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Cross-Border Trading Report Brazil Country Guide 2018 A report researched and compiled by IMRG, supported by
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Cross-Border Trading Report
Brazil Country Guide 2018A report researched and compiled by IMRG, supported by
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The Brazil Country Guide 2018 is the latest publication in a series of cross-border trading guides produced by IMRG for a variety of key ecommerce destinations around the globe.
The full set of current country guides are available for download from: www.imrg.org
The information in the country guides also form a central element of the Ecommerce Worldwide theatre at the Ecommerce Expo conference that takes place every September in London. IMRG are a lead partner of the conference.
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CONTENTS
Executive Summary 5
Foreword 7
About Brazil 8
Retail in Brazil 14
Brazilians as Online Shoppers 18
Competitive Landscape 24
Marketing to Brazilians Online 28
Payment 34
Logistics 40
Legal 45
Reflections 48
About IMRG 50
About VTEX 51
Sponsors 52
About the Author 53
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EXECUTIVE SUMMARY A samba in gold boots
Brazil is not for the half-hearted. There’s an exciting ecommerce opportunity out there. The country is successfully emerging from a nasty recession in 2015-2016, with ecommerce in double-digit growth again already in 2017-18. Interesting cross-border categories, such as Fashion, Health & Beauty, and Homewares, already the fastest growing offline, have reached that critical tipping point where ecommerce acceleration really takes off.
It has the fourth largest population of internet users in the world, over 100 million over the age of ten, and already two thirds of them are online shoppers. These potential customers are generally educated, urban middle classes, often well-travelled and attracted to foreign brands. As a comparison, the online shopping-power of Brazilians is roughly the same as the whole of the former iron-curtain countries now inside the EU (Poland, Czech, Hungary, …), except that you only need to localise once instead of 10 times.
The marketing landscape is reassuring familiar. All your usual tools will work, and all your experience is still relevant – it’s a Facebook- and Google-led country, with other familiar names all there in the mix. There’s no painful learning how to tackle strange social networks such as WeChat or Mixi. PPC is pleasantly cheap too. Brazilians are famously social, and social networkers, and so with a single language barrier to overcome, you can speak to a huge number of potential customers in a familiar and affordable way. UI/UX standards are similar to back home; you can shop a Brazilian site without getting lost, and Brazilians can shop yours.
Taking your proposition online to Brazilians could be a samba in a golden costume, all excitement and sparkle… and rapid sales growth. However there is another side to Brazil: it’s not an easy place to do business in or into, with some stultifying bureaucracy
to overcome. Those gold boots look great when you dance, but they’re awfully heavy.
For many “easy” things it’s pretty difficult without a local presence; even registering a Brazilian domain-name needs a local company registration, for example. And Brazil is one of the slowest and most bureaucratic countries in the world to register a company in. For more complex things, it’s even harder without local support. For example, the “simple” option for cross-border shipping customs duties imposes a 60% tax on the fully-landed cost of each parcel. Finding a local parcel-carrier who can successfully deliver that parcel is then a whole further challenge.
Being tentative about Brazil is likely to lead to self-fulfilling failure. If you’re going to go for it – and it’s an exciting opportunity potentially on the cusp of very strong online growth in key categories – you need to really go for it. A flexible approach will be needed, with a willingness to work with local partners. Amazon have tried taking their rather rigid and self-contained approach to Brazil and pretty much failed so far (good news of course if you view it as a strong competitor taken out of the picture) while Apple have succeeded online by being pragmatic.
A samba in gold boots is a dance you can only perform with plenty of support for lifting your feet.
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7
FOREWORD By Mariano Gomide
Trading online in Brazil, much like in any new territory, comes with specific challenges. However, the correct types of preparation will allow you to reap great rewards from this country’s eCommerce market.
The retail ground is fertile for cross-border trade. Here are some facts about Brazil and why it remains one of the best options for eCommerce in Latin America.
• The economy has recovered well from the 2015-16 recession
• Urban Brazilians are avid internet users and retail ranks among the main activities of the online population
• Around 10% of eCommerce in Brazil is cross-border
• The online retail market is worth around £18bn, and it is currently enjoying double-digit growth
• Brazilians are growing more and more familiar with foreign and global brands, as more major players enter the market
While the presence of international brands obviously means existing competition for a new entrant into the market, it also demonstrates Brazil’s viability for international trade, and this has familiarised Brazilian online shoppers with the idea of buying from overseas. The market is established enough not to present an unreasonable challenge, however, it is still new enough for a retailer to establish themselves as the foremost name in their niche.
Yes, you’ll encounter local bureaucracy, but just as with any market, understanding those hurdles will go a long way towards overcoming them. For example, a marketplace presence and a local domain both legally require a physical presence in the country. Obviously, there are a number of costs associated with opening a local office, and you’ll decide whether the cost and red tape are worth it for your brand and proposition. One example is free shipping, which is something many shoppers are accustomed to. A presence in the country may afford better protection for your margins, should you decide to offer free shipping. What is best for your company will, of course, very much depend on what you sell and to whom.
On the other side of the bureaucratic coin, Brazilian regulations are less strict than you’re probably used to. So, if your online activity is acceptable to UK regulators, you’ll probably be compliant with Brazilian laws.
Just as it’s important to understand what the law expects of you, so you’ll need a good idea of what shoppers are accustomed to. This country guide explains the levels and types of service you’ll need to offer. As mentioned above, shoppers in Brazil very often expect free delivery, however, they are far less demanding when it comes to returns, which will certainly be a benefit for retailers.
VTEX is pleased to be sponsoring IMRG’s Brazil Country Guide 2018, which will help to prepare retailers for a potentially lucrative entry into one of the most exciting growing online economies. We are very pleased to share our local knowledge, and to further discuss the right steps to take when entering the Brazilian market.
Mariano Gomide founded VTEX in 2000 alongside Geraldo Thomaz. He is currently the company’s co-CEO, being responsible for the European and Asian Markets. A graduate of Mechanical Engineering at Universidade Federal do Rio de Janeiro (UFRJ), Gomide started his career in the financial market, working for such companies as Senso and Banco Icatu.
Gomide is a leader in the global eCommerce market, where he has had the opportunity to collaborate as an instructor and as a speaker for many major events including eCommerce Day, Internet Retailer, eShow, and UNCTAD eCommerce Week. Gomide also serves as a counselor for business4etrade.org, an organization bound to UNCTAD/UN which promotes eCommerce on a global scale.
For more information about VTEX visit:www.vtex.com
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ABOUT BRAZIL
Brazil Overview
Demographics
The first thing you need to know about Brazil is that it is BIG. Your schoolchild’s atlas was deceptive: take a look at a modern equal-area-projection map instead. Brazil has thirty-five times the land area of the UK. With 207 million inhabitants1, it has slightly more than triple the UK’s population, or alternatively about two-thirds of the population of the USA. Oddly, the population is slightly skewed by gender: 51.48% female2.
The second thing to do is forget your stereotypes of beaches, slums and jungles. Of course these are all present in some abundance, but none of them are very relevant to considering Brazil as a potential cross-border ecommerce target. Your potential customers won’t live in a jungle or a slum and most likely won’t spend that much time on a beach. Where they probably will live is a town or city: 84.7% of the population is defined as urban3. A great deal of that huge land-area is very sparsely populated.
1 Instituto Brasileiro de Geografia e Estatística (IBGE), 20172 National Research by Household Sample (PNAD), 20153 ibid
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Economics
Average-type statistics are rather deceptive when considering Brazil. As an average, GDP per head is approximately £7,7004, or around 25% of the same figure for the UK. However, wealth is more skewed in Brazil. Approximately 60% of total wealth lies in the hands of less than 1% of the population5.
Nevertheless there is a sizeable, and ecommerce-addressable middle-class: approximately 50% of the population lives in a household with an income of £1,000 per month or more6. Moreover, income distribution is skewed towards areas of the country you are likely to be targeting: São Paulo urban region has more than triple the average income of remote and rural (well, jungle really) Maranhão.7
Seasonality
You probably knew that Brazil is hot. São Paulo’s coldest month is June, which clocks in at a chilly 19 Celsius average. The overall picture is relatively uniform across all areas which are plausible ecommerce targets: it is hot and wet during what we in the UK would think of as the winter months of October to March, slightly less hot and much drier from April to September. Average annual rainfall in São Paulo is roughly 2.5-times that of London. Obviously, therefore, if you are intending to sell fashion items to Brazilians, fur coats are not likely to be a great category in December.
Peak online trading times are Christmas plus Black Friday, and then a set of family-driven dates:
• Mother’s Day, 2nd Sunday in May
• Father’s Day, 2nd Sunday in August
• Children’s Day, October 12th
• Valentine’s Day, which in Brazil is on 12th June
Internet usage in Brazil
Brazilian Domain Names
Local commercial domains have the extension .com.br . Almost 4 million Brazilian domain names were registered at March 2018. 8
However you need a Brazilian tax ID (CPF/CNPJ) to register a Brazilian domain, either individual or corporate9. There are alternatives available for non-Brazilian entities, but in practice they boil down to the same restriction: you need a Brazilian agent or agency to facilitate it.10
This theme – Brazil is much easier to access via boots-on-the-ground local partnerships – is one that we will see recurring throughout this paper.
