Brazil retailers hunt for M&A deals to compete for e-commerce dominance

By Tatiana Bautzer

August 4 (Reuters) - In March last year, Oziel da Silva Santos needed a new TV but with stores closed due to COVID-19 restrictions in Brazil's northern city of Belem, the 50-year old was clueless about how to get one. He followed a link on the website of furniture retailer Via Varejo and called a store manager.

On the other end of the line was Railton Sampaio, a manager at the city's largest Via Varejo. Sampaio helped him buy the TV online, sending the link for payment through the commonly used messaging app WhatsApp.

Santos is one of the millions of Brazilians making a first-time purchase online as a result of the pandemic, a vital new market for the country's biggest retailers. Stores are adapting their strategies - and pursuing merger and acquisition (M&A) to help smooth the transition to internet shopping for inexperienced customers.

In four months, Santos made five more online purchases with Via Varejo salesmen's help, generating commissions for the store's agents.

Sampaio's sales team is an example of a growing digital strategy among Brazil's largest retailers to increase revenue and attract new online customers after lockdowns shuttered most brick and mortar stores early in the pandemic.

When Brazil's largest cities mandated closure of all stores in March of 2020, Via Varejo's sales dropped 70%. Almost immediately, the retailer mobilized its 20,000 sales people to start selling through social platforms Facebook and WhatsApp. "The pandemic accelerated our digital transformation and we did in a few months what was expected for a year," Via Varejo CEO Roberto Fulcherberguer said.

Each store opened a Facebook account, and salespeople first marketed offers to friends and family. The campaign "Call me on Zap," the Brazilian nickname for the popular WhatsApp messaging app, provided online chatrooms with store managers.

'WINNERS AND LOSERS'

Even as physical store locations reopened in recent months due to the national vaccine rollout, Via Varejo and rivals such as Magazine Luiza SA and Lojas Americanas SA continue to push for online sales. At Via Varejo, 56% of revenue comes from online sales, compared to 30% pre-pandemic.

"Salespeople are now eager to sell online. I get a good part of my commissions online," said Karina Ferreira Dias, saleswoman at a large Via Varejo store in Sao Paulo metropolitan area. Unlike other companies, Via Varejo has not reduced staff even when most of its stores were closed.

Magazine Luiza has a similar strategy. "During the pandemic, salespeople were able to sell through an app. They get commissions on everything they sell, be it online, third party products in the marketplace or in person," said Eduardo Galanternick, its vice president.

The largest companies, Magazine Luiza, Via Varejo and apparel retailer Lojas Renner raised more than $3 billion in combined share offerings and invested proceeds mainly in M&A.

Magazine Luiza and Via Varejo's M&A strategy was to bulk up their digital presence to face increasing competition from panregional rivals such as Mercadolibre Inc, one of Latin America's most valuable companies, Amazon.com Inc and even AliExpress. They have built large marketplaces with tens of thousands of third party sellers each.

Last month, Via Varejo acquired fintech Celer, aiming to increase financial products it offers through its digital banking and credit app BanQi. It has acquired six companies since last year and created a venture capital fund that will invest 200 million reais over the next five years in tech startups.

Magazine Luiza bought 12 companies last year, of which nine were tech startups. So far this year, the company has bought 10 companies, including delivery firms, fintechs and e-commerce firms specialized in beauty products, food and videogames.

Most of the deals bolstered the "omnichannel" service to consumers, enabling mixes of online and offline services that Brazilian retailers hope will help them compete with big internet companies. Magazine Luiza, for example, has opened 23 news physical stores in Rio de Janeiro last month and plans to reach 50 by the end of the year.

Some retailers, lacking both liquidity during the pandemic and a digital strategy, went into bankruptcy protection, such as bookstore chains Saraiva Livreiros and appliance retailer Maquina de Vendas. They now have a meager chance of emerging from it, financial analysts say.

"The pandemic sharply separated winners and losers in Brazilian retail and what they did during this period will define their future," said Ricardo Lacerda, CEO of investment bank BR Partners, who advised some of Brazil's largest retail deals.

($1 = 5.2128 reais)

(Reporting by Tatiana Bautzer, additional reporting by Jimin Kang; Editing by Aurora Ellis)