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Wen 丨 Miao Yue
Editor丨He Yang
An important personnel appointment by SHEIN has once again focused its attention on Brazil.
On January 31, SHEIN announced the appointment of former SoftBank COO Marcelo Claure as Chairman of SHEIN Latin America, responsible for the company's Latin American strategy and shareholders. Part of Marcelo's focus is on deploying local supply chains in places like Brazil by partnering with local companies and manufacturers, people familiar with the matter said.
At the same time, the news that TikTok Shop's Brazil station will open in the first half of 2023, which was reported in October last year, also received some side evidence from TikTok's latest recruitment information center. Ebang Power found that in the week ending February 10, TikTok posted at least 40 positions in Brazil, including logistics supervisor, e-commerce consultant, e-commerce human resource management project manager, e-commerce content and creator governance head and other positions related to e-commerce business.
"Brazil is being targeted by several e-commerce giants. This is the core competitive area of SHEIN and Shopee, and an important development place for TikTok. Coupled with Amazon, AliExpress, and Brazil's local e-commerce giant Meikeduo, I am afraid that there will be a 'good show' to watch in 2023. An investor who is interested in going overseas pointed out.
Brazil's business environment is complex, with the "three mountains" in front of everyone – high tariffs, difficult customs clearance, and slow logistics, as well as high inflation, rising unemployment, lengthy business registration mechanisms, and complex laws and regulations brought about by "regional differentiation". All this is enough to make the "foreign monks" either stop moving or return with feathers.
However, the enthusiasm of cross-border e-commerce players for the Brazilian market continues unabated. In their eyes, the Latin American market, with Brazil as the core, is another mecca that can be compared with Southeast Asia.
01, SHEIN, Shopee, TikTok three new forces in the Brazilian e-commerce market
Latin America is the farthest place on Earth from China. You dig a hole under your feet and travel through the center of the earth to reach Brazil.
But a series of excellent data on the Brazilian consumer market make it impossible to ignore this huge country.
Brazil is the world's fifth most populous country, the world's largest comprehensive strength Latin America, the world's third largest Internet market, and one of the world's most significant e-commerce growth countries. According to eMarketer, Brazil ranked fourth among the countries with the fastest growth in the global e-commerce market in 2021. In 2021, the scale of e-commerce in Brazil was close to 34 billion US dollars, and it is expected to grow at a compound growth rate of more than 20% from 2022 to 2025.
According to the latest survey report by the Brazilian e-commerce association ABComm, the total number of orders generated online by Brazilian consumers reached 368.7 million in 2022, with an average amount of R$460 (about $91) per order; online retail sales accounted for more than 10% of the total retail sales of all channels in Brazil; Sales in Brazil's e-commerce market are expected to grow by 9.5% in 2023. In recent years, the Brazilian government has also formulated and implemented a series of positive policies, from the improvement of e-commerce infrastructure such as online payment and logistics, to the establishment of e-commerce development funds, etc., to push Brazilian e-commerce to a faster development track.
In 2022, SHEIN can be described as the fastest growing e-commerce platform in Brazil.
According to a report by Brazilian investment bank BTG Pactual, SHEIN's sales in Brazil that year (estimated) amounted to R$8 billion, an increase of 300% compared to 2021.
This growth trend continues into 2023. Data from mobile data analytics provider Data.ai shows that in the 30 days ending January 31, 2023, SHEIN's Google Play and iOS app stores in Brazil were the most downloaded shopping apps for free, surpassing Shopee and Latin American e-commerce Mercado Libre. It also ranked in the top two in Mexico.
In 2023, SHEIN will also promote an important platform model to Brazil, that is, change the previous independent station model of "merchant consignment" (merchants supply, and the rest of the pricing, operation and logistics are completed by SHEIN), and instead explore an "open platform model" similar to Taobao (merchants open their own stores, operate and distribute to end consumers), and on this basis, cooperate with more local supply chains and merchants.
In fact, SHEIN's model innovation in Brazil has long been precursed. According to people familiar with the matter, as early as 2021, SHEIN began preparations and then officially acted in 2022. The Brazilian market is large enough, the unit price of SHEIN in the Brazilian market is about 30 US dollars, and Brazilian sales account for about 3%-4% of SHEIN's total sales, and there is still broad room for development in the long run.
Also with the platform model, Shopee saw the supply strength of third-party sellers in the Brazilian market earlier.
