Why retailers predict earning less even with record sales

Black Friday should shrink this year in Brazil, even with a record sales — and the blame for this apparent paradox is the soaring prices in the last year.

While retailers are predicting an increase in the volume of purchases, rising inflation should erode those gains and overshadow consumers’ gradual return to shopping.

The estimate by CNC (National Confederation of Commerce of Goods, Services and Tourism) points out that Black Friday should move R$ 3.93 billion.

It will be the largest volume recorded since Black Friday was incorporated into the national trade calendar, in 2010, according to CNC’s accounts.

This also represents a 3.8% increase over 2020.

But, when discounting the inflation accumulated in 12 months, of 10.67% until October, according to the IPCA, net sales revenue should drop 6.5%.

It will be the first retraction of sales in the trade on the date since 2016 — the year in which the crisis hit hard and made gross sales itself retreat 6%.

Fabio Bentes, CNC economist responsible for the survey, explains that the growth in recent years has made Black Friday the fifth most important date in Brazilian trade.

It is second only to Christmas, Mother’s Day, Children’s Day and Father’s Day.

But this good phase must be interrupted by the bad moment that the country is going through.

A survey by IDados consultancy based on data from the IBGE (Brazilian Institute of Geography and Statistics) indicates that Brazilians’ monthly income reached the lowest value since 2017.

Earnings of R$2,433 on average represent a drop of almost 7% when comparing the second quarter of this year with the same period of the previous year.

At the same time, unemployment, despite the slight downward trend, remains very high.

The 13.2% unemployment rate is the fourth-highest among the world’s 44 major economies, according to a study by the Austin Rating rating agency.

These factors are historically the most determining factors for consumer behavior, explains Bentes, because few people have other gains besides their own employment.

While the labor market reacts very slowly, says the economist, few people were able to negotiate a salary increase capable of compensating for inflation.

To make matters worse, the rise in prices is driven by essential products, such as basic foodstuffs, electricity and fuel, and it is not simple for the consumer to dribble to have a break in the budget.

Hence the negative expectation for Black Friday this year, says Bentes. “Even with the end of the restrictions imposed by the pandemic”, he says.

The reasons to celebrate

The economic and social crisis that Brazil is facing should reduce or cancel out the gains that Black Friday could have with the improvement of the health crisis.

At this point last year, for example, the outlook for shopping centers was scorched earth because of isolation measures amid the start of the second wave of Covid-19 cases.

Now, with the advance of vaccination, the fall in infection and death rates to the levels of the beginning of the pandemic and with the end of most controls on the movement of people and agglomerations, the expectation is different.

The Brazilian Association of Shopping Centers (Abrasce) forecasts a 19% growth in sales this year, to R$2.9 billion.

Even with inflation, sales growth should be around 7%, according to Abrasce.

“We’re coming out of the pandemic, so everyone is excited to visit places they couldn’t go before,” says Alexandre Marquesi, a professor at the Superior School of Advertising and Marketing (ESPM).

With a lot of people wanting to consume, Marquesi sees a positive trend for Black Friday of 2021.

“Sales should grow, although not as much as in other years”, says the expert.

Marquesi also points out that this year’s Black Friday comes packed with the leap that e-commerce took during the pandemic.

For an event in which around three quarters of sales take place over the internet in Brazil, it is a huge advantage.

“E – commerce sales volume grew 40% in 2020, but that’s not all. The average amount spent by each person and the frequency of purchases increased. Today, there is a much more consolidated market for digital consumption”, says the professor at ESPM.

A survey by market analyst NielsenIQ|Ebit of 2.72,000 people shows that 89% intend to shop online on Black Friday.

It’s a slightly lower percentage than last year’s 91%, but it’s still the same level as the last four years.

The question is whether this willingness to go shopping will actually turn into sales.

“It is a desire that is in the consumer’s mind, which may or may not be effective, depending on what retailers are going to offer”, says Marcelo Osanai, e-commerce executive at NielsenIQ|Ebit.

He agrees that the pandemic caused a “fundamental change” in the habits of Brazilians and brought many people to digital stores.

It also made companies invest in internet sales infrastructure, which left them better prepared for a date like Black Friday.

But that’s no guarantee of success.

“Restrictions on the family budget can make discounts even more attractive, but they can also make people choose to spend less this year because of high inflation and unemployment,” says Osanai.

The reasons to worry

The direction of the economy dictates whether commerce is doing well or not, explains Ricardo Teixeira, coordinator of the MBA in Financial Management at Fundação Getúlio Vargas.

“When buying, people think about today and tomorrow. To the extent that the future situation seems to be comfortable, families tend to consume. If there is uncertainty, the tendency is to hold,” says Teixeira.

And, at this moment, not only Brazil, but the world is facing a scenario of uncertainty.

Prices have increased in several countries due to an increase in demand for products and services and the difficulties that the market has faced to meet this demand due to a lack of raw materials and labor.

This is just when people can move more freely and want to enjoy that freedom.

But they often do not know whether they will remain employed in the short term and how the economy is likely to behave in the next year.

“It’s an antagonistic situation,” acknowledges Teixeira, who says that, in such a scenario, the ability of retailers to convince consumers that they’re getting a good deal will be even more important.

The problem is that the stores themselves are struggling to offer greater discounts as they did in other years.

Fábio Bentes, from CNC, explains that if inflation is weighing on consumers, prices have risen even more for retailers. In wholesale, the high was around 22%, calculates the economist.

“Retailers are passing on a part of this to the consumer and retaining a part, reducing their margin, to gain in the amount of sales. Then the retailer cannot give discounts of 30%, 40%”, says Bentes.

In an attempt to control inflation, the Central Bank has been raising interest rates. The Selic rate started the year at 2% and is already at 7.75%.

That’s another bad news for anyone looking to take advantage of Black Friday, because it makes installment sales more expensive.

And 50% of consumers interviewed by Nielsen|Q|Ebit intend to pay in installments on the card this year.

If the consumer finds a smaller number of installments or a more expensive installment value, this can be a disincentive to shopping, says Bentes.

“It will be a challenging Black Friday,” sums up the economist.