4 Throughout this document, exchange rates of GBP:USD = 1.4 (lots of Brazilian statistics tend to be quoted in US Dollars) and GBP:BRL = 4.66 have been used, which were correct at the time of writing. Obviously exchange rates can fluctuate quite a lot in fairly short time frames.5 http://brasildebate.com.br/os-limites-atuais-da-distribuicao-de-renda-e-riqueza-no-brasil/, 20146 World Bank 2014.7 Instituto Brasileiro de Geografia e Estatística (IBGE), 20168 Teleco.com.br9 See, for example, https://uk.godaddy.com/help/about-br-domains-6020 n10 https://techinbrazil.com/brazilian-domain-name-registration
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AccessMore than 100 million potential Brazilian consumers have access to the internet (Figure 1):
2011
0
20
40
60
80
100
120
140
0
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015 2016
Users % of population aged 10+
Mill
ions
of u
sers
% o
f pop
ulat
ion
aged
10 o
r ove
r
Brazil Internet Users
Figure 1 - Brazilian Internet Users11
This makes Brazil the country with the fourth largest number of active internet users in the world.
Demographics of internet accessInternet access is strongly skewed towards younger demographics, although in practice this skew extends towards the age of about 40, so many brands targeting Brazil will find plenty of potential online shoppers (Figure 2).
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
10-15 16-24 25-34 35-44 45-59 60+% w
ho a
cces
sed
the
inte
rnet
in la
st 9
0 da
ys
Internet Users by Age
Age range
Figure 2 - use of internet by age range12
11 sources: Teleco.com.br and TIC Domicilios12 IBGE 2015
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Moreover, as might be expected, internet usage is also strongly skewed towards wealthier consumers (Figure 3):
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<£200 £200-400 £400-600 £600-1000 £1000-2000 £2000+
Internet Users by Income Group
Monthly household income
Figure 3 - Internet Usage by Income Group13
There is a corresponding bias towards the better educated: 95% of those with a degree are internet users, compared with only 46% of those who did not finish school. However interestingly, unlike many apparently similar countries, internet usage shows no gender bias.
Overall the picture emerges of a younger, urban middle-class who are frequent and comfortable users of the internet. If your proposition is targeted at such consumers, there is fertile ground to explore. However brands targeting older or rural shoppers might be best advised to look elsewhere for cross-border expansion opportunities, although this is changing quite rapidly: internet usage amongst the retired population has more than quadrupled in the last 7 years.14
13 ibid14 ibid
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Usage
Happily for those considering Brazilians as potential online shoppers, retail has a high penetration: a majority of users have at least looked at retail sites, even if they haven’t necessarily translated this into a purchase (Figure 4):
Services
Entertainment
Social media
News & Information
Retail
0% 20% 40% 60% 80% 100%
Top uses of the internet
Figure 4 – penetration of internet usage by primary purpose15
Although, as we will see later, there are certain barriers to translating purchasing intent into actual buying, it isn’t because Brazilians don’t want to shop online.
Devices
As might be expected, Brazil is predominantly a mobile country, although this is less marked than in significantly less developed countries such as India – there is still a significant level of desktop usage. Access to the internet via smartphone is at comparable levels to the UK, but desktop usage is only half of UK levels.16
Quite a lot of internet access takes place from the office17, in an economy with a significant bias towards services, which inevitably sustains desktop usage.
Tablets are irrelevant (<20% of UK levels of penetration): don’t waste your time worrying about optimising your offer for tablet users.
15 comScore Brazil Digital Future in Focus, 201516 Google Consumer Barometer, 201617 IBGE 2015
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Brazilians as online consumers
Purchasing power
The general household purchasing power of Brazilians is significantly lower than the UK, even after filtering out those who are irrelevant to any decision to target Brazil online because they lack internet access (Figure 5):
<£5k £5k-£10k £10k-£15k £15k-£20k £20k-£30k >£30k
Annual household income of internet users
38%
25%
11%
9%
9%
7%
Figure 5 - Annual Household Income, Internet Users Only18
By way of comparison, almost exactly 50% of internet-using households in the UK have a household income less than £25k. In Brazil this figure is approximately 85%. Realistically you are most likely to be targeting those with incomes of at least £10k, little more than a third of the total.
This helps to put Brazil in proper perspective: the real addressable online market for most cross-border retail possibilities is very approximately similar in size and wealth to the whole of the once iron-curtain Eastern European countries which are now inside the EU, but with one language to cope with instead of ten. Portuguese is the dominant language and others are irrelevant for ecommerce purposes.
SUMMARY• Overall, you could realistically picture targeting Brazil as being equivalent to targeting all the former “iron-
curtain” countries of Eastern Europe now in the EU together, except that you only need to localise once (hands up if you have a Bulgarian localised site?)
• GDP per head is about a quarter of that in the UK, although with wide variations and wealth more concentrated in the rich few
• Brazil has the fourth highest number of internet users in the world, so it’s certainly not an internet desert. Neither is it an internet jungle, despite some stereotypes – as might realistically be expected, internet users are concentrated in the towns and cities
• Online retail is one of the main activities of all those users• Your target consumers are almost certainly the educated urban middle-classes. “Middle-class” starts at a lower
affluence level in Brazil than back home, so don’t discount mid-price propositions as plausible for Brazil. • A Brazilian domain name is possible, but is the first-mentioned amongst a rather long list of bureaucratic
challenges to entering Brazil without local support: you will need a Brazilian tax registration to obtain one.
18 Microsoft, Global State of Multichannel Customer Service, 2015
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RETAIL IN BRAZIL
Categories and category growth
General economic data
The Brazilian economy as a whole has not had a particularly happy time recently, and has been in recession during much of 2015 and 2016. Published data is often skewed by being quoted in US Dollars which, given changes in exchange rate, amplifies the challenges Brazil has faced – taken at face value some data implies a 10% drop in GDP from 2014 to 201619. Even removing the effect of exchange rates, there was a significant drop, and it is estimated that retail sales dropped by 11% in the same period20.
A modest recovery is now underway, and although full year statistics for 2017 were not available at the time of writing, it is generally believed that retail grew by 1-2% during 2017 with better prospects for 2018.
Category data
Meaningful category-level data for Brazil as a whole (not purely online) is exasperatingly difficult to source: the government statistics service publishes many indices but rather little on volumes, and this lack of published data seems to impact most other sources too: there is endless commentary about whether particular sectors shrank or grew but remarkably little about the overall size of particular categories. Neither is the granularity of the data particularly helpful: for example one officially-captured classification is “hypermarkets” which obviously could cover a rather wide variety of actual categories.
19 World Bank, 201720 IBGE
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Overall retail in Brazil is a market worth approximately £400 bn21 . Existing retail coverage is fairly good: there are 14,500 convenience stores and 8,300 supermarkets22, for example, which is about half the density per shopper you might be used to at home. As a consequence ecommerce is taking a somewhat different trajectory to other BRICS such as China or India: Brazil is a more mixed environment, with multichannel retailing in the form familiar to most UK retailers and brands taking its place alongside marketplaces, built on the foundations of a pre-existing brick-and-mortar retail environment.
Shoppers are typically more attracted to trusted brands than might be the case in other emerging ecommerce markets,23 both retailer-brand and product-brand (Brazil is a top 3 market for Unilever, for example).
Size of likely focus categories
Any category-based figures need to bear in mind the above caveats: category level data is at best questionable in its accuracy. The most likely category you might attempt for cross-border into Brazil is probably fashion/apparel which is estimated to be roughly a £30bn category, of which about a third is baby/childrenswear.24
Indicatively, the category split of retailing in Brazil looks like this (Figure 6):
Brazilian Retail “Category” Split
3% 3%4%
9%
11%
21%
49%
Speciality & Others
Fast food and convenience stores
DIY & Building materials
Health & beauty
Fashion & sports
Consumer electronics & furniture
Supermarkets, hypermarkets and cash & carry
Figure 6 - Brazilian Retail “Statistical Category” Percentages by Value25
As is clear, half of retail is described as “Super, Hiper e Atacado [the latter word means small wholesale similar to Booker]” which in reality includes a wide variety of categories, not just food, but in practice might be regarded as predominantly food – in most countries retail is split approximately 50:50 between food and non-food and Brazil appears to be no different.
