(Bloomberg) -- Grupo Casas Bahia SA and Cia Brasileira de Distribuicao are among the retailers in Brazil trying to get consumers to do their Black Friday shopping earlier and ahead of looming interest rate hikes.
Companies are expanding credit to consumers and offering better deals than last year. Their goal is to promote shopping and lock in sales for what’s expected to be a difficult coming year.
The benchmark Selic rate now stands at 11.25% and is expected to rise further in December. A higher interest rate environment can slow consumption as credit becomes more expensive. It also can weigh on the balance sheets of retailers that often operate with high levels of floating rate debt.
Brazil’s retail sector has struggled with high debt levels and competition from e-commerce behemoths such as Amazon.com Inc. and MercadoLibre Inc.
Though e-commerce has reshaped retailing in the US and Europe, a confluence of economic, financial and logistical circumstance had kept the South American nation insulated. That means the bankruptcies, mergers and strategic shifts that have rippled through the sector elsewhere are now hitting Brazil.
Against this backdrop, retailers are taking a fresh approach, including starting Black Friday sales as early as the last week of October.
At Cia Brasileira de Distribuicao, a big food retailer known as GPA, early promotions are driving sales in categories such as wine and coffee, the company’s commercial director Joaquim Sousa said in an interview.
Companies are also extending more credit to increase shopping. In Brazil, retailers offer loans to their customers through their in-house lending arms. The bet is that helping customers finance purchases will boost sales, but that can be a double-edged sword because the chains bear the brunt of any losses on their loans.
Grupo Casas Bahia, one of the most popular retail chains in Latin America’s largest country, increased its credit offerings by 25% for the Black Friday season, offering as much as 1 billion reais ($172.4 million) to finance client purchases during the holidays.
The company, which started its Black Friday strategy in late October with a focus on electronics, said sales so far are in line with its expectations, but refused to provide specific figures.
João Machado, 37, is just the kind of shopper retailers are trying to win over. He had been considering buying a phone and other electronics for a couple months, and all the deals pushed him to make those purchases.
Retailers are among the worst performers in the benchmark Ibovespa index. Casas Bahia’s shares have fallen more than 60% year to date, while GPA has declined about 30% in the same period. Meanwhile, the Ibovespa has fallen roughly 3%.
The expectation is that revenues from the holiday sales campaign will lift sales in the next quarter, but the sector needs to see broader changes in its dynamics for long-term improvement.
“Positive numbers can help in the short term, with some retail stocks rising,” said Rafael Ito, analyst and co-founder of Acuto Capital. “But it’s not a long-term trend, and the retail sector will continue to struggle.”
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