Global changes are impacting Brazilian retail. Recently, national companies have gone through two major moments: 1) the landing of international giants, especially Chinese ones; and 2) the American tariffs that shook the international scene.
For Mariano Gomide, co-founder and co-CEO of VTEX, an e-commerce software platform, both situations had a positive impact on Brazilian retail. In an exclusive conversation with InfoMoney Interview, Gomide spoke about this and other topics. Check out the full interview on the InfoMoney YouTube channel and read edited excerpts from this interview below.
InfoMoney: Brazil, like several countries around the world, was affected by the most recent tariffs imposed by the American government. Even if not directly, has VTEX felt this impact through its customers? What are the effects of these tariffs on Brazilian retail?
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Mariano Gomide: There are two main effects. The main effect, in my view, is what I’m calling the ‘halt effect’ [pausa]. In uncertainty, people and companies stop launching products and stop investing in marketing. Even the big brands – a Samsung, an Oppo, a TCL, an Electrolux – made the decision to wait a little while to launch, simply because they didn’t know what price this product would cost. And this delay, in practice, is a loss of the window. Product launches for these companies are very important. And retail suffers in this sense.
On the other side, which is importing and exporting from Brazil to the United States, our customers suffered very little. Because the cross border for Latin American operations is very small for the United States. It’s insignificant. In practice, volumes occur in local markets.
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IM: But have some of your clients in the United States suffered and continue to suffer?
MG: Some, yes. Because these, yes, pay the bill for importing goods from everyone at a much higher tariff level. So, interest rates in the United States were 0.25% and went to 4.5%. And this brings a much greater debt burden within American retail than existed before, considering that the average profitability of American retail – excluding Walmart and Amazon – