Consumer sees the end of the pandemic and savings – 06/02/2023 – Market

The first quarter of 2023 will not be missed by retailers. Ten major chains in the country with stocks on the stock exchange recorded losses, increased losses or a drop in profit in the period, compared to the same period of the previous year.

The bad macroeconomic situation (with the difficulty of generating jobs and income), the basic Selic interest rate in two digits for 16 months (which makes it more expensive for consumers to take credit and increases the volume of debt for companies) , in addition to high household debt, are factors that restrict sales and continue to weigh in this second quarter.

The slight increase of 0.2% in household consumption indicated in the GDP (Gross Domestic Product) of the first three months of the year was more related to services and essential goods, and less to goods that depend on financing by the consumer, such as furniture , electronics and home appliances.

To make matters worse, in January, the Americanas accounting scandal caused a tsunami over retailers: banks restricted credit to companies fearing defaults. Since retail in Brazil is dependent on credit to offer “interest-free installments”, operations have gone awry.

All this movement takes place in the midst of the long-awaited “return to normal”: in early May, the WHO (World Health Organization) declared the end of the Covid-19 health emergency. The disease continues to exist, but no longer on a devastating scale, which in Brazil alone left more than 700,000 dead. The use of protective masks has already been made more flexible by Anvisa (National Health Surveillance Agency) even in hospitals.

Almost as difficult as seeing masks on the streets is finding money saved by families: to complete the budget, Brazilians have been withdrawing more and more resources from savings. According to the Central Bank, withdrawals surpassed deposits by BRL 6.252 billion in April, a movement already observed in the previous two years. In the midst of Covid-19, consumers liquidated their savings.

Today, the consumer’s perception is that “everything is expensive” and this has an immediate effect on purchases. “offline sale [lojas físicas] grew only 2% in the categories in which we work [eletroeletrônicos e eletrodomésticos]according to GfK”, said Fred Trajano, CEO of Magazine Luiza, during the presentation of results to investors on the 16th. , which surprised the businessman.

“The post-Dilma crisis [2016 e 2017] It was the worst in the country’s history. A very difficult period, but the companies were coming from good years and managed to endure relatively well”, says André Pimentel, partner at the consultancy Performa Partners.

“Now, we’ve reached the same scenario, but in a different way. Companies haven’t had time to recover from the crisis, they’ve been dragging a difficult situation for a long time”, he says. “They’ve used up all the breath and fat they had to burn. Now is the time for survival and tough decisions.”

Marisa announced the closing of 91 stores this year, Renner has already closed 20 of the group’s stores (including 13 of Camicado), Tok&Stok closed six points of sale, Magalu reduced the number of stores by 13% in the last 12 months ending in March, to 1,302 , while Via (owner of Casas Bahia and Ponto) opened only seven points of sale in the first quarter, against 80 in the same period of 2022. In an attempt to turn around in results, Via, Marisa and Riachuelo recently changed command.

Even wholesale, a segment that in recent years has led retail food sales, felt the blow: Assaí’s profit was reduced by two thirds in the first quarter.

“The moment is complex and several factors play against retail: high interest rates, higher price levels due to inflation, lack of job prospects. The consumer sees many risks in assuming financial commitments, because it is already difficult to pay what he owes “, says Eugênio Foganholo, partner at Mixxer Desenvolvimento Empresarial.

In addition, consumer behavior has changed a lot after the pandemic, he says. “He is making choices for cheaper brands and has been going to stores less, which generates unusual situations: there is almost no seasonality in retail anymore. This business of selling well on certain dates and less on others is ceasing to exist. March, in overall, it was good, but April was a tragedy. There’s no way to explain these movements”, he says.

This scenario leads retailers to cut costs on all fronts and take their foot off the accelerator when it comes to expansion. “It’s time for retail to become an oyster: to withdraw and defend what it has conquered until today”, says Foganholo.

In the opinion of Alberto Serrentino, partner at consultancy Varese Retail, the expectation of 2023 as a good year for sales is rapidly deteriorating. “The main offender of retail today is not savings, it’s interest rates, which are causing damage to the Brazilian economy as a whole,” he says.

High interest rates have a perverse triple effect, says Serrentino. “They attack the balance sheet of companies, because the financial expense erodes the operating result and stifles the investment capacity; they burden customer credit and limit demand; with this, they discourage consumption and create a hard effect for the indebted population.”

For the consultant, there is a remnant of inflation that needs to be fought. “But the dose is too strong, the time is too long, the calibration is disproportionate and this means that companies as a whole are very affected and adopt energetic austerity agendas, which means rationalization of expenses, cuts in personnel and contingency of investments. Retail is not executing the budgets it drew at the end of last year. This affects the economy, because it generates a spike in unemployment”, he says.

The impact is not homogeneous across retail segments, says Serrentino. “The pharmacy market is managing to maintain itself better than the other segments. Food retail, which is normally resilient, is experiencing a more difficult time than expected, with same-store growth below inflation,” he says.

The sector of durable goods (furniture, electronics and appliances) is experiencing the worst moment. “It was very bad last year and it’s still bad, everything that depends on credit suffers a lot, as well as the segment of construction materials”, he says. “The semi-durables, such as fashion, cosmetics and beauty, which started the year well, have already felt a strong slowdown, they are no longer optimistic.”

For Ricardo Pastore, coordinator of the retail core at ESPM (Escola Superior de Propaganda e Marketing), it is a moment of adjustment in the post-pandemic. “The world will not go back to the same ‘normal’, consumer behavior has changed. At the same time, the division of classes has tightened: the rich have become richer, the poor poorer and the middle class has lost part of its purchasing power “, he states.

In this change of reality, cash and carry, for example, sought to serve the middle class, but saw that this entails higher fixed costs, since the speed of replacement is greater, it increases the cost of labor. “Retail has always sought productivity, which means selling more and spending less. But it is time to better understand the demands of the middle class, super-indebted, and rethink the structure of the business.”

André Pimentel, from Performa Partners, says that the pandemic has been an excuse for everything. “Of course, Covid-19 has affected companies a lot. But there are chains that should have questioned their own business model and organized their house a long time ago”, he says.

According to him, the market is seeing a series of operational restructurings, which trigger layoffs. “While the economic situation is more or less, you manage to maintain a certain inefficiency. But now, it’s no longer possible”, he says. “The biggest chains always wanted to be present in all the big malls, for example. But this is no longer sustainable in terms of consumption.”

Danniela Eiger, head of retail analysis at XP, reinforces that most of the quarter’s results were weak for the sector. “It had the effect of Carnival, which was not celebrated last year; the unfavorable climate, with the stretching of the heat; in addition to the pressure due to the high debt”, she says.

The scenario does not change in this second quarter. “We expect a negative dynamic for all retail segments, there is no resumption of consumption”, says Danniela. “If the interest rate cut cycle starts in the second half, we will have better dynamics both in terms of demand and leverage [empréstimos para financiar expansão].”

Collaborated Leonardo Vieceli, from Rio