According to Felipe Piringer, as of April 2022, Shopee Brazil has about 2 million local merchant stores, doubling in less than a year.
2022 is a year of strategic contraction for Shopee - it has successively closed European sites such as Poland, Spain, and France, and withdrawn from Argentina, closing most of its operations in Chile, Colombia and Mexico, but its focus and investment in Brazil has not decreased. Industry insiders close to Shopee revealed that Shopee is now almost subsidized in the core market of Southeast Asia, but has left the budget to Brazil.
In the fourth quarter of 2022, Shopee ranked third in Brazil in terms of quarterly visits, behind only Mercado Libre and Amazon, which is also its best result ever. According to other data, Shopee's Brazilian market share is already close to 15% in 2022. According to Shopee's financial report, in the third quarter of 2022, Shopee's economic performance per order in Brazil continued to improve significantly, and the adjusted EBITDA loss per order before apportioning headquarters expenses fell to $1.03, an improvement of 27.4% from the previous quarter. Shopee made it clear that it will continue to invest more in the Brazilian market.
As for the style of play, Shopee has adopted the same low-price competition strategy in Brazil as it does in Southeast Asia. According to industry insiders, the average price of goods sold at Shopee Brazil is about 40 reais ($8), less than a third of Mercado Libre.
Compared with the previous two big platforms, TikTok's e-commerce business in Brazil seems to be a little late, but it is also chasing after it.
Moreover, TikTok already has a huge user base in Brazil. According to foreign media, about one-third of Brazil's 150 million Internet users are loyal users of TikTok, and 50 million people use TikTok almost every day. According to Statista, as of the second quarter of 2022, TikTok had 10.87 million downloads in Brazil and about 70 million monthly active users in Brazil.
According to industry sources, in order to make the Brazilian e-commerce business run smoothly, TikTok has made corresponding adjustments in terms of personnel. Huang Yuanjian, Didi's former head of international products, will be responsible for TikTok's market operations in Brazil, reporting directly to Kang Zeyu, the top head of TikTok e-commerce.
Like other national sites that have launched TikTok Shop, Brazil will start with a local business and then consider more complex cross-border business.
From the perspective of experience and time, AliExpress, a subsidiary of Alibaba, is the "predecessor" to enter the Brazilian market.
Since 2013, AliExpress has been working in Brazil for 10 years. However, in the words of one seller, "AliExpress's policy on the Brazilian market has been relatively vacillating, and since 2021 it has once again placed the Latin American market at a strategic level and established a team in Brazil".
Like several other major manufacturers, AliExpress has attracted local merchants with low commissions, and the average selling price of its products in Brazil is more than 30% lower than that of other local competitors. It is worth mentioning that AliExpress has also launched a familiar domestic social fission game in Brazil - "1 currency to cut explosive products" people to pull people to bargain activities. For Brazilians, it's also an unheard of way to shop.
Brazil is also Kuaishou's main battlefield overseas.
After August 2022, Kuaishou established an international commercialization department and listed Brazil, the most mature market with the largest number of users, as a first-tier overseas market and a benchmark area for commercialization.
Prior to this, Kuaishou (overseas version of Kwai) had conducted live streaming e-commerce tests with local retailer partners in Brazil. Users can tap the shopping cart icon at the bottom of the screen to view the prices and discounts of the streamer's recommended products, and complete the purchase in the retailer's mini program integrated into the Kwai app without leaving the live broadcast room. In addition, Kuaishou's advertising platform Kwai for Business was launched in Brazil as early as October 2021. (Click "Exclusive丨Kuaishou test overseas live streaming e-commerce!") Enter Latin America, the first stop in Brazil, recruit, organize upgrades" See more details)
Some media sources pointed out that Kuaishou has set a goal of equalizing monthly investment and revenue in Brazil by the end of 2023. Some local payment providers in Brazil revealed that Kuaishou has signed an agreement with AliExpress in 2022, which will be supplied by AliExpress and Kuaishou will sell goods.
02. The confrontation between "foreign monks" and local players
At present, the Brazilian e-commerce market presents a situation of "one super and many strong".
Specifically, Mercado Libre has about one-third of the market share, followed by Amazon's site in Brazil, and a number of strong Brazilian local e-commerce platforms such as Americanas, Casasbahia, and Magazine Luiza have a place.