Category growth
The fastest growing categories are good news for overseas brands considering Brazil as an online retail destination: Fashion and Sports grew by c9% YoY between 2016 and 2017, while Health & Beauty grew c8% and Homewares by c4.5%, against a general background rate of just under 2%.26
21 In theory this is about double the size of retail in the UK. In practice, comparing national statistics is very difficult, because every country takes a different approach to categories such as petrol or takeaway food (both excluded from UK figures; somewhat less clear for Brazil) or car tyres22 PwC, The Retail and Consumer industry in Brazil, Nov 201523 United Nations Industrial Development Organisation, National Report on eCommerce in Brazil, 201724 Euromonitor 201425 Instituto Brasileiro de Executivos de Varejo e Mercado de Consumo (IBEVAR), 201526 IBGE 2017, although this is from mid-year YoY data, not complete 2017 figures which were not available at time of writing
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Retail landscape
Top local retailers
Brazil has long been an interesting target for international retailers, due to its size and reasonable basic wealth. As a consequence, top local retailers are a mixture of both familiar and unfamiliar names (Figure 7):
Company Revenue in 2016 (USD bn)
Carrefour 15.2Pão de Açúcar 13.9Walmart Brasil 9.1Via Varejo 6.9Lojas Americanas 6.6Raia Drogasil 3.7Grupo Boticário 3.5Magazine Luiza 3.5Cencosoud Brasil 2.8Lojas Renner 2.6
Figure 7 - top retailers in Brazil27
Some of these apparently purely Brazilian players are in practice partially owned by more familiar names: for example the French retailer Casino has a significant stake in Pão de Açúcar.
Fashion, in particular, is somewhat more fragmented, which makes it a potentially easier target for cross-border. You probably won’t be familiar with most of the top 10, and their sales are (relatively) small:
Retailer Revenues (approx. £bn)
Casas Pernambucanas 1.4C&A 1.2Loja da Renner Brands: Renner, Camicado e Youcom
1.2
Grupo Guararapes Brands: Riachuelo
1.1
Lojas Marisa 0.8Havan 0.5Grupo SBF Brands: Centauro, Cetauro.com e By Tennis
0.4
Cia Hering Brands: Hering Stores, Hering Kids, PUC e Dzarm
0.4
Leader 0.3Arezzo&CO Brands: Arezzo, Schutz, Anacapri e Alexandre Birman
0.3
Figure 8 - top fashion retailers in Brazil28
27 IBEVAR 201628 IBEVAR 2015
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International brands presence
As noted above, Brazilian shoppers like brands, and like brands they can trust. This has led to plenty of international brand-names trying their luck in the Brazilian retail market. Recent entries include: H&M; Gap; Forever 21; Desigual; Cotton On; Top Shop plus the cosmetics brands: Sephora; L´Occitane Au Bresil; Yves Rocher and Lush.29 Moreover, Body Shop announced plans to open 500 stores in Brazil by 201930: Health & Beauty appears to be a category where prospects for international brands are particularly strong.
Incidentally, it’s unlikely you’ll get much joy shipping branded CPG products to Brazil – the big CPGs, such as Unilever, P&G etc, are already there in strength.
SUMMARY• After a biting recession in 2015-16 Brazilian retail is in recovery.• Although category data is not too easy to source, interesting categories for potential cross-border ecommerce
propositions are now the fastest growing, including fashion, H&B, and homewares• Retail in Brazil is more “familiar” than in many developing markets: big global groups such as Carrefour and
Walmart are present in strength• As a consequence, online retail is following a more familiar “multichannel” trajectory than in places without a
strong traditional retail heritage (e.g. India or China)• Brazil is an attractive retail market• Various international brands in fast-growing categories are finding it so attractive they are setting about
developing significant presence there
29 See for example http://brasileconomico.ig.com.br/negocios/2015-01-05/mercado-consumidor-do-brasil-atrai-marcas-internacionais.html30 pwc: The Retail Industry in Brazil, 2015
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BRAZILIANS AS ONLINE SHOPPERS
The E-bit initiative Unlike the situation for the wider retail landscape for which data-sourcing is somewhat challenging, there is remarkably rich data available regarding specifically online retail in Brazil. The reason is the existence (since January 2000! – someone was exceptionally farsighted about the potential of eCommerce in Brazil) of the E-bit / Webshoppers initiative, which publishes very detailed bi-annual reports. It helps if you can read Portuguese if you want the most fully up-to-date versions, but many editions are also available in English translations31.
E-bit as trusted shop
E-bit basically operates in two complementary spaces. First of all, it performs the role that schemes such as Trusted Shops fill in the UK. Examine the home-page of most Brazilian retail sites, and you will find the logo and link to the E-bit scheme somewhere on the page. Here for example, is a screenshot from the footer of the online pet store www.petlove.com.br32 (Figure 9):
Figure 9 - Trusted Shopping logos on a typical Brazilian retail website33
31 Author’s note: the translation is sometimes a bit eccentric. It’s worth having the Portuguese source version side-by-side for cross-reference32 Author’s note: one of my clients is the CPG Mars, whose brands include pet-food names such as Pedigree and Whiskas and who therefore have an obvious interest in the activities of the leading online pet retailer in Brazil, Petlove.com.br. I have used the Petlove site occasionally as a source of screenshots for this report.33 www.petlove.com.br
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The two logos say “A best-loved shop 2016/17” and “First diamond-rated petshop”. An online retailer qualifies for these badges in much the same way as such schemes operate elsewhere in the world, although E-bit are exceptionally active in following up online-purchases directly with the consumer to check that their experience was satisfactory: should you decide to venture as far into Brazil as to have a Brazilian site, you’ll want the logo which means you need to provide a good service!
E-bit as data collector
The second element of the scheme is data collection and sharing. E-bit collates consumer-feedback from questionnaires, click-throughs, order-follow-ups and panels, and given the scheme’s broad penetration into Brazilian ecommerce, it is able to use these to generate overall data about Brazilian ecommerce into a report called “Webshoppers”. If you study the methodology used, you might just possibly wonder about potential skews and biases in the results, but for practical purposes it is the main (or possibly sole!) source of data regarding ecommerce in Brazil, is exceptionally rich, and on close examination appears to be the primary source for all other secondary-sourced reports you might find after more diligent searching. This report has therefore followed suit and used it as the main source for the next section.
Brazilians as online shoppers
Demographics
Unusually, there is no gender bias in overall online Brazilian shoppers: the split is almost exactly 50:50. However, there is apparently a strong bias towards older shoppers (Figure 10):
Ages of online shoppers
24 or younger 25-34 35-49 50+
8%
23%
38%
31%
Figure 10 - age distribution of online shoppers34
Given what we already saw earlier about the general age distribution of internet users, then what this is telling us is that if an older shopper is an online shopper they are probably an enthusiastic online shopper: the age ranges available in the different data-sets don’t quite match up exactly enough to make a true mapping but broadly an older internet user is about 25x more likely to make an online retail purchase(!), assuming they are an internet user at all.
34 Webshoppers, 1H 2017 (in Portuguese only at the time of writing)
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The reality is that there is almost certainly some implicit bias in the data: low-ticket sites more accessible to younger consumers are less likely to be part of the E-bit scheme, and other data tends to imply that purchases are often “made by” the older members of the household (possibly because they have access to payment methods accepted online) even if the actual end-consumer is younger.
Incidentally Brazil is rather unusual for its exceptionally early retirement age (the average retirement age for public sector employees is 54) and rather generous retirement benefits - reforming this is currently the source of considerable political strife. 35
Purchasing power
Being again cognisant of potential biases in the data towards older, wealthier consumers, here is the split of monthly income (Figure 11):
Monthly income of online shoppers
<£650 £650-1075 £1075-1700 £1700+
23.7%
33.4%
18.3%
24.5%
Figure 11 - monthly income mix of online shoppers 36
The overall tax burden in Brazil is rather comparable to that in the UK37, and so it’s not unreasonable to make direct comparisons.
35 See for example https://www.theguardian.com/world/2017/apr/19/brazil-police-storm-congress-over-proposal-to-raise-retirement-age36 Webshoppers37 Imposto de Renda da Possoa Fisica, University of Brasilia 2014, which claims 35.8% in Brazil vs 35.3% in the UK, although the tax burden in Brazil rose somewhat in the subsequent recession
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What they bought
Overall growth of ecommerceIt’s worth being rather wary of published data about the size of the overall retail ecommerce market in Brazil. Older data points are generally credible, but a surprisingly large number of published statistics seem to be “estimates” for more recent years predicated on strong growth even during the sharp recession years of 2015-16. Below is an illustrative example (Figure 12):
Size/Growth of Retail eCommerce
0
5
10
15
20
25
30
0
5
10
15
20
25
30
US$ (Bn) Unique Shoppers (Mn)
US$
Bill
ions
Mill
ions
of U
niqu
e Sh
oppe
rs
Figure 12 - Size and growth of retail ecommerce, contrasting sources38
In 2015 in particular, the recession was painful enough to cause all consumers to reduce spending, online or no, and even ecommerce is thought to have contracted by around -2%. Despite these reservations, the overall size and trend is fairly clear: Brazil is roughly an £18bn online market, and is now growing well again: the E-bit data estimates it grew by around 10% between 1H 2016 and 1H 2017.
38 US$ values from eMarketer (estimates), Consumer numbers from Webshoppers 2017 (actuals)
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Category data
Category data tends to illustrate the current maturity of online retailing in Brazil (Figure 13). In almost all countries, initial growth is driven first by online travel, and then for retail by the accessibility (and cheaper prices) of a broader range of consumer electronics. Other categories follow in varying sequences: fashion take-up, for example, is dependent on local cultural expectations of returns which take some while to re-establish online.
