When e-commerce behemoth Amazon entered the Brazilian market in 2012, there was an expectation that it would quickly mirror its success around the world and dominate Brazil’s online retail sector. However, seven years on, this has yet to transpire, with many local obstacles and a well-established domestic market. Pushes to ramp up Brazilian operations since late 2017 have seen some success, but Amazon still has a long way to go in the land that inspired its name. Shareholders are hoping that after some significant moves at the end of 2018, that this could finally be Amazon’s year in Brazil.
Amazon arrived in Brazil in 2012, but for years their sales were limited to Kindle e-readers and ebooks. In 2017, it appeared the global giant was going to flex its muscles in the country, after launching a marketplace platform for third-party vendors to sell physical products through the Amazon.com.br website. Shares of Brazil’s e-commerce leaders tumbled after the news, but quickly recovered, as it appeared Amazon’s expansion had stopped there.
The long-term plan of the company is to establish its own “First Party” program in Brazil, controlling its own sales and distribution. The wheels are in motion, with the company having hired a significant amount of staff in the country and purchasing a massive warehouse in the town of Cajamar, just outside of São Paulo.
Amazon has always been somewhat of an elephant in the room for major Brazilian e-commerce players. While they still dominate the market, there is the fear that when Amazon’s growth kicks into gear, local actors will be swept away.
Things haven’t been easy for Amazon, however. Facing significant delays due to bureaucratic issues, logistical hell, and struggles in closing contracts with vendors, Amazon failed to roll out its First Party program in 2018, missing out on Christmas and Black Friday, which, despite being a wholly American tradition, is already Brazil’s biggest e-commerce date of the year. Amazon is under pressure to increase its sales outside of its U.S. core, after a difficult end to 2018 for company stocks.
Amazon hasn’t yet got the Brazilian Way
It is often repeated that Brazil is the toughest nut for foreign companies to crack. Bureaucratic hoops just to set up shop can be drawn out and confusing, and once companies begin to operate in the country, the domestic tax system is a maelstrom of rules and requirements and definitions. The most successful foreign companies in Brazil tend to employ large teams devoted to deciphering the country’s labyrinthine tax code.
The other significant barrier facing Amazon is that of logistics. Brazil is huge, a good deal bigger than the continental United States, and transport infrastructure around the country is still hopelessly poor in places. Brazil is almost entirely reliant on its roads, many of which are in terrible condition. Last year’s 10-day truckers’ strike showed just how dependent the country is on cargo being taken across highways.
Though it seems cliché, Amazon will have to learn how to do business in Brazil. Without adhering to local practices, there is no way it will break the hegemony of the country’s major e-commerce distributors.
Homegrown success stories
If you were to ask local players in the industry about Brazilian e-commerce, you would be told that it is doing just fine without Amazon, thank you very much. Industry leaders have made significant gains over the past few years, with B2W Digital (owner of big-name e-commerce players Lojas Americanas and Submarino) seeing its share prices more than double over 2018.
The real success story in Brazil’s e-commerce industry, however, is Magazine Luiza. Since January 2017, stocks in the retail chain have risen an incredible 1,346 percent—a figure which includes the aforementioned Amazon scare in late 2017. While still owning brick-and-mortar stores, it is e-commerce that has pushed Magazine Luiza to such dizzy heights.
Though it may sound paradoxical, it is precisely these brick-and-mortar stores which have been the backbone of the company’s online retail success. Magazine Luiza has smartly converted many of its physical addresses so that they double up as distribution centers, a move which has dramatically increased the speed and efficiency of its online network and taken straight out of Amazon’s playbook, being reminiscent of the company’s takeover of Whole Foods.
The importance of the physical store cannot be understated in a continental country such as Brazil, and the zeal in which Magazine Luiza has expanded its brick-and-mortar locations throughout the interior of the country has paid off big-time. In many rural areas, Magazine Luiza is the only department store available, and the security of having a physical store nearby (for either picking up online purchases or returning products) is crucial in a population which is still wary of e-commerce.
It is unclear exactly how long chains such as Magazine Luiza will be able to hold on to the market leader position, with Amazon’s First Party platform slated for launch in 2019. However, with all things considered, the homegrown retailers have a tremendous head start.