Global e-commerce platforms such as Shopee and AliExpress enter as "outsiders", which will more or less have some conflicts and run-ins with local politics and culture, but they have developed rapidly and have also harvested some market share in recent years.
TikTok and Kuaishou as content platforms have countless fans in Brazil, but commercialization is still in the early stages of exploration. Fast fashion cross-border e-commerce giant SHEIN is trying to overtake through online and offline operations, quietly precipitating the ability to compete with Brazil's local e-commerce giants.
According to similarweb related data, from October 2022 to December 2022, among the top 6 monthly average visits (mobile + PC) of Brazilian e-commerce platforms, Meikeduo and Amazon Brazil ranked first and second with 245 million and 162 million monthly average visits respectively, while Shopee ranked fifth with 86 million monthly average visits, and the rest were local e-commerce platforms in Brazil.
Meiketo generated $7.5 billion in revenue in the first three quarters of 2022, and total merchandise sales in the third quarter increased 32% to $8.6 billion, with the company operating throughout Latin America, with more than half of its revenue coming from Brazil. According to Bloomberg's estimates, Meikeduo's revenue in the fourth quarter of 2022 will reach a record $3 billion, up from $2.7 billion in the third quarter of 2022.
Magazine Luiza, a local e-commerce platform in Brazil, ranked third, has a differentiated competitive advantage - starting from brick-and-mortar retail. Founded in 1957, Magazine Luiza has 1,481 offline physical stores in 21 Brazilian states as of the end of 2021, making it one of the largest retail companies in Brazil. The company's online shopping platform "Magalu", which mainly sells consumer electronics, furniture and home appliances, baby and child products and other products, increased the GMV proportion of its self-operated + open platform business (i.e. 1P+3P) from 2017 to 2021 from 30.4% to 71.5%.
During 2021, Magalu also acquired a 100% stake in Brazilian e-commerce company Kabum and issued 150 million new shares to the market, generating R$3.4 billion in revenue for the company. It will use the funds raised to attract more new sellers to the market, logistics investments, opening new distribution centers and hubs, and payments for strategic acquisitions.
Americanas, the other Brazilian e-commerce platform leader, was not so lucky. It filed for bankruptcy protection at the end of 2022 due to 43 billion reais ($8.4 billion) in debt. In the first three quarters of 2022, Americanas brought in about $3.5 billion in revenue, but with the advent of trouble, the stock price fell sharply, which also gave Mecanas the opportunity to further divide the remaining share in Brazil.
A person close to Meikeduo revealed to Ebang Power that during Black Friday last year, e-commerce sales throughout Brazil generally fell by 20%, and Meikeduo still achieved a year-on-year growth of 10% despite the faltering performance of competitors.
To be sure, in Brazil's current e-commerce platform landscape, local forces are extremely strong.
Taking the first-ranked Meikeduo as an example, in recent years, it has invested heavily in infrastructure construction to build logistics warehousing, payment, etc., and ecological barriers have been continuously strengthened, making it difficult to compete with global e-commerce overlords such as Amazon.
In 2021, Amazon North America Unified Account expanded to Brazil, which is a sign of Amazon's full support for sellers to enter Brazil - sellers with North America Unified Account will not incur any additional monthly fees for their Brazil account.
At the same time, Amazon has invested heavily in infrastructure in Brazil. More than a dozen warehouses have been set up in Brazil, covering two-day delivery services in more than 1,000 cities, and same-day delivery services have also expanded from São Paulo, Brazil's capital, to several major cities including Jojaneiro.
But the challenges for Amazon sellers in the Brazilian market remain. Brazilian users don't like the "unauthentic" copywriting that merchants use to machine translate, and Portuguese is the only language available on Amazon Brazil. In addition, Brazil's import tax rate and return rate are relatively high, the latter can be as high as 20%.
"The core competitiveness of foreign e-commerce platforms represented by Shopee, AliExpress and SHEIN in the Brazilian market has become the price." A cross-border seller spoke bluntly.
According to the seller, the price of local Brazilian clothing brands is generally 100 reais ($19), while Shopee is 40 reais ($7), SHEIN is 30 reais ($6), and Meikeduo is much higher than the latter.
From the perspective of consumer experience, Meikeduo has established a logistics network with a wide coverage (more than 90%) in China, but how SHEIN and Shopee can outperform the advantages of more than 18,000 kilometers of cross-border distribution and build their own local distribution network is a major problem in front of them.