% share by category of online retail
0%
5%
10%
15%
20%
25%
Value
Food & D
rink
Sports &
Leisure
Health
& Bea
uty
Fashion/Apparel
Homewares
Computing
Small Elec
tronics
Large Elec
tronics
Mobile
PhonesBooks
Motor A
cces
sorie
s
Others
Orders
Figure 13 - online retail category split by value and volume39
Brazil is no exception to this general trend. The good news for those considering Brazil as a cross-border target is that it appears to be just beyond the tipping-point where non-electronics categories begin to grow online in a big way. Fashion, H&B and Homewares all have interesting shares of the overall market, for example.
How they bought it
Average order valuesAverage order values are somewhat skewed by the high penetration of large ticket electronics items such as large domestic appliances and probably also mobile phones. The average order value in 1H 2017 was just over £9240.
Reverse engineering (always a dubious process) the category data above implies an average transaction value in fashion and H&B of around £25, and somewhat higher in Homewares.
A strange-looking secondary data point might also account for some of the surprisingly high ATV: Brazil was the most expensive place in the world to buy an iPhone 6, 56% more expensive than in the USA41 . As we will see below, unfortunately this isn’t necessarily simply due to a highly value currency and the possibility of making exceptionally good margins.
Devices
Mobile is growing rapidly, although actual transactions have not quite reached a majority yet: 35.9% of transactions took place on mobile in 1H 2017.42
Interestingly, mobile is already the dominant channel once consumer electronics are removed from the picture. Top categories purchased on mobile are Fashion, Homewares and H&B in that order. Ticket values appear to be higher too.
39 Webshoppers, 1H 2017 (in Portuguese only at the time of writing)40 ibid41 Deutsche Bank42 Webshoppers, 1H 2017
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Why Brazilians buy online
Once again, the category data provides the clue: online offers a broader choice and is cheaper – consumer electronics is particularly well fitted to such expectations. Moreover Brazilians have been historically led towards an expectation of free shipping (Figure 14).
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
% of orders with free shipping
1 2 3 4 5 6 7 8 9 10
% of overall eCommerce % from top retailers
Figure 14 - orders with free shipping43
Larger, trusted stores are setting about the challenging task of weaning customers off this (in a country the size of Brazil shipping is by no means cheap – although see the logistics sections below), but it remains a strong expectation. Obviously this is by no means helpful for a prospective cross-border proposition.
SUMMARY• eCommerce in Brazil is an attractive prospect. There is an approximately £18 billion market out there to address• Having stagnated somewhat during the 2015-16 recession, online retailing is now once again demonstrating
double-digit growth• The E-bit initiative means that surprisingly rich and detailed data is available to help make a decision
to target Brazil• Interesting categories for those considering Brazil as a cross-border ecommerce target, including fashion/
apparel/footwear, H&B and homewares are now growing strongly online in Brazil – the tipping point where consumers are comfortable purchasing in such categories online has apparently just been reached. Future growth could potentially go through a phase of strong acceleration
• There is an annoying dependence on free shipping. However (as we will see below), there is an expectation that purchasing from non-Brazilian sites may not include it as standard
• ATV is relatively high, although overall Brazilian online consumers are less wealthy than your domestic market
43 ibid
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COMPETITIVE LANDSCAPE
Buying from overseas
The cross-border opportunity
The educated urban middle-classes who represent the core of any prospective target audience for cross-border ecommerce into Brazil are well-aware of the world beyond Brazil, having spent US$17.4bn overseas in 2017.44 They are therefore well aware of international brands and find them desirable.
This has translated into a strong-market for cross-border ecommerce (Figure 15):
0
0.5
1
1.5
2
2.5
Cross-border Retail eCommerce into Brazil
2013 2014 2015 2016
US$
Bill
ions
Figure 15 - growth of cross-border ecommerce into Brazil45
Cross-border transactions represented almost 10% by value of total retail ecommerce in Brazil in 2016, growing steadily at a very healthy 16-17% per annum, and by some estimates more than half of Brazilian ecommerce buyers have made a purchase from a non-Brazilian website.
44 Central Bank of Brazil, data for Jan-Nov45 E-bit Webshoppers, 2016, English translation
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The competition
Unfortunately, other people got there before you did, most especially the Chinese. Ali Express, the export extension of China’s super-dominant Alibaba (or you might know it as TMall/Taobao) was the biggest cross-border presence in 2016, with 45% of cross-border shoppers having used it.46 However there are some comforting things about Ali Express when you give its Brazilian presence a closer look, most obviously shipping times, which are often very long, 21 to 48 days for example. If Brazilian consumers are prepared to tolerate that kind of wait, they must be really keen on what they can buy there – which is typically what they can’t buy domestically.
There is also a local Amazon presence. Before you simply give up and move on to consider a different country, this isn’t the dominant aggressive Amazon you might be used to back home. Amazon has clearly found Brazil hard going, and basically its presence there is limited mostly to digital/media products plus its marketplace concept in certain categories such as consumer electronics. There are media reports of it planning to extend into additional categories, but it’s all a bit vague.47,48 It doesn’t stock its own products in Brazil, and the implications are that even Amazon has discovered that the regulatory and logistics environment in Brazil is exceptionally challenging. Of course you might take the view that if Amazon has found it hard, then so will you, but in practice Amazon is generally rather unwilling to compromise on its model or work with local partners – taking a more flexible approach might bring you different results. Apple have an online store in Brazil, for example, and they are apparently doing fine with it.
Local benchmarksAs noted above, Brazil is a more multichannel retail country than is the case in markets whose brick-and-mortar retailing sector was less developed when ecommerce got going (e.g. China or India) i.e. rather closer to what you are used to back home. However a particular peculiarity of Brazilian ecommerce is that many of the top local websites follow the model shaped by Walmart in the US: they are partially a “retailer own-site” but then have a marketplace stirred into the mix.
Using the mixed marketplace sites
Walmart Brasil is in anyway one of the top 10 sites in Brazil, and follows the model of its US parent. If you want to become a seller on Walmart Brazil, or in fact on any of the local marketplaces, you are going to face a familiar challenge: you need a local presence. Here is a screenshot from part of the registration page for sellers (Figure 16):
Figure 16 - registering as a Walmart seller in Brazil (translated via Google Chrome)
The CNPJ is the registration number of your Brazilian company, which is kind of checkmate for aspirations to use this route-to-market directly for cross-border. Other marketplaces have similar barriers for non-Brazilians.
46 ibid47 Googling for “Amazon Brazil” from Google UK gives a single sponsored result, followed by a lot of information about rainforests48 https://blog.euromonitor.com/2017/10/amazon-expands-operations-brazil.html
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Local benchmarks: style
The quality of many local sites is high; this is not some ecommerce backwater (such as for example Canada or Australia several years ago) where the latest trends in UI/UX design haven’t yet penetrated. Most top sites are fully responsive, and are enriched by a variety of standard techniques such as personalisation, although often supported by local technology rather than familiar European or US names.
For example take a look at Netshoes Brasil – which is another top 10 site locally. In a more niche space, visit www.petlove.com.br (the top local online pet pureplay): even if you don’t read Portuguese and without the aid of Chrome translation, you’ll probably find it perfectly comfortable to use with a familiar user journey to follow. The general overall experience is a US/European one: clean sites, white backgrounds, a continuous journey from one page to the next and not endless windows (unlike China or some other Asian countries), simple pages (unlike say Japan).
Looked at the other way around, a Brazilian shopper on your own site is also likely to find it a familiar, non-confusing, experience. As we will see below, the devil is in the detail: localisation challenges are bureaucratic rather than stylistic.
Local benchmarks – top local sites
As noted above, top local sites are a slightly confusing mixture of marketplaces and semi-marketplaces, complicated further by various international retail groups having some stake in them (Figure 17). This list isn’t fully exhaustive, but does provide a very good cross-section of categories to use as benchmarks:
Mercado Livre Pure marketplace. eBay is an investorVia Varejo Multichannel extension of retailers Extra, Casas Bahia
and Ponto FrioB2W Marketplace Owns various ecommerce platforms including
Submarino, Americanas and Shoptime. The French supermarket group Casino has a stake.
GFG Websites for Dafiti, Kanui and TricaeWalmart Brasil See www.walmart.com.br . US readers will find this an
extremely familiar experience.Netshoes If you are considering selling a fashion brand
into Brazil via cross-border, this is probably the user-experience to benchmark against.
Privalia Rather similar to Vente Privee in France or Belgium. Private sale sites haven’t caught on quite the same extent in the UK as they have in some markets, but Secret Sales is a similar experience for UK readers
Máquina de Vendas Multichannel Consumer Electronics (660 physical stores)
Fast Shop Multichannel Consumer Electronics (98 physical stores)
Dell A familiar name, with a successful local website
Figure 17 - top local ecommerce players
Notably, the absence of Amazon systematically crushing the life out of its usual categories such as consumer electronics has left breathing space for more local retailers to compete. Consumer electronics, in particular, hasn’t been whittled down to essentially an Amazon vs BestBuy (US – OK maybe vs Walmart too) or Amazon vs Currys (UK) battle. While mainline commodity consumer electronics probably isn’t a category you are likely to enter Brazil with, this does give considerable hope for more niche sub-categories that might be impossible to attempt – other than via Amazon marketplace with its usual pros and cons – elsewhere in the world.
