Wal-Mart Targets B2W Dominance in Brazilian Online Push

Wal-Mart Stores Inc. (WMT) is doubling e-commerce staff in Brazil as it seeks to displace B2W Cia Digital as the top online retailer in Latin America’s largest economy.

The world’s largest retailer is setting up headquarters for its Latin American online business in suburban Sao Paulo with perks such as a nap room and video-game center more typical of Silicon Valley. By the end of the year, about 900 employees will be working at the unit, and there are plans to boost headcount to 2,000 next year, according to Flavio Dias, the vice president for Wal-Mart’s Brazilian online sales.

Wal-Mart’s Web-based sales are growing twice as fast as the industry average in the country as online competitors struggle to meet guarantees for on-time deliveries. The retailer, based in Bentonville, Arkansas, is planning to build additional distribution centers to get products to customers faster and will start importing items unavailable in Brazil such as Graco Inc. baby strollers and coolers from Newell Rubbermaid Inc.

“We can create a portfolio of exclusive new products that will be unique in the Brazilian market,” Dias said in a telephone interview from Sao Paulo. “The potential for growth in e-commerce in Brazil is very big.”

Online sales in Brazil rose 24 percent in the first half to 12.7 billion reais ($5.3 billion), and this year’s total will probably be 28 billion reais, according to E-bit, a Sao Paulo-based research company. Wal-Mart’s Web sales in Brazil, one of four priority e-commerce markets for the U.S. retailer globally, are growing at a rate of more than 50 percent, Dias said.

He declined to say how much Wal-Mart is investing as it ramps up online operations in Brazil or discuss whether the company is currently making a profit in the country. Wal-Mart doesn’t disclose how much revenue it gets from Brazil.

Growing Competition

In the U.S., Wal-Mart faces competition from Amazon.com Inc. More than 12 years after opening its Web store, Wal-Mart generates about $5.15 billion, or 2 percent, of its total annual sales online, according to research and consulting firm Kantar Retail, which is based in London. Amazon’s North American sales last year totaled $34.8 billion.

B2W is Brazil’s biggest online retailer, followed by Cia Brasileira de Distribuicao Grupo Pao de Acucar’s Nova Pontocom unit, said Alan Cardoso, an analyst at Banco Safra de Investimento SA in Sao Paulo who covers the companies. Amazon.com, the world’s largest online retailer, only sells e-books in Brazil. Because of different calculation methods, it isn’t possible to say how much of the online market the companies control, he said.

B2W declined to comment through a press official at In Press Porter Novelli, an outside agency that represents the company.

Delivery Delays

Wal-Mart will open its first distribution center in Sao Paulo this year after relying on warehouses owned by third parties, Dias said.

“We can deliver faster and at a lower cost by being closer to consumers,” Dias said. Brazil’s southeast region, which includes Rio de Janeiro and Sao Paulo, generates 65 percent of Brazil’s online sales, according to E-bit.

Logistics and on-time delivery have been challenges for online retailers in Brazil and Wal-Mart is working to overcome the obstacles, Dias said. Rio de Janeiro-based B2W, which was 2011’s worst performer on the Ibovespa (IBOV) index after failing to deliver goods during the Christmas season in 2010, is investing 1 billion reais in 10 distribution centers.

Profit Sacrifice

E-commerce companies are sacrificing profit margins to win market share by offering free delivery and charging low prices, and competition is increasing, according to Vitor Paschoal, an analyst at Itau BBA SA in Sao Paulo.

“It’s hard to know when this market will become rational,” Paschoal said in a telephone interview. “That why it’s so hard to bet on B2W.”

B2W shares have fallen 14 percent this year, compared to a 15 percent drop in the Ibovespa benchmark index. The company has been losing money since 2010, according to data compiled by Bloomberg.

“If Wal-Mart begins to invest in its site and technology and offers more aggressive prices to gain market share, without a doubt it will become a bigger competitive problem for B2W to ward off,” said Luiz Cesta, an equity analyst at Banco Votorantim SA in Sao Paulo.

Currency Plunge

Nova Pontocom, which generated 1.1 billion reais in sales in the second quarter compared to 5.9 billion reais at physical stores, is increasing the number of products it offers to 1 million next year from the current 200,000, Chief Executive Officer Eneas Pestana said in a June interview.

The company was profitable last year, according to an e-mailed statement from Pao de Acucar.

The real’s 10 percent plunge against the U.S. dollar since the end of May could mean reduce profit margins at online retailers, according to Thiago Gramari, an analyst at Banco do Brasil SA.

“All stores sell a bunch of imported goods, so if they aren’t able to raise prices on the products, profits may suffer,” Gramari said in a telephone interview from Sao Paulo. “But this would be a problem for every company.”

At Wal-Mart’s online offices in suburban Alphaville, about 14 miles from the center of Sao Paulo, workers eat lunch at picnic tables in the cafeteria, play mini-golf outdoors and have access to at least one Trikke three-wheeled scooter in the office. Wal-Mart trimmed expenses by setting up outside Sao Paulo’s main business districts and there’s none of the free food typical for workers at U.S. startups in Silicon Valley.

“The environment is that of a digital company,” Dias said, “But it’s done in line with the values of founder Sam Walton, at a low cost.”

To contact the reporters on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net; Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Adriana Arai at aarai1@bloomberg.net

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