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Brazil: Crisis? What crisis?

by Stuart Wilson, Friday 2 October 2015

Last month’s DISTREE Brazil & Latin America 2015 provided deep insight into the Brazilian channel as it deals with a number of economic problems. Vendors, distributors and retailers remain pragmatic about current economic issues, looking instead at Brazil’s long-term growth potential and standing as one of the biggest technology markets in the world. Crisis? What crisis?

Speaking during a panel discussion at DISTREE Brazil & Latin America, Ricardo Kamel, commercial and consumer markets and mobility director at Ingram Micro Brazil, said: “I arrived in Brazil in 1984 and there has never been an easy year. Today, we see the crisis as an opportunity – and we are still growing. There are complexities in the market, but there are also opportunities.”

Kamel continued: “The value of the US dollar is increasing so we are discussing what will happen if US interest rates rise. If they do, it could create a greater crisis here in Brazil. Plus we have the depreciation of the Real, the end of the credit boom and the deterioration of the economy. You put all this together and it is not a very optimistic scenario.”

From the perspective of international brands, the current economic conditions can create a reluctance to commit to the market, but these temporary issues should not detract from the overall size of the Brazilian technology market - and the huge consumer appetite for products.

José Bublitz Machado, CEO at Brazilian distributor SND, said: “Companies need to be prepared to restart when conditions improve. This is the key to the future.”

Sergio Herz, CEO at Brazilian retailer Livraria Cultura, added: “We’re facing three years of reflection where we will be looking for efficiencies. The point of sales (POS) needs to be reinvented. We are seeing differences between online pricing and in-store pricing. We are empowering our physical POS to focus on the quality of products in-store, not necessarily the quantity.”

DISTREE Brazil & Latin America 2015 allowed technology brands to meet face-to-face with the region’s leading distributors, retailers and e-tailers through pre-scheduled one-on-one meetings. The event provides a powerful business development opportunity for technology brands looking to launch, build or manage volume channels in Brazil.

Consumer experience

The panel discussion formed part of an extensive conference programme at DISTREE Brazil & Latin America 2015. What became abundantly clear during the course of the event was that many of the perennial channel issues that occur in other regions worldwide were also present in Brazil.

From the growth of e-tail through to the development of integrated multichannel business models, some of Brazil’s top channel executives were grappling with the same issues many of their peers in Asia-Pacific and Europe are also contending with. For retailers, one of the main issues remains creating a unique consumer experience and proposition in a fiercely competitive market.

Herz added: “Many people can’t distinguish between different retailers. We need to connect physical retail to online and distinguish ourselves in the market.”

Maintaining growth rates and driving adoption of new form factors is an issue that unites vendors, distributors and retailers operating in Brazil. With tablets and smartphones already achieving high penetration rates, the race is on in Brazil to identify and bring to market the next form factor revolution.

Silvio Stagni, general manager at Lenovo Brazil, said: “To create demand we need to bring new things to the market such as alternative form factors, whether it is convertibles or 2-in-1s. The form factor can be a great driver of growth. We are also seeing potential in new desktops such as all-in-ones that can build traction in the consumer market. We can even offer a wider choice of colours to consumers.”

Machado at SND added: “Gaming is an area of growth and beyond consoles there is a huge opportunity in games and also gaming accessories.”

DISTREE Brazil & Latin America 2015 included a dedicated session, GameStream, focused on Brazil’s buoyant market for consoles, games and accessories. There has been solid growth in these categories in recent years yet significant untapped market potential remains. There are other categories also catching the eye of major distributors.

Kamel at Ingram Micro commented: “Brazil is still behind Mexico in terms of penetration of consoles. There is still an opportunity to sell the first console to some Brazilian consumers. But we also need to look at other segments. Consumers are starting to build home networks and using the cloud more and more. The cloud business is growing fast in Brazil. If you buy Office 365, you’re buying a cloud solution – there’s a great opportunity around that.”

Increasing attach ratios

Vendor giant Microsoft is on a mission to educate retail channels and drive attach ratios in stores. Some steps have already been taken, but there remains a long way to go.

Francisco Simon, senior retail director at Microsoft Brazil, commented: “We need to look at how we maximise sales and we need to look at how we build attach ratios in store. There is a need to build integrated sales and services revenues in stores. And in traditional stores, that capability often does not yet exist.”

“We are selling Office 365 direct from Microsoft, but it also needs to be offered in store when a consumer buys a PC or laptop,” he added.