One thing the marketplaces or semi-marketplaces really don’t offer is too much in the way of dedicated brand areas: you should picture eBay rather than, for example, China’s TMall in terms of opportunity to showcase your brand and its values.
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International benchmarksThere’s a lack of UK retailer sites to use as a benchmark for localising into Brazil. Many familiar names who are usually keen on cross-border, such as Asos, haven’t attempted it. Some, such as Next, have localised in a half-hearted way: there is currency-translation of the UK site but rather little else.
Neither have many international brands who usually take a cross-border approach (e.g. Zara or H&M) attacked Brazil directly. Apple, as you might expect, do have a fully localised site, but they also have a major brick-and-mortar presence in the country.
While this lack of pre-existing benchmarks probably does reflect some of the challenges of ecommerce into Brazil, it does also represent an opportunity. Brazil once formed part of the “unofficial British Empire” – countries which were wholly independent but whose economies were heavily built on British money – and so there’s a surprisingly strong legacy cultural affinity with the UK, especially in regions such as Minas Gerais (literally “general mines”) which includes the major city of Belo Horizonte. Obviously this doesn’t match the strength of impact of US or Portuguese influence, but it’s a starting point, and adds basic credibly and kudos to British brands.
Into BrazilIn the next sections, we’ll consider how to approach the Brazilian market, both opportunities and challenges. As outlined in the Executive Summary, Brazil represents a significant potential opportunity for British brands to expand into via cross-border ecommerce, but you can’t simply clone your inside-the-EU Portuguese website into an outside-the-EU Brazilian one, and there are some tricky barriers to tackle.
SUMMARY• There’s no lack of appetite from Brazilian consumers for cross-border ecommerce: around 10% of all ecommerce
is currently cross-border• This is fuelled by a well-travelled urban middle-class with a keen appetite for overseas brand names• Local competition is pretty strong: the top sites are modern, well designed and supported by good tools• There are strong local marketplace sites. However, as with registering your own Brazilian domain name, you’ll
need a local presence in order to access them. If you do so, they probably won’t be terribly kind of your brand: they’re very much places to sell products first and foremost
• Many of the top local sites follow the Walmart model: an “own” site extended by a marketplace• Overseas competition, however, is not strong, with the exception of the Chinese; in general however what
Brazilians can buy from AliExpress is not likely to represent true competition to your offer. • At last, a country where you don’t have to fight with Amazon• Potentially a big first-mover opportunity in your category, especially if you have a strong niche to occupy… but
be aware that the first-mover opportunity has not already been taken by a competitor for a reason. As we’ll see later in this report, you’ll need to have a flexible mindset to take advantage of it — be a pragmatic Apple not a rigid Amazon
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MARKETING TO BRAZILIANS ONLINE
One area where there aren’t really any such tricky barriers is marketing. The general landscape is extremely familiar, with no “unusual” local tools requiring specialist local expertise. Your existing skillset is going to do the job apart, obviously, from…
Language
Portuguese
Portuguese is the official language of Brazil and effectively the only language you need to worry about for any ecommerce presence there. Brazilian Portuguese has a similar relationship to Portuguese as US English does to UK English: when localising, make sure you are localising into Brazilian Portuguese. Some quite common words that might be rather relevant to your proposition are different: for example “brown” is “marrom” in Brazilian Portuguese but “castanho” in the European version.49
There are some significant minorities for whom Portuguese isn’t necessarily the first language – German, Japanese and Italian in particular50 – but you can safely work on the assumption that all online consumers are fluent in Portuguese.
Obviously this uniformity means you can address the whole Brazilian online market through a single communication language – a big advantage compared to tackling fragmented European markets.
Use of English
You are however, going to have to use Portuguese. Despite the proximity of the US, Brazilian proficiency in English is rather low51, ranking behind countries such as Bulgaria, South Korea, Russia and Indonesia that you might not immediately associate with English language skills. The British council claims that only 5% of Brazilians have English language proficiency.52
49 Brazilian Census data50 ibid51 EF EPI, 201752 British Council Brazil, May 2015
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Better educated Brazilians, who are wealthier and have higher propensity to shop online, do generally have higher proficiency in English53 : the right proposition might be able to avoid tackling translation, but you will be missing out on a big segment of the market – probably only a worthwhile approach if your brand is so strong they will come and find you rather than the other way around.
Social Networking
Reach & key sites
The social networking landscape is extremely familiar. Penetration of various social networks looks like this (Figure 18):
0% 10% 20% 30% 40% 50% 60% 70%
Tumblr
Snapchat
Skype
Twi�er
Google Plus
Facebook Messenger
Youtube
Penetration of Social Networks
Figure 18 - social network penetration in Brazil54
53 EF EPI, 201554 WeAreSocial, 4Q 2016
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Once-upon-a-time Orkut was the social site in Brazil, and although those days are long gone55, it has left the slight anomaly of higher than typical penetration of Google Plus. One consequence of this is a somewhat higher prevalence of ecommerce sites offering login via Google (Figure 19):
Figure 19 - Facebook or Google login to an ecommerce site56
It certainly isn’t something you need to emulate, but if you are determined on an authentically localised experience, it’s something to bear in mind.
As in other markets, Facebook users are getting older: 35% of Facebook users are aged over 3557. The average social media user in Brazil is still younger than in more mature markets. Fastest growing social network is currently WhatsApp.
Incidentally, although there is the expected shift towards mobile access, social media is still used quite a lot via desktop in Brazil, especially on channels such as Pinterest where desktop remains the preferred device.58
Social influencer marketing is as powerful in Brazil as elsewhere. Local knowledge obviously helps here, but since you are quite likely to engage an agency in the usual way, it’s not critical knowledge for you to possess yourself: the important point is that any agency will be using familiar techniques on familiar social networks.
Use of Adblockers
17% of users use an Adblocker in Brazil (compared to 28% in Germany growing fast, 22% in the UK, and 23% in the US). 59
Search
Search enginesThere’s only one. Google has a 96-98% market share. Forget the rest.60 It may not be an ideal situation, and there’s obviously no opportunity to sneak in some cheaper SEM under the radar with a secondary search engine (as you sometimes can with Bing for example in the US and some European markets) but at least it is familiar.
SEM/PPC – relative costs
Comparing SEM costs between markets is a tricky task. It’s just about possible to make some headway by comparing the costs for leading brand names with global presence (e.g. Coca Cola) and also the cost for commonly used category terms relevant to retail such as “ladies shoes”.61
The rough conclusion is apparently good news on the surface: PPC costs in Brazil for specific terms are typically only about 20% of those in the UK or other leading online retail countries where Google is dominant, such as the US or Germany. Unfortunately the market is always right: this is not unconnected with online search frequency for retail terms being around 20% of that back home, although this is growing quite quickly as ecommerce grows in Brazil.
55 For the nostalgic, here’s the link to the 2012 BBC news story defining when Facebook surpassed Orkut in Brazil: http://www.bbc.co.uk/news/technology-1661155456 Screenshot from www.petlove.com.br57 Facebook, Jan 201758 eMarketer, 201659 Reuters Institute, Digital News Report, 201760 Different sources give slightly different figures for Google’s share, but they are all 96%+ e.g. Webcertain 2015, Statcounter 201761 Studies by the author, published by eCommerceWorldwide in 2015
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Other marketing routes
Price Comparison Sites
As with all markets, price comparison engines have taken a hammering from Google Shopping. The Brazilian E-bit “trusted shops” mark mentioned earlier is largely owned by Buscape, which at one happy point in January 2014 was the world’s largest price comparison engine.62 Buscape is hastily and probably rather optimistically repositioning itself as a marketplace site; meanwhile Google Shopping is in clover in a market with almost no competition.
Affiliate networksThere are some large local players. Market share information is rather elusive, and networks have different specialisations, but a few to check out include Afilio, Confilio, Lomadee (which is another arm of Buscape, the E-bit owner), or the regional player Soicos (originally from Argentina but now a big player in Brazil).
Various globally familiar names also have presences in Brazil e.g. Tradedoubler or Zanox.
Email and SMSIf you are behaving properly at home, you’ll almost certainly be behaving properly in Brazil. Email marketing (and SMS marketing if you really must) is as effective in Brazil as anywhere else. There is a consumer protection code, and Data Protection Regulations, but they certainly don’t have the force or scope of the EU’s GDPR or Canada’s CASL. In a country not noted for light-touch regulation this comes as something of a relief (see the legal section below). However basic legal protections are in place, so don’t expect to be able to buy up a dodgy email database, behave like a 2002 spam cowboy, and get away with it. A browse of local commentary on this topic63 suggests that Brazil will tighten up legislation in this area, but the law isn’t moving quite as fast as internet-driven change, a not unfamiliar situation worldwide and hardly confined to Brazil.
