Retail crisis? Why some giants are in crisis and others continue to grow

Casas Bahia crisis could limit credit The requests for judicial recovery from Casas Bahia and Marabraz, announced last Sunday (16), are new chapters in the crisis faced by Brazilian retail. The difficulties mainly affect companies that serve low- and middle-income consumers. Paying debts and generating cash have become challenges in a scenario of high interest rates, restricted credit, household debt and weakened consumption. ?? Do you have any reporting suggestions? Send to g1 For financial market experts, the situation forces the sector to undergo a structural transformation, which includes reviewing operations, closing stores and defining new strategic priorities to maintain competitiveness. On the other hand, there is also room for those who have done their homework to take advantage of the vulnerability of giants in the sector to occupy more space in the market. Is there a systemic crisis in national retail? According to Olívia Flôres de Brás, CEO of Magno Investimentos, it would be a mistake to talk about a generalized retail crisis, despite the high number of judicial recoveries and companies in financial difficulties. The expert sees a type of "business selection", as some companies are going through the current economic scenario with more solid financial and operational structures than others. “The problem is mainly concentrated in companies that combine high debt, narrower profit margins, intense need for working capital and costly operating models”, he explains. In practice, retailers are naturally more dependent on credit. In addition to financing inventories, operations and expansion plans, many companies in the sector depend on consumers' purchasing power, access to credit and installment payments. The cases of Casas Bahia, Marabraz and Grupo Toky (Tok&Stok and Mobly) are examples of the impacts of more expensive credit and the reduction in family consumption. It's the same phenomenon that affected other big names, such as Ricardo Eletro, Americanas, Casa & Video, Le Biscuit, MMartan, Artex, Saraiva and Livraria Cultura. These are companies that have also gone through judicial recovery, bankruptcy or other forms of financial restructuring. “There is a dichotomy between the advancement of large digital platforms — such as Mercado Livre, Amazon and Shopee — which continue to gain share, with logistical and technological efficiency, and part of traditional retail, which suffers from costly physical stores and weaker sales”, says Rebecca Nossig, equity strategist at Nomad. For the expert, this movement also reflects the greater variety of products offered by digital platforms and the lower average amount spent on each purchase. “As consumers continue to purchase essential items, segments linked to basic goods and large digital platforms continue to operate with healthy and expanding margins”, adds Nossig. Retail restructuring Part of this readjustment is already beginning to appear among large retailers. As g1 has already shown, several of these companies have started to review their growth models, closing stores or slowing down physical expansion to reduce costs. Still, the market does not expect a quick recovery in the results or shares of large traditional retailers, especially while interest rates remain high. "There is still concern about the financial health and survival of some companies in the sector. Of course, there will be no stores left, but it is a very unstable market", says the economist and CEO of Corano Capital, Bruno Corano. For Brás, from Magno Investimentos, however, the drop in interest rates will not act as a “reset button”. “The consumer still needs to recover disposable income, defaults need to cease and credit needs to reach the end under better conditions”, he explains. "There is also a lag: a reduction in the Selic does not appear instantly in the booklet, in financing or in working capital. For companies that are already fragile, a few months can represent a financial eternity." According to experts, this scenario could result in more fragile companies becoming targets for mergers, acquisitions or strategic partnerships. At the same time, e-commerce tends to gain even more space and consolidate its market share. “The medium-term future of the sector will belong to truly integrated operations, in which the physical store stops being just a large showcase and starts to function intelligently as a fast distribution center and support point for e-commerce”, says Nossig, from Nomad. What does the investment portfolio look like? The retail crisis also affects those who invested in companies in the sector. As g1 showed, the shares of the Casas Bahia Group (BHIA3) witnessed one of the biggest falls on the Brazilian stock market in recent years, going from more than R$400 at the company's peak, in 2020, to cents. Therefore, experts expect a reduction in the presence of retail in investment portfolios, as signs of a slowdown in the economy tend to increase uncertainty about the sector. “Companies with robust cash flow, low leverage, consistent cash flow generation, strong brands and the ability to gain share may even emerge stronger from this process,” says Brás. Nossig, from Nomad, states that the market tends to be more rigorous in selecting companies in which to invest. “This approach allows companies with more solid fundamentals to continue occupying relevant positions in portfolios”, he explains, highlighting food retail and pharmacy chains. “The next winners will probably be defined less by the speed of store openings and more by the ability to generate cash, manage inventories, control debt, integrate sales channels and build consumer loyalty without continually depending on incentives to sustain this relationship”, adds Brás. Retail. Steve Buissinne for Pixabay