Retailers are responding and training in-store staff to take full advantage of consumer visits. This is not a quick process and requires significant investment from retailers to train sales staff to provide a consultative service for in-store consumers.

Herz at Livraria commented: “Our store staff are encouraged to push buyers to upgrade and also to grow attach sales. If the consumer is in your store, you need to take full advantage of that. It should be seen as an honour to have them visit the store and we need to offer them promotions.”

He added: “We have a purchase conversion rate of between 22% and 25% for consumers visiting our stores. The greatest challenge we have is to raise that figure. We are slowing down in terms of opening new stores because we don’t have the capacity to train sales staff fast enough to the level we need them to be at. We need to use omnichannel strategies more but also to understand that 90% of purchases still involve a shop visit at some stage – even if the final purchase is not actually made in a physical store.”

Herz continued: “I am very critical of retail overall and I look closely at my competitors. If a retailer is using promoters they often tend to talk to each other rather than to the customers, because they are just killing time. They don’t feel connected to the retailer where they are working.”

Device focus

Logitech was a Silver Sponsor at DISTREE Brazil & Latin America 2015 and posed a question to the panel, asking why retailers remained totally focused on sales of devices such as tablets and smartphones, with accessories often getting little or no attention.

Simon at Microsoft agreed and claimed that change needed to occur: “We need to change and this is valid for the entire industry. If you don’t change during a crisis you will not survive. It is much better for a retailer to grow attachment sales rather than focus on trying to attract more customers. We need retail to understand that they can make much more profit by attaching accessories to device sales.”

Machado at SND added: “All of us are retail consumers, but retailers need to understand what a consumer intends to use a device for and pitch relevant accessories accordingly.”

For the retailers themselves, the reason for not focusing on in-store attach sales of accessories may be more simplistic.

Livraria’s Herz explained: “Retailers can be more focused on selling extended guarantees because that is what makes them more profit. That’s why retailers focus on selling guarantees, not accessories.”

Cost structures

With increased pressure from online sales channels, bricks and mortar retailers in Brazil are also having to closely examine their cost structures to stay competitive and profitable.

Ingram Micro’s Kamel commented: “The rent cost for retailers in Brazil is so high. Everyone needs to renegotiate rents down 20% to 30%. If you are a retailer you need to think carefully about costs related to rent and also store security. We need to address the costs involved with retailer and find a new reality that makes sense in the current market.”

The different cost structures for physical retailers compared to online only retailers means that many channel players want vendors to have clearer pricing strategies in Brazil. This is very difficult given the different rules in different states and the sheer physical size of the national market.

Kamel added: “It is almost impossible to have a uniform price for a product across Brazil. Some devices are more likely to be sold through the internet than in a physical retailer. The greatest challenge is how vendors deal with the omnichannel question.”

Disorganised pricing by vendors in Brazil remains a serious problem for the retail channel, according to some of the delegates at DISTREE Brazil & Latin America. The discussions that took place at this year’s event showed there is not an easy or a quick fix to the problems.

Stagni at Lenovo admitted: “We can never reach a proper solution. What is distorting pricing in Brazil is offers. If there is a special offer that is not balanced by the demand that exists in the market you create confusion. Some players are more aggressive than others and are willing to drop prices just to gain market share. I’m explaining the problems here – I don’t have the solution.”

Microsoft’s Simon added: “Another complicating factor is online channel pricing. If you look at the US market we have a situation where online prices can change eight times a day because that is what the online retailers’ pricing systems do. We need to get to a situation where we have a degree of price elasticity in Brazil that functions and also makes sense for everyone involved.”

Simon concluded: “Best Buy in the US suffered massively from showrooming but now they are coming back very strong. We need to sit down with retailers, have dinner and discuss how this happened.”

The 5th annual DISTREE Brazil & Latin America created new channel business opportunities for participating consumer technology brands. In total, more than 300 delegates attended the three-day event. Thousands of pre-scheduled one-on-one meetings took place between delegates with vendors and distributors meeting the region’s leading channel partners, retailers and e-tailers of consumer technology products.

Media Partnership

Channel LatAm is an official Media Partner for all DISTREE events in 2015, including DISTREE Brazil & Latin America.

DISTREE Brazil & Latin America 2015, which took place from September 16-18th in Sao Paulo, Brazil, gathered together hundreds of senior executives from the region’s leading ICT & CE e-tailers, retailers and distributors.

Readers interested in participating in DISTREE Brazil & Latin America 2016 should contact events@channelemea.com.

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