Culturally, by the way, Brazilian Portuguese has remained rather more formal than its European equivalent, and this is reflected into communication styles in emails. As an example, use of the informal second person “tu” is less prevalent and the formal “você” used more.
SUMMARYSo far so good. Online marketing to Brazilians is familiar, affordable and accessible, and as we’ve already seen, there are lots of them online to market to.
• You’ll need to market in (Brazilian) Portuguese. English isn’t going to cut it: general proficiency is surprisingly low.
• The social network landscape is very familiar, and on some measures Brazilians are the most social people in the world, reflected into their enthusiasm for social networking.
• This is reflected even in details: Facebook users are growing older, younger social users are taking up Whatsapp and Snapchat – it should all be rather familiar. Your existing skillsets will be more than sufficient in partnership with a local agency.
• The once dominant Orkut has left a legacy of Google Plus use by many consumers who are not Google employees; many sites offer both Facebook and Google as log in options.
• Google is the only search engine. Forget the rest. SEM/PPC costs are relatively cheap, although you can expect these to grow as ecommerce grows further.
• Other standard techniques are available: there are reputable affiliate networks for example• Data protection legislation is present but not onerous. It certainly doesn’t present the challenges of GDPR,
but it isn’t non-existent either. If you are behaving at home, you will be behaving in Brazil.
62 See https://www.prnewswire.com/news-releases/buscape-company-becomes-the-largest-global-price-comparison-player-241169081.html63 See for example https://www.ecommercebrasil.com.br/artigos/regulamentacao-commerce-decreto-7-9622013-nao-obrigatoria-vendas-internet/
ADYEN
Adyen is the technology company reinventing payments for the global economy. The only provider of a modern end-to-end infrastructure connecting directly to Visa, Mastercard, and consumers’ globally preferred payment methods, Adyen delivers frictionless payments across online, mobile, and in-store.
With offices all around the world, Adyen serves more than 4,500 businesses, including 8 of the 10 largest U.S. Internet companies. Customers include Netflix, Spotify and L’Oreal.
You can find out more about how Adyen makes Unified Commerce a reality at www.adyen.com
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PAYMENT
The landscapeAt first sight, the overall online payment landscape is reasonably familiar (Figure 20).
Online payment methods in Brazil
3% 3%
3%
15%
38%
38%
Others ELO Boleto Bancario Amex Visa Mastercard
Figure 20 - Online payment methods in Brazil64
64 Adyen Brazil, 2015
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More than three quarters of online payments take place via cards, predominantly in the Visa or Mastercard schemes. In fact other data suggests this might be even higher specifically for retail, perhaps over 80%65.
ELO is a local card scheme targeted at less wealthy consumer-segments. Given its low penetration into ecommerce you could ignore it without losing sales. The local payment method Boleto Bancário is a bit more complex (see below), but it’s not like, for example, Ideal in the Netherlands where if you aren’t accepting the locally preferred method you aren’t in the game: penetration of Boleto Bancário is significant, and is particularly relevant for shoppers who can’t get access to credit cards, but once again you could ignore it without killing your market.
So far, so familiar, with no apparently alarming challenges. Unfortunately, things aren’t quite so simple.
Local challenges
The cross-border tax
Firstly, Brazil levies a 6.38% charge, known as IOF (Imposto sobre Operações Financeiras), on all cross-border purchases made outside Brazil. This charge is applied directly to the account-holder i.e. your website doesn’t have to do this(!), so at least it isn’t operationally difficult to manage. Nevertheless it’s a basic barrier to purchase: a Brazilian shopper purchasing from a website outside Brazil is either expecting a higher price than the ticket or is in for a nasty surprise.
Credit cards disabled for international transactions
Secondly – and for similar protectionist reasons – a majority of Brazilian credit cards are blocked from making purchases outside of Brazil. Estimates of the actual percentage vary, but the consensus figure is around two thirds of cards blocked66 .
Capturing the CPF
OK, so if you don’t want to charge IOF and don’t want two thirds of shoppers otherwise obstructed from buying, you could use a local payment gateway and ensure the transaction takes place in Brazil and is priced in Brazilian Reals (approximately pronounced “ray-ice” by the way, not “reels”). There are several reasons why this might be a good idea, but here is part of step 2 of the checkout on the Apple store in Brazil (Figure 21), where you enter your personal details…
65 The E-bit reports show a bizarrely fluctuating penetration of the local Boleto Bancário scheme; an annual reported penetration from 7% up to 20% and then back to 9% seems a bit volatile even by eCommerce standards.66 Adyen 2015 state a figure of 70%.
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Figure 21- entering your personal data on a Brazilian checkout page67
The CEP is a postcode field, so no problem there – there are local postcode lookup services you can use too. However CPF / CNPJ is a requirement to provide either your personal number (think social security number) or your company registration number. If you want to offer a fully localised checkout this is mandatory even for B2C transactions, and appropriate documentation subsequently retained for the tax authorities.
Payment in instalments
Brazilians are enthusiastic users of credit. They don’t just use their credit cards for credit: retail websites themselves offer them payment by instalment as standard. So in fact they have credit from the retailer on credit from the card, pretty much as standard – the majority of online purchases are made by installment payments (Figure 22):
Installment Payments
42.4%
24.5%
33.4%
Single payment 2-3 installments 4-12 installments
Figure 22 - majority of online purchases paid by installment
As a retailer you aren’t actually lending direct to the shopper, it’s still the credit card provider doing that. However if you want all your money at the time of purchase from a shopper who wants to pay in installments, you’ll be paying fairly hefty merchant fees for the privilege; the alternative is lower fees but receiving payment by instalments yourself. It is suggested you explain this to your finance team before implementation…
Expected conversion rates drop by 50% if you aren’t offering instalments. 68
67 See Apple.com.br68 Adyen Brazil 2015
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Boleto Bancário
Finally, although not mandatorily, there is Boleto Bancário. In itself, this is a nice idea, and is one of the better ways globally of getting websites to accept cash. The basic process is that when you go through the website checkout, you get given a “ticket” (the literal translation of the word boleto), which is basically a bank slip with a barcode (Figure 23):•
Figure 23 - Boleto Bancário standard layout as defined by Brazilian Banking Federation69
Armed with this slip, you present yourself at your bank and pay it directly from your account, and the payment gateway is then informed that the transaction is complete and notifies the original website. In actual practice, most online banking services in Brazil include a barcode scanner enabling shoppers to pay without actually visiting a physical bank and the majority of ecommerce transactions are unsurprisingly completed in this way (there are slight variations between desktop and mobile but it doesn’t affect the overall process).
It’s all straightforward, but it does require three things you may not have today: 1) a local payment gateway connected to the Boleto Bancário processing network; 2) an order lifecycle solution that can cope with “pending” payments coming from the checkout prior to releasing the order for shipment; 3) probably — as a consequence of point 1 — a Brazilian bank account denominated in BRL, although this is a point to discuss with the payment gateway.
SUMMARYThere’s a reasonably familiar payment landscape at first glance but…
• While 75%+ of online retail payments are made by credit card, two thirds of Brazilian credit cards are blocked for international purchases
• All cross-border purchases, i.e. not using a local acquirer and priced in Reals, incur a 6.38% tax, charged directly to the consumer’s card (i.e. not part of your checkout)
• Any checkout using a local acquirer needs to capture the shopper’s CPF details (or equivalent company details)• Brazilians expect to pay in installments, even when using credit cards i.e. get credit on credit. • If you aren’t offering this, you can expect a 50% reduction in conversion
• If you are offering it you have a choice of high merchant fees to receive the money now, or lower fees but receiving the money at the same rate the shopper pays
• The local method Boleto Bancário is not as mandatory as e.g. Ideal in Netherlands, especially for cross-border. • A local payment gateway, a local bank account, and therefore a local presence, is pretty much a
mandatory prerequisite.
69 Public domain image taken from Wikipedia
TOTAL EXPRESS
Founded in 1993, Total Express belongs to Grupo Abril and is the e-commerce logistics private company which has got the widest reach in Brazil. Its operational capability has the size of your e-commerce needs, be it a small entrepreneur or a big international player.
Specialized in B2C segment, with a strongly technological set of tools and a full portfolio of services, Total Express is focused on delivering smart and innovative solutions to more than 500 clients supported by a recurrent gathering.
Total Express in Numbers:
Operations in the totality of Brazillian territory (2,000 municipalities), covering 95% of the country’s Gross Domestic Product (GDP).
Sorter with the capability to process 200,000 orders per day.
10 HUBs and more than 100 structures of Last Mile.
Our main services:
Standard: private e-commerce delivery service with the broadest coverture in Brazil – 2 to 5 days to delivery for the main Brazillian cities.
Express: fast delivery which combines quality and agility – orders delivered in 2 days in the most.
Reverse Logistics: Convenience and efficiency in the cases of client’s products exchange or devolution;
Pick up Instore: Omnichannel logistics solution to the click and collect modality
For more information please visit www.totalexpress.com.br
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LOGISTICS
Customs & Duties
Background
OK, so now your customers can pay, possibly with an irritating surcharge of 6.38% which you don’t see but they do. How much will they actually pay?