03. Is "enveloping" local merchants the "optimal solution" for cross-border platforms to win Brazil?
To open up a new market, any global enterprise will attach importance to the localization layout. BUILD LOCAL STRUCTURES, SET UP BRANCHES, RECRUIT LOCAL EXECUTIVES AND EMPLOYEES, SET UP DISTRIBUTION CENTERS, COOPERATE WITH LOCAL PAYMENT COMPANIES (LIKE SHEIN EVEN LAUNCHED ITS OWN PAYMENT PLATFORMS PIX AND BOLETOS IN BRAZIL) TO DO A GOOD JOB IN LOCAL PUBLIC RELATIONS, INCLUDING GOVERNMENT RELATIONS, INDUSTRY ORGANIZATION RELATIONS, SOCIAL RESPONSIBILITY, ETC. This may be a problem that latecomers like SHEIN, TikTok, and Shopee must face step by step and solve one by one.
But the difference is that after entering the Brazilian market, the big manufacturers seem to be more eager to cooperate with local supply chains and merchants than other emerging regions to change their status as "foreign monks".
As early as the end of 2021, SHEIN began to consider the "local production garment plan in Brazil", and signed confidentiality agreements with a number of local factories in an attempt to reproduce the feasibility of the "small order fast return" model in Panyu, China. According to local media in Brazil, Xu Yangtian, the founder of SHEIN, personally arrived in Brazil to inspect the local clothing supply industry chain and meet with top local clothing suppliers.
A year later, SHEIN took the lead in piloting the open platform model in Brazil, doing "book-to-basic" investment, allowing local merchants to open their own stores, operate and deliver to terminal consumers on the platform. This is very different from the self-operated, cross-border direct mail model that SHEIN has taken in other countries.
AliExpress also announced as early as August 2021 that it would build a platform for local merchants in Brazil to sell local goods. In order to attract local merchants in Brazil, AliExpress maintained the transaction commission at 5%-8%, which was far lower than the commission level of local e-commerce platforms such as Meikeduo's 12.8%-16% and Magazine Luiza's 11%-19% at that time.
Shopee's local merchant recruitment program in Brazil is also accelerating in all directions. Felipe Piringer, director of marketing and strategy at Shopee Brazil, has confidently said that if the Brazilian government introduces a tax on cross-border e-commerce, Shopee will not be greatly affected locally, because its cross-border business accounts for only 13%.
According to Felipe Piringer, as of April 2022, Shopee's Brazil site has about 2 million local merchant stores. As of October 2021, Shopee has about 1 million local merchant stores in Brazil. In just half a year, the number of local merchant stores in Shopee doubled.
In addition to the obvious reason of shortening delivery times, the "local platform label" also allows large manufacturers to navigate the complex network of local retailers, industry organizations, and governments in Brazil.
In 2022, an organization called the Retail Development Institute (IDV) in Brazil, on behalf of 75 retailers such as Americanas, Casas Bahia, and Magazine Luiza, filed a complaint with the Brazilian government, alleging that foreign companies including SHEIN, Shopee, AliExpress, Wish, etc. had tax evasion problems, affecting the local economic order.
It is reported that 500,000 cross-border e-commerce packages enter Brazil every day, and the government did not tax packages under $50. Local retailers believe that these cross-border parcels enter the country without paying taxes, grabbing the business of local merchants with a greater price advantage.
Under a series of pressures, the Brazilian government plans to significantly increase tariffs on cross-border e-commerce products to 60%, while imposing a turnover tax of 17%-25%. "This means that merchants who go to Brazil to sell goods across the border must maintain at least 90% of the profit." A Shopee seller said.
In addition, some consumer protection agencies in São Paulo, Brazil, require e-commerce platforms engaged in cross-border business to produce "certificates of origin of goods" to crack down on a group of "pseudo-local stores", and the actual operators behind these local stores are cross-border sellers from overseas.
Under the practical factors, all cross-border e-commerce platforms that have joined the Brazilian battlefield are more urgent to serve local merchants in Brazil and create local orders to alleviate the obstruction of local forces on "cross-border sales". This seems to have become an inevitable path for all overseas e-commerce platforms, affecting early entrants such as AliExpress, Shopee, SHEIN, etc., as well as every key action that TikTok is about to launch in Brazil.