More than two years after the beginning of the pandemic, retailers have resumed investments in store openings and land purchases, at the same time they have been increasing disbursements in the digital arena — the business that has supported part of the retail results. This increases the need for the chains to expand their spending in the year, in a scenario where there are already new pressures on the cost of building the stores. There was an increase of up to 50% in the value of each new store this year compared to 2020 — in an environment of more expensive money in the market.

An analysis by Valor shows that the investments of 15 public retailers — considering those with data available between 2019 and 2022 — reached R$1.9 billion from January to March this year, 35% higher than in early 2019, the year before the health crisis, when the combined figure reached R$1.4 billion. The analysis considered the amounts reported by the companies in the quarterly financial statements. When taking into account the annual expansion rate of the decade, the projection was that this figure would be reached a year ago, but the pandemic held back investments. This delay increases the need for accelerating projects, despite the uncertain consumption environment and high interest rates making capital more expensive.

“What is happening again is a greater allocation of funds for organic expansion, because it is not possible to keep this part of the business in the ICU for a long time, as it was. And stores are key in the strategy of online sales today. It happens that the disbursements in logistics, distribution and systems have already grown in 2020 and 2021, and it is also an investment that needs to be accelerated,” said Alberto Serrentino, partner and founder of Varese Retail.

“Right now, this investment management is much more complex within the management teams. One thing is to invest under good conditions. Another one is with the CDI [interbank deposit rate] at the level it is. The return on capital analysis in the current environment has become more critical, but nobody doubts that companies must occupy new spaces again.”

Data from January to March compiled by Valor show, for example, that Via (owner of Casas Bahia and Ponto chains) opened 22 stores in this period — the highest number since 2019 — while Centauro opened four, a record in the period. In the building material chain Quero-Quero, there were 14 openings, an unprecedented number in this period. For the year, Renner projects 40 openings, versus 32 in 2021, and in food retail, Grupo Mateus estimates 45 to 50 openings, compared with 44 in 2021. Pague Menos talks about 120 new stores, 50% above last year. Raia Drogasil projects 260 stores, 20 above 2021.

Despite the strategic function of the new stores, an aspect raised by the companies themselves recently, in first-quarter conference calls, was the increase in the cost of construction of the units, and the storage centers. Even when leased, they saw an increase in rent. “The bill today is for a 40% to 50% increase in construction costs compared to before the pandemic. Steel, aluminum, copper, everything went up and was passed on,” said José Barral, a consultant and a board member in some retailers.

According to Luiz Novais, chief financial and investor relations officer at drugstore chain Pague Menos, there is strong inflationary pressure on investments. “We are suffering with this. Before, we imagined that the average investment cost for opening a store would be R$1.1 million, and this average value is closer to R$1.35 million now. So, there is a great pressure. But even with these two components we have a very good rate of return, above 18%, a level above the cost of capital, that is, we remain very optimistic with new stores,” he told analysts a few weeks ago.

For Mr. Barral, companies with the right geographic expansion strategy, in areas that prove to be more resilient or with already tested models, will come out ahead in this resumption of expansion. “But I am still a little skeptical about this, because we have to remember that investments in new stores affect the [operating profit] margin initially, and we have already entered the pandemic with certain chains opening too many stores.”

The management team of Assaí, which projects 50 openings in the year, 40 of them being conversions of Extra’s stores, states that the increases in materials occur mainly in steel and concrete because of the war in Europe. The plan is to renegotiate with suppliers. “There is an impact on the conversion costs, especially steel. But it’s not easy to negotiate because there’s not much to do,” CEO Bemiro Gomes said. Each new cash-and-carry store costs between R$70 million and R$85 million on average now. Two years ago, the cost ranged from R$50 million to R$60 million.

In the listed companies analyzed by Valor, the disbursements in structure for digital operations also advanced rapidly this year. The analysis shows that from January to March there was a growth in the value of intangible assets – such as software, licenses and brands – three to five times the value recorded in 2019.

In this line of fixed assets are real estate, renovations, land, machinery and equipment. But this is partly due to the effect of the base of comparison. The combined physical assets of companies is higher than that recorded as intangibles because this line had a greater expansion in recent years, after the 2020 pandemic.

In the first quarter of this year, companies such as Renner, Riachuelo, Centauro and Soma more than doubled the added value in their intangibles, which include, for example, license renewal and systems. In the specialists’ view, these are disbursements that cannot be interrupted, especially in projects that are still gaining traction.

“Technology products can run on their own for a while, but they can’t survive without updates. You can’t unplug them quickly. That’s why these investments are still at a high level, and this is likely to continue for a few years. But I don’t see this as an issue. The leading companies in the industry have access to resources in various channels and have been able to sell to the market the idea of their growth plans in digital and physical stores,” says a consultant specialized in online marketplaces.

Source: Valor International

https://valorinternational.globo.com