It is at this point in this report that the more challenging side of Brazilian ecommerce starts to kick in at full force. We’ve already seen a number of areas where a local presence is helpful, such as setting up a domain or integrating with a local payment gateway. When it comes to actually getting your stuff to Brazilian consumers, however, it’s almost essential.
Two less attractive aspects of Brazil (at least from the perspective of non-Brazilians attempting cross-border ecommerce) conspire together at this point: it is both protectionist and bureaucratic.
The basic structure
Author’s note: as I write this I am sitting in front of an article which commences with the words: “The calculation of Import Duties and Taxes to Brazil is not difficult…”70 . You can be the judge of this after reading this subsection. As a pre-judgment hint, the same article observes that “the Import tax calculator provided by the Federal Revenue Service in Brazil does NOT calculate the import duties and taxes correctly in a real importation situation.”
70 In the interests of naming the guilty, here is the URL: http://thebrazilbusiness.com/article/how-to-calculate-brazilian-import-duties-and-taxes
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In essence there are four different taxes to apply:
• Import Duties, known as II. Typically this is around 20%, but it varies by category, so you need to know the HST code for your goods
• Imposto sobre Produtos Industrializado, a tax on industrialised products known as IPI, which optimistically may not in fact apply at all for your category, but is more likely to be around the 25% mark and if you guess wrong could be up to 300%(!); again, it varies by category
• Two linked social taxes, PIS and COFINS, which together will add roughly another 8-10%
• VAT (ICMS)
The first three of these are customs/duties and apply to the value of the goods including freight and insurance (known together as CIF, effectively the landed-goods price). In the case of PIS and COFINS, they actually apply to an extended version of the CIF known as ICMS, which includes various additional items such clearance fees to enter Brazil, calculated on the following basis (Figure 24):
(CIF * ( 1 + ICMS * (II + IPI * (1 + II)))) / ((1 – PIS – COFINS) * (1 – ICMS))
Figure 24 – “the calculation of import duties is not difficult”
To be fair, there is a simpler alternative if you ship single parcels to individuals valued at less than US$500: 60% of the CIF i.e. the invoice price plus shipping and insurance, under a scheme referred to as RTS (Simplified Taxation Regime71). Generally this is slightly disadvantageous pricewise… but an awful lot easier to calculate!
Finally, VAT rates vary by state. The average is 17%, but as we’ll see in the next section, your most likely targets are urban south-eastern states such as São Paulo where the rate is 18% or Rio de Janeiro where it 19%.72 There is a plan to consolidate some of this lot into a single more uniform tax, but these plans were only announced in September 2017.
There’s no escape by the way: there is no applicable de minimis for ecommerce parcels.
Implications
There are three key implications arising from all this.
Firstly, simply opening up your existing checkout for shipment to Brazil under a non-DDP regime (i.e. without the shopper paying the duties up-front on the website) is likely to be unpalatable. Some experimentation with one of the shipment-plus-duty calculating websites73 on a £100 fashion item such as a men’s shirt or women’s skirt product generated combined fees around the £135 mark i.e. more than doubling the listed price of the product (plus that extra 6.38% the poor consumer in Brazil is going to pay).
Secondly, what this means, of course, is that it is pretty difficult to just test-the-waters into Brazil by adding a Brazil delivery option; you won’t see a genuine response from Brazilian shoppers who are likely to be well aware of these pitfalls. Alternatively you can add a DDP (delivery and duty paid) option to your checkout – if you can find a service that can calculate correctly for Brazil – but again, the extremely inflated prices will probably preclude an effective test of the interest of Brazilian customers. 74% of Brazilian shoppers opt for DDP when it is offered.74
Thirdly, sending individual items priced at retail plus single-parcel shipping costs attracts an awful lot of extra duties and taxes. If you’re going to go for it in Brazil at any scale, you probably want to export wholesale, and then use a local partner for order fulfilment. This becomes even more true when you consider the next issue…
71 US Trade office, ustr.gov72 Vatlive.com73 Try for example https://www.borderlinx.com/en/shipping-cost-calculator74 Borderfree, 2015
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Delivery
BackgroundBrazil’s infrastructure as a whole is unimpressive, and further complicated by actual customs barriers between different states in certain circumstances. Brazil is very roughly the same size as the USA, and yet has fewer highways in 2017 than the USA had in 1955 i.e. before the initiation of the interstate highway project by President Eisenhower75.
National parcel service coverage
Brazil’s national postal service, Correios, is effectively the only parcel carrier with full national coverage. It doesn’t enjoy the greatest of reputations amongst its business customers, as the following survey implies (Figure 25):
National State Parcel Carrier Correios:Business Customer Survey Results
0%
Uncompensated lost goods
Long Queues
System oine
The�
General poor service
Expensive
Neglect
Delayed price negotiations
Lost parcels
Delivery delays
10% 20% 30% 40% 50% 60% 70% 80%
Figure 25 – Correios Customer Survey76
Before you sign up with anyone proposing to ship your parcels to Brazil, you might just want to verify if the partner at the other end of the line is Correios.
Obviously, the usual premium point-to-point shippers such as Fedex, DHL or UPS are always a possible, if expensive, option. Using them offers a much better chance of your stuff arriving on time, or indeed at all, but do remember those customs duties not only on the value of the item but on the value of the shipping too.
75 DNIT76 ABComm, Brazil Panels, 2015
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So what do the local sites do?Local sites respond in one of two ways. Firstly, they may choose not to ship at all outside the urban south eastern region where infrastructure is decent and there is a wide choice of smaller local shipping partners (Figure 26).
% of total eCommerce parcels by state
Parana Rio Grande do Sul Minas Gerais Rio de Janeiro Sao Paulo Others
21% 17%
14%
9%
9%
31%
Figure 26 – concentration of eCommerce in the 5 southeastern states
Two thirds of Brazilian ecommerce is concentrated in 5 of the 2777 states adjacent to each other in the southeast of the country. As these are also mostly the richest states (excluding only the capital district) it’s therefore perfectly practical to consider a sort of “mini-Brazil”, two thirds the scale of the full market, but much easier to access. Many local sites choose to do this. Even for this area, they probably don’t use Correios, but instead engage a local parcel-shipping partner. The biggest local players are Copercarga, Veloce, Mandaê and of course Correios plus DHL and Fedex78.
Those with wider ambitions build an ecosystem of parcel carriers specialising in certain regions. (Author’s note: one midsize player I spoke to based out of São Paulo city used seven different parcel carriers). Establishing such an ecosystem almost certainly requires local contacts and knowledge. There’s no nice technical integrator similar to Metapack, although since it’s quite likely your parcel volumes to remote regions will be pretty small, manual management will probably be sufficient.
77 Strictly 26 plus the federal capital district which sits outside the state system in the same way as Washington DC or Canberra78 ILOS 2016
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Returns policies
Generally returns policies reflect the physical difficult of achieving a return. Free returns is certainly not a standard expectation, even for fashion/apparel categories. Nevertheless, the top local sites do their best to at least make returns as straightforward as possible within the constraints of the local environment: https://www.netshoes.com.br/institucional/cancelamentos79 is a reasonable benchmark example. Legally, unopened returns sent back within 7 days should theoretically be free.
Cross-border sites typically just seem to regard Brazil as too difficult. Even Asos, normally a paragon of frictionless returns, simply provides a pre-printed – but very definitely not pre-paid – postage label back to their returns centre in Barnsley, with advice to take the parcel to your local post-office. It’s a long journey back from Belem to Barnsley.
Customer Service
The top local sites typically offer local customer service by phone on a 6 x 11 or 6 x 12 basis (there’s little expectation of service on a Sunday) plus of course an email option.
SUMMARY• Customs duties are unpleasant. Even the “simplified” regime imposes a flat duty-rate of 60%, which is payable
not only on the ticket-price of the goods but also on shipping and insurance (effectively on the full landed-cost)
• The more complex alternative, which might save you a few percentage points but is unlikely to be game-changing, is so complex that even the government-provided calculator doesn’t actually get the sums correct
• VAT varies by state, but is normally in the 17%-19% range
• There are therefore real attractions to shipping wholesale to Brazil and then using local shippers
• However, parcel logistics is anyway challenging. The state postal carrier with national coverage, Correios, enjoys a variable reputation
• Effectively there is a two-tier shipping geography: the contiguous south-eastern states of São Paulo, Rio de Janeiro, Minas Gerais, Parana and Rio Grande do Sul comprise two thirds of all ecommerce deliveries in Brazil and many sites, even locals, choose to confine their activities to these
• For wider coverage, you may need to assemble an eco-system of local specialist carriers; this probably requires local support
79 Netshoes.com.br is generally quite a good benchmark site to use for anybody considering doing fashion categories into Brazil
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LEGAL
DISCLAIMERThis document is provided for general information purposes only and does not constitute legal, investment or other professional advice on any individual matter. Whereas every effort has been made to ensure that the information given in this document is accurate, IMRG accepts no liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Publication as well as commercial and non-commercial transmission to a third party is prohibited unless prior permission is obtained from IMRG. The views expressed in this publication do not necessarily reflect the views of IMRG.
