The sizzling summer in Sao Paulo, Brazil, offers the perfect excuse to enter an air-conditioned mall in Latin America's most-populous city. What's surprising is that, with Brazil's economy melting away at the fastest pace in a century, many people are doing more than taking a cool breather in those marketplaces. They're leaving with shopping bags.
That's sending an encouraging signal to some of the nation's biggest retailers.
Cia Brasileira de Distribuicao SA and Carrefour SA are continuing with their expansion plans for this year, betting that consumers will still be looking for discounted items and staples. Shoemaker Arezzo Industria e Comercio SA, which chose top model Gisele Bundchen as the face and feet of its next winter collection, said it plans to open as many as 25 stores this year. That's just slightly fewer than the 30 openings the company had planned last year.
"We are talking about a deceleration, not a total halt of sales," Thais Zara, the chief economist at consulting firm Rosenberg Consultores Associados, said from Sao Paulo.
Brazil's national statistics agency recently said retail sales increased 1.5 percent in November, compared with an estimated contraction, as shoppers took advantage of Christmas specials. The advance in retail sales is fueling optimism among economists that the pace of decline in gross domestic product may be reduced in the next few months. Still, they don't see a turnaround for an economy that's heading toward its deepest two-year contraction since 1901 as the government struggles to revive growth and contain inflation.
Not every big retailer in Brazil has done as well as Carrefour and Cia Brasileira. Wal-Mart Stores Inc., the world's biggest retailer, this month announced plans to close 60 money-losing stores in Brazil. Its business model hasn't worked as well as the ones for its rivals in the South American nation, according to Craig Johnson, president of retail researcher Customer Growth Partners.
"That means they can focus on the stores that are in the better locations and that are performing better," he said from Connecticut.
In addition to a 3.6 percent recession in 2015, Latin America's largest economy will shrink 2.5 percent this year, according the average estimate of 34 economists surveyed by Bloomberg. That compares with a forecast of 3.3 percent growth in global gross domestic product. The anemic economic performance coupled with a widening corruption scandal and a stock market trading at the lowest since 2009 is weighing on consumer confidence in Brazil.
That means that while Brazilians are still buying, they are putting cheaper products into their shopping carts as unemployment soars to the highest level in at least three years and consumer credit dries up, according to Zara. During the most recent Christmas season, shoppers at a traditional mall in Sao Paulo chose cheaper items than in previous years, said Damaris Candido Teixeira, a salesman at a Capodarte shoe store in Shopping Morumbi.
"They were buying basic flats, not more expensive items," Teixeira said. "If we had a million flats, we would have sold them all."
That's the reason some retailers are not shying away from putting their money in Brazil. Cia Brasileira said on Jan. 12 that sales jumped 5.5 percent in 2015. The nation's biggest supermarket chain plans to keep its expansion plans in convenience stores and wholesale cash-and-carry stores, where customers buy in bulk, while being more selective in its investments to protect cash. France-based supermarket chain Carrefour said it will continue expanding in Brazil at the same pace as in 2015.
"Brazil has been a growth engine for the group," it said in an email.
Yet the relative resilience of retail sales along with faster-than-forecast inflation may be just the sort of evidence that the central bank would need to keep lifting the nation's benchmark rate from an already 9-year high. Of the 39 economists surveyed by Bloomberg, 29 see policymakers raising the Selic by 50 basis points. Three of them projected a 25 basis-point boost, while seven forecast it to remain at 14.25 percent.
Speculation that more increases in borrowing costs could deepen the recession has curtailed the performance of retailers in the stock market. Consumer shares in the MSCI Brazil index have dropped at least 11 percent this year, compared with a 13 percent slide of the broader gauge.
While the retailers' strategy may differ, the Brazilian market is still a promising one in the longer-term because of its size and potential for consumption, Zara said.
"We have 200 million inhabitants and a high consumer power," Zara said. "It is a very attractive market, even if you have in the short-term one or two years of negative growth."
Information for this article was contributed by David Biller, Shannon Pettypiece and Jessica Brice of Bloomberg News.
SundayMonday Business on 01/24/2016