Biggest Online Retail Loss Driven by B2W Delivery Delays

B2W Cia. Global do Varejo is posting the biggest losses among major online retailers worldwide as delivery delays push customers toward competitors.

B2W, the Rio de Janeiro-based unit of Lojas Americanas SA, reported a net loss of $76.6 million in the 12 months through March, the worst result of the 20 biggest peers globally, data compiled by Bloomberg show. The 13-year-old company lost $3.08 for every $100 in revenue in the period, according to the data.

Chief Executive Officer Anna Saicali is missing out on a surge in consumer spending in the world’s second-largest developing economy after authorities ordered sales to be suspended twice in the past 12 months amid complaints that B2W failed to fulfill orders on time. The erosion in customers’ confidence comes as competitors lure shoppers away with lower prices and on-time deliveries, said Leonardo Zanfelicio, an analyst at brokerage Concordia Corretora.

“B2W didn’t have the logistics it needed to keep up with the sudden growth we saw in the e-commerce sector in Brazil in the past few years,” Zanfelicio, who rates the stock hold, said by telephone from Sao Paulo. “The customer can literally go to a competitor without even leaving the desk. And if the competitor sells at a lower price and delivers on time, why would this client go back to B2W?”

The stock dropped 77 percent in Sao Paulo in the 12 months through yesterday, the biggest plunge on the benchmark Bovespa index, which fell 17 percent. The MSCI Brazil/Consumer Discretionary Index sank 47 percent in the same period, with clothing retailer Cia. Hering’s 8.5 percent gain the best performance on the measure.

B2W jumped 6.5 percent to 5.38 reais at 12:47 p.m. in Sao Paulo today, as companies that depend on domestic demand rallied after a report showing slower inflation in Brazil spurred speculation policy makers will have more room to lower borrowing costs.

Washing Machines

B2W said in an e-mailed statement that it is investing to make its delivery system more reliable.

The company, which owns eight websites that sell everything from washing machines to theater tickets, trades at a price-to-book ratio of 0.72, down from 28.5 in October 2007. The ratio for the MSCI Brazil/Consumer Discretionary Index is 1.92, compared with 5.96 in December 2007.

B2W was founded in 1999 under the name Submarino SA and raised 543.9 million reais ($269.5 million) in an initial public offering in 2005. Lojas Americanas, a Rio de Janeiro-based retailer that was backed by investors including Brazilian billionaire Carlos Alberto Sicupira, bought Submarino in December 2006 and merged it with its own online unit to form B2W. Shares have tumbled 90 percent since the acquisition.


“When the company still operated just under the Submarino brand, it was virtually the only big player in the industry,” Marcelo Varejao, an analyst at Socopa Corretora brokerage, said in a telephone interview from Sao Paulo. “Now retailers that used to sell only through brick-and-mortar units are getting more aggressive with their Internet sales, and they have synergies that B2W doesn’t have, which means they can sell at lower prices.”

Nine out of 22 analysts surveyed by Bloomberg recommend selling the stock, while none rate the company a buy. Varejao doesn’t rate B2W and has a recommendation equivalent to buy for Lojas Americanas.

Income Gains

Brazil’s biggest retailers are boosting online sales as consumer income and Internet penetration increases. Companhia Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s top retailer by market value, said sales in its online unit increased 21 percent in the first quarter. Pao de Acucar’s shares jumped 14 percent in the past 12 months through yesterday.

Magazine Luiza SA, a Brazilian electronics and furniture retailer, reported its Internet sales increased 43 percent to 249 million reais in the first quarter from a year earlier. Its shares are down 47 percent in the past 12 months through yesterday.

The increase in competition comes after B2W, which uses private services and the national postal system to make deliveries, was forced to suspend sales twice in Brazil’s biggest states following customer complaints about shipping delays.

Sao Paulo’s consumer protection agency, known as Procon, suspended B2W’s sales for 72 hours starting March 15 in Brazil’s largest state, saying it received 6,233 complaints about the company, according to a statement on the agency’s website. B2W received a court injunction on the same day lifting the ban, the company said in an e-mailed statement that day.

Rio de Janeiro Suspension

B2W had faced a similar problem in May 2011, when a Rio de Janeiro court suspended sales in the state until there was proof that all issues regarding delivery delays were solved, according to a statement posted on the public prosecutor office’s website. The company received an injunction the next day canceling the suspension.

“Once consumers lose confidence in a brand, getting them back is not only expensive, it also takes a lot of time,” Juliana Rozenbaum and Vitor Paschoal, analysts at Banco Itau BBA SA in Sao Paulo, wrote in a note to clients on May 9. “We still fail to see the light at the end of the tunnel for B2W.”

The company said in a statement on May 23 that it is investing in new distribution centers to improve its logistics system and make deliveries faster and more reliable.

“B2W has continued to invest in optimizing its logistics system,” the company’s press office said yesterday in an e-mailed response to questions. “For the past few months new equipment in our distribution centers reduced delivery times, and a closer relationship with Brazil’s top transport companies will guarantee the best possible service to our customers.”

Earnings Outlook

While the company will report weak earnings this year, in the longer term the new distribution centers may help B2W to go back to posting profits, Caue Pinheiro, an analyst at SLW Corretora brokerage, said by phone from Sao Paulo.

“It takes time for this kind of investment to bear fruit,” said Pinheiro, who recommends investors sell the shares. “I don’t expect big improvement in this quarter or the next. But B2W seems to be taking steps in the right direction. It acknowledged the problems and it’s trying to correct them.”

A capital infusion from the parent company might help B2W invest in improving service, said Fausto Gouveia, a portfolio manager at Sao Paulo-based Legan Administracao de Recursos.

“One thing that could make the stock attractive again is if some bigger competitor bids for a stake or if Americanas itself decides to put more money in the company,” Gouveia said. “Given Americanas already put quite a bit of money in B2W last year, I don’t know if it’d be willing to do it again soon.”

Lojas Americanas

Shareholders injected 1 billion reais into B2W in 2011, with 643.5 million reais coming from Lojas Americanas, according to regulatory filings. SLW’s Pinheiro said “it could make sense” for Americanas to take B2W private after the stock’s underperformance in the past year.

Lojas Americanas’s press office didn’t return a phone call and an e-mail seeking comment.

Brazilian retail sales increased 12.5 percent in March from a year before, the biggest jump in two years. Gross domestic product expanded at an average annual rate of 4.4 percent from 2006 through 2011, while the U.S. grew 0.7 percent a year in the same period. The country’s middle class, defined as households with annual incomes of at least 12,000 reais, swelled by 31 million in the past decade, according to a study from Brazil’s Strategic Affairs Ministry.

“The problem for B2W is not lack of demand, as the outlook for the retail industry in Brazil is extremely positive,” Gouveia said. “Unless something very unexpected happens, such as an acquisition by a bigger player in the industry, I don’t see shares recovering any time soon.”

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