil appeared in a report by A.T. Kearney as the most attractive country in the world in terms of the retail sector. The continued growth of the middle class, high rates of consumption, a large urban population and reduced political and financial risk are some of the reasons for which Brazil is considered one of the most attractive destinations for international retailers.
According to the IDC (International Data Corporation), the Brazilian retail sector reached revenues of R$2,177 billion in 2015, representing approximately 3.69% of Brazil‘s GDP in the same year. The chart below sets forth the nominal revenue of sales in the Brazilian retail sector:
The growth in retail sales was driven by the combination of several factors, including increases in the number of formal jobs, the increased purchasing power of the population and the availability of consumer credit that has been catalyzed by the recent decline in interest rates in various sectors of the economy. In December 2013, the following retail sectors showed an increase in sales volume over a twelve-month period:
- hypermarkets, supermarkets, food products, beverages and tobacco increased by 2.4%;
- other personal and domestic items increased by 11.2%;
- textiles, clothing and footwear increased by 3.0%;
- fuels and lubricants increased by 5.9%;
- pharmaceuticals, cosmetics and medical and orthopedic products increased by 12.4%;
- office, computer and communications equipment increased by 7.0%; and
- books, newspapers, magazines and stationery increased by 3.8%.
This is mainly due to the recovery of the internal market following the financial crisis that began in mid- 2008, in addition to increased income and greater availability of credit.
According to the IBGE, from 2003 to 2009, 7.0 million people migrated to Classes A and B. In 2009, they represented 11% of the population. It is expected that in 2014, Classes A and B will include a combined total of 31 million people and represent 16% of the population. The diagram below shows the growth in household income by social class since 2003 and as projected through 2014:
Visão Geral do Setor
Visão Geral do Setor
The sophistication of the retail sector as a result of the increase in the number of high- and middle- income Brazilian consumers is evidenced by the increasing number of shopping malls. According to ABRASCE, the total sales of shopping malls in Brazil increased by 113.0% between 2006 and 2015, from R$50.0 billion to R$151 billion. During the same period, the number of shopping malls increased from 351 to 538, representing an increase of 41.0%. The charts below highlight the increase in the number of shopping malls in Brazil and their total revenues for the periods indicated:
Shopping malls are among the main destinations for purchases by Brazilian urban consumers, because they are able to concentrate conveniently in a single establishment, a variety of products that serve diverse interests, in addition to providing security, ease of access, parking and related services that are highly valued by consumers. Consequently, the monthly traffic of people in shopping malls has increased significantly. Between 2006 and 2015, the number of shopping mall visitors per month increased from 203 million to 444 million. ABRASCE predicts that the number of shopping malls will continue to increase. According to ABRASCE, 9 malls were opened in Brazil in 2015. Furthermore, according to data from ABRASCE, 30 new malls are expected to open in the country in 2016.
As reported in the Worldwide Retail IT Spending Guide 2012, IT expenses in Brazil reached US$ 54 billion in 2011. However, the sector‘s penetration in the Brazilian economy is still limited when compared to developed countries. In the United States and Western Europe, for example, IT expenses totaled U.S.$606 billion and U.S.$471 billion, respectively, in the same period.
Significant investments in the development of technology and telecommunications infrastructure in Brazil in the coming years will lead to a significant expansion of the sector, reducing the difference between the Brazilian and American sectors. The expansion in telecommunications infrastructure should result from the increasing penetration of broadband internet in Brazil, which, according to the IDC, currently reaches only 25.1% of households, compared to 66.8% of households in the United States, as well as by increasing the number of mobile phones with 3G technology, which should support an increase in the number of users of IT software. In this context, Gartner estimates that while IT expenses should grow at an average annual rate of 7.3% in Brazil between 2012 and 2016, in the United States the rate of expansion will be slower, closer to 3.5%.
The same trend can be observed with respect to software expenses. This is because, currently, the software market in the United States represents 0.9% of GDP, 4.6 times more than the percentage in Brazil, which is only 0.2%. However, this discrepancy should wane as the expected growth of the Brazilian market will be nearly double that projected for the U.S. market between 2012 and 2016 (12.4% versus 6.8%).
According to the IDC, IT retail investments accounted for about 5% of total IT expenditures in Brazil in 2013 (US$ 3 billion on a total of US$ 59 billion). Of the total invested, most is concentrated in the hardware segment, given that the country is still in the process of developing its IT infrastructure, a phenomenon also observed in other emerging countries.
Therefore, the current dynamics of the retail sector in Brazil indicates that the percentage mentioned above will only increase in coming years. Indeed, the combination of the expansion of new retail stores, opening new franchises throughout the country (a result of the phenomenon of intense formalization currently observed in the industry) construction of new shopping malls and increased consumption in general (due to the growth of the Brazilian middle class) all these factors together suggest that the retail IT industry should expand considerably in the near future.
In this regard, being directly linked to the retail IT industry in the country and the software market in retail management (our market segment), will position us to benefit directly from this growth. In fact, the prospects are very favorable for our market segment in the country. With penetration still low in Brazil—according to the IDC, it is estimated that the market for retail management software has totaled R$1,171 billion in 2016 in a market with a potential of R$9.0 billion per year (13.0% penetration)—the sector may grow at an average annual rate of 12.1% between 2014 to 2019.