Key legal topics
Background
As an introduction to this brief section, it’s worth reflecting that this is a country where foreigners need to show their passport in order to visit a dentist: Brazil does not have a light-touch approach to bureaucracy, as you may have already gathered.
Having said that, legal controls impacting ecommerce are in fact relatively straightforward, and with the exceptions already called out (especially the expectation of capturing the customer’s CPF number during checkout), no more challenging than elsewhere. The general impression is that they have been based around precedents from the US rather than the more onerous codes of Canada or the EU.
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Key topics
The key applicable sections of the law are:
Area LawData protection Currently Article 7 of the Internet Civil Code covers
this. There’s also an expected strengthening of these regulations coming up, to more closely resemble the stronger codes elsewhere in the world such as EU or Canada.80
Broadly, if you are compliant at home, you will be compliant in Brazil today.
Data across borders It’s legal to store Brazilian consumer data outside of Brazil, provided it is appropriately protected.81
Consumer protection The broad equivalent of the Sale of Goods Act is the Codigo de Defesa do Consumidor.82 It is considered to be one of the most comprehensive codes in the world.
It has been extended to cover ecommerce, in decree Decree 7,962 of March 15th, 2013 known as the “eCommerce Act”; there’s a general view that this could do with an update.
It doesn’t say anything unexpected, other than making it mandatory to respond to a customer’s queries within 5 days, not exactly an onerous service standard.
Distance Selling There is a 7-day mandatory cooling-off period, during which the shopper has the right to cancel their purchase at no cost, provided it is unopened. Legally the retailer should bear the shipping costs of the return in this situation.83
There are also 30 day and 90 day periods, respectively for non-durable and durable goods, during which returns must be accepted if the goods are faulty.
Once again, nothing especially unexpected, and probably quite close to your current policies.
Cookies Formally there is no specific legislation resembling EU Cookie law for example. In practice however, most leading local sites have recognisable the Cookie message that has become the standard interpretation of Cookie law in the UK. It’s probably best to follow this practice.
Merchandising There are no strange regulations around merchandising (and certainly nothing resembling the complexities of merchandising in France for example).
There is a code of practice around advertising and describing offers and products in general; nothing in it is unusual.84
80 See www.justica.gov.br/news/mj-apresenta-nova-versao-do-anteprojeto-de-lei-de-protecao-de-dados-pessoais/apl.pdf81 See http://philipemcardoso.jusbrasil.com.br/artigos/114622156/entenda-o-que-e-o-marco-civil-da-internet-e-quais-mudancas-trara-
para-os-usuarios82 See http://presrepublica.jusbrasil.com.br/legislacao/91585/codigo-de-defesa-do-consumidor-lei-8078-9083 http://www.procon.rj.gov.br/procon/assets/arquivos/arquivos/Cartilha-Diretos-e-Deveres-para-lojistas-e-consumidores.pdf84 http://www.conar.org.br/codigo/codigo.php
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Registering a company in Brazil
There have been several references in this document to the need for a local presence. An obvious way to do this would be to establish a local subsidiary. Unfortunately Brazil is not the easiest place to do this. It currently ranks 176 out of 190 countries on the World Bank ease of doing business index85 for “starting a business” (behind Libya, the Palestinian West Bank, Sudan or India for example), requiring no less than 13 different registration steps to be completed with various different authorities, and an expected elapsed time of around 6 months if you really go for it. Unlike other poorly ranked countries this is less about (blatant) corruption and more about bureaucracy.
In short, you’ll probably need local help, both to navigate and to, err, speed things up a bit.
SUMMARY• Although regulation in Brazil is generally cumbersome, the ecommerce regime is somewhat less burdensome• Consumers enjoy strong protection, but not unreasonable protection• The online regime most closely resembles that of the US (i.e. weaker than Europe or Canada). Nevertheless
there is still strong data protection, distance selling regulations, and sale of goods regulation• There’s a mandatory 7-day “no fault” cooling off period for any online transaction, plus 30/90 day “at fault”
returns; in these situations, returns should be free• There are no weird restrictions on merchandising• Otherwise, returns expectations are not high (as noted earlier in the report, Brazilians have been trained to
enjoy free shipping, and the top sites are now trying to un-train them, an up-hill struggle)• Consumer data can be stored outside Brazil• A local presence is really helpful for many aspects of ecommerce in Brazil. However, registering a local
company is more difficult than in 92% of the other countries of the world, and a reasonable expectation is that it will take 6 months and involve a LOT of forms to fill in
85 www.doingbusiness.org/rankings
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REFLECTIONS
86 Adapted from A Nation of Shopkeepers, eCommerce Worldwide, 2015
Go hard or go home
Try before you buy?
The challenge of addressing Brazil via cross-border ecommerce is that a gradual dip-your-toes-in-the water approach is exceptionally awkward to follow. The standard approach to cross-border ecommerce is to start simple, and, if a country starts to work for you, begin to move up the complexity ladder (Figure 27):
Local fulfillment centre
Logistics Localisation Marketing
Local returns
Local customer service
Integrated DDP shipping
Ship to
Local payment methods
Localised website on local domain
Local content
Translation
English-only
Local trading
Local marketing team withlocal calendar and events
local FacebookLocal SEM/PPC
Localised communication and database
Single marketing
Figure 27 - roadmap to cross-border: crossing the golden-barriers for Brazil? 86
A typical approach elsewhere would be to start offering decent shipping options, combined with a bit of local marketing. The challenge with Brazil is that offering decent shipping options — given that a DDP approach with a credible parcel carrier is likely to increase the cost of your products by 80-130+% — is a bit of a non-starter. There are some “golden-barriers” into Brazil which lie at inconveniently low rungs on this ladder. Basically, they all lie at the point where you really some sort of local boots-on-the-ground presence.
In short, a Home Alone approach is unlikely to be effective; reaching customers in São Paulo from a seated position in an office in St Paul’s simply won’t work for Brazil. You’ll end up with the self-fulfilling view that Brazil isn’t worth it, because there aren’t enough customers. And yet the reason there won’t be enough shoppers is not that they aren’t there, it’s because they will be finding it too difficult to shop.
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Jumping in the deep end
Strategically, for the right proposition, Brazil will fall into the upper half of this quadrant diagram (Figure 28) – high potential size of prize:
Pote
ntia
l siz
e of
pri
ze
Operational di�culty
Low
Hig
h
Low High
LocaliseMarketplace
and/orOutsourcing
Forget itShip to
(Maybe add localmarketing)
Figure 28 - considering a country for cross-border87
However, low operational difficulty routes-to-market are harder to do in Brazil without local support. The marketplace approach (done directly yourself) is blocked because you need a local entity to sell from. Full localisation is also blocked because once again you need local entities (even for something as simple as registering a domain). In short, you’ll find yourself driven towards outsourcing.
In summary cross-border into Brazil is a high risk high reward destination: the trick then, obviously, is to find partners who will help reduce the risk and enable you to move rung-wise up the localisation ladder without over-committing to a heavy cost-base before seeing evidence that the rewards will be commensurate. There’s a big opportunity, but not one you can tackle in a half-hearted way. A doctrinaire approach isn’t going to work (ask Amazon): flexibility is key, together with a willingness to work through partners. A samba in gold boots is a dance you can only perform with support for lifting your feet.
87 The Multichannel Retail Handbook 2016
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Through their expertise in the e-commerce universe, they act with strategic services, using data and macro market analysis to understand client needs and designing a sustainable growth.
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About SYNAPCOMSynapcom is a reference in full outsourcing provider, a one stop solution for e-commerce in different types of businesses and segments through exclusive services. The company has a 100% own and integrated structure. Its portfolio consists of more than 60 clients.
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ABOUT THE AUTHOR
Chris Jones is a leading freelance specialist in multichannel and e-commerce, with extensive senior-level experience as both consultant and hands-on interim.
His clients have included: the very big - 3 of the top 10 retailers in the world at Tesco, Target and Metro, and the global logistics giant Kuehne + Nagel; the very famous – Mars, and the global brand Dr Martens where he was interim Global eCommerce Director; and the very niche – a VC-backed start-up in India, a B2B website in Romania, and a consumer electronics retailer in Belarus.
He has worked extensively in both B2B and B2C sectors, and has client engagement experience in 16 countries. He is the author of “The Multichannel Retail Handbook 2016 – a guide to planning, implementation, operation and enhancement” (ISBN 978-1-326-47257-3).
RESEARCH ASSISTANT - TATIANA DIAS
As a final year PhD student in Sustainable Chemistry, Tatiana has worked on the development of synthetic sustainable methodologies. In parallel with her studies, she worked as a Research Assistant to support in researching this paper on eCommerce in Brazil. She has also delivered and managed Social Media accounts and content for the RAF100 event as an Associate Director in Social Media Communications.
She has an interest in an array of sustainability related areas, ranging from food, energy and water to alternate feedstocks and materials and her career plans are focused on the areas of Sustainability, Project and Business Management, and Technology.
You can find him at: www.linkedin.com/in/redsock or at www.redsock.biz
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Cross-Border Trading ReportBrazil Country Guide 2018
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Published June 2018
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