The investment scenario for retail this year is likely to remain stable in the face of a possible new slowdown in brick-and-mortar commerce, balanced by the development of ecommerce, say analysts with investment banks and rating agencies consulted by Valor.
Market sources point out that the opening of new stores is related to heated consumption and a fast return on investments, which weighs against short-term expansion movements.
The retail analyst at Banco do Brasil Georgia Jorge says that the explosion of cases of the H3N2 virus and the omicron variant of the coronavirus have led to a deterioration in expectations. “Companies focused on physical commerce will probably remain under more pressure as long as those uncertainties persist,” she says.
According to the analyst, the outlook for the first quarter of 2022 is for “still pressured” sales overall, while pharmaceutical retailers may raise their forecasts amid the influenza and Covid-19 epidemics.
S&P analyst Diogo Ocampo reminds that sales in brick-and-mortar stores in early 2021 were heavily affected due to the pandemic. According to him, demand was not fully shifted to the online operation, which resulted in a drop in sales.
“It was a very difficult year, with falling Ebitda and demand moving to the online channel. All these companies have online channels, but they have lost revenue in this scenario,” he says.
Mr. Ocampo says that the consumption retreat impacted the cash generation of the companies, triggering warnings in relation to the level of indebtedness.
According to Fitch’s CFO Ricardo Carvalho, the macroeconomic uncertainties also impact the level of retail investments because of the dependence on shorter terms of return. The expected, according to the analyst, is that the opening of new stores will slow down in the coming months.
“There is an expectation of lower demand and retailers have to look at what will happen in 2022. They can’t make plans looking at two or three years. If demand doesn’t come, it will be a period of losses. So it’s an investment decision different from than sanitation or railroads,” he says.
Itaú BBA, however, points out that the brick and mortar stores also act as logistical support for ecommerce, which is likely to mitigate the overall more difficult scenario. Retail analyst Helena Villares warns that this does not mean that companies should not revise their estimates downward.
“We already knew it would be a more uncertain macro scenario, with a natural slowdown for retail as a whole. Physical stores are suffering, but there is also the role of ecommerce, to bring inventory together and reduce costs,” she says.
The scenario for more essential segments, such as food, also presents difficulties linked to the macro environment. Fitch says that the performance of companies once boosted during the pandemic has been affected by unemployment and inflation.
“The purchasing power of families today is much lower than it was six months ago. There is a higher level of uncertainty and a weakening trend,” says Mr. Carvalho.
This is also the view of Banco do Brasil, which highlights the resilience of the cash-and-carry due to the lower prices policy.
“Even though food retail has a more essential profile — which does give it some degree of protection — the fact is that food inflation has been weighing heavily on the pockets of Brazilian consumers, reducing their consumption to basic and effectively essential items in the food basket,” says analyst Georgia Jorge.
Considering the lower elasticity of the food market, Itaú BBA highlights that the segment is one of the preferences.
“Retail is likely to suffer —¬ at least in the first half of the year — but the decline in food retail is approaching a limit,” says Ms. Villares.
Another factor expected to continue to weigh against retail securities, according to Itaú BBA, is the movement of investment funds away from the sector.
The analyst says that, due to the high interest rate and the weak performance of Ibovespa, many fund managers have preferred to increase the composition of other sectors in their portfolios.
“In the past, exposure to retail used to be 15% to 25%, but many funds can reach 5% exposure because of this portfolio adjustment,” she explains.
Source: Valor international