Retail in Brazil: trends and prospects for 2024

With the first quarter of the year heading towards its conclusion, we can draw a clearer picture of the Brazilian economy, retail and technology investments in 2024. In a country that has been going through years of low growth and numerous political and economic turbulences, entrepreneurs have been working very cautiously, postponing investments and seeking to avoid risks. 

After all, despite “arautos of the” apocalypse insisting on predicting a collapse of the Brazilian economy, the scenario is positive. The Central Bank, for example, has been undertaking since August 2023 a consistent reduction of the basic interest rate, Selic: in the last seven months, the country has left a rate of 13.75% per year for the current 11.25% 3T and the expectation of the financial market is that in December we are between 9% and 9.5%. 

This decline of more than four percentage points should bring relief to the balance sheet of companies, reducing financial expenses, hampered by difficulties in accessing credit in 2023 after the “episode Americanas”, this more positive scenario facilitates the roll-over of debts and increases the ability to invest in expansion, technology and inventories.On its own, this is an essential point for retail behavior in 2024 and beyond. 

But there's more good news in the front macroeconomic: the Focus Bulletin, compiled by the Central Bank from the perspective of the main financial agents, estimated, at the beginning of March, a growth of 1.77% for the Brazilian economy in 2024, with an increase of 2% next year. Considering that retail traditionally grows above GDP, there are good prospects on the horizon of companies that know how to identify opportunities. 

The Focus Bulletin projected an IPCA of 3.76% for 2024 and 3.51% in 2025, both within the BC target, which opens space for the continued fall in interest rates and improved income of the general population. Less inflation means more purchasing power, more consumption and more jobs, creating a virtuous cycle that benefits the whole society. 

Who can grow in 2024? 

The retail growth perspective can be segmented into two large blocks. The first is that of the sectors dependent on income and employment, such as supermarkets, pharmacies and pet: with a year of positive but relatively stable expectations for the evolution of the wage bill and the percentage of unemployment, it is expected that these segments have a moderate growth (above GDP, but nothing spectacular. 

On the other hand, segments dependent on credit and consumer confidence, such as semi-durable goods and (in particular) durable goods, may finally leave behind a long string of bad quarters and have a more positive outlook. 

Still, different companies will enjoy the moment in different ways. In the same way as in recent years we have seen many companies with serious problems, others have presented spectacular performances. The most important is the ability that each retailer has to develop a coherent strategy and execute it efficiently. It is increasingly necessary to rely on the analysis of customer data and business performance to make quick decisions aligned with strategy. 

It is not because the wind starts blowing in favor that everyone will be in the ideal position to fill the sails and sail with tranquility. Especially because the first half is still expected to be of small turbulences, with a better scenario from July. With municipal elections on the way in October, but at a political moment less tense than we saw in 2022, instability should be less felt by retail. 

However, we must be aware of what happens outside the country. As Thomas Friedman said, we live in a flat world: global movements have a very rapid impact on economies and can cause rapid changes in expectations, behaviors and business decisions. In the last year, for example, factors such as the conflicts between Russia and Ukraine and between Israel and Hamas have brought geopolitical tensions, while a ship stranded in the Suez Canal has disrupted the supply chain around the world. The Panama Canal has been suffering from the lack of rainfall in the region, decreasing its cargo carrying capacity, since El Nino reinforces the global emergency that is global warming. 

Looking outside of “Ilha Brasil”, there are many reasons for concern. Although these factors are generally beyond our reach, it is necessary to be prepared to react quickly and, if necessary, change plans, goals and initiatives to account for new scenarios. 

Technology, innovation, innovation venture capital 

From the point of view of innovation and investments in venture capital, the context we are beginning to live in, of falling interest rates and increasing the capacity for companies to resume projects, is quite positive. In 2022 and especially 2023, digital transformation initiatives have become unheated in many companies, more concerned with ensuring survival in the short term. The problem is that failing to invest in structuring aspects of the business practically guarantees failure in the long term. A complicated dilemma, which the economy in 2024 is gradually helping to unlock. 

With lower interest rates and inflation under control, incentives for risky investments increase, especially in technology companies with solid proposals and clear responses to “pontos de pain”.We are far from the irrational “hub of a few years ago, which is even good: ideas without effective application lose space in an environment of pragmatism. The cost-benefit ratio and the ability to generate real advantages for companies is what will determine the size of the “cheque” that startups will receive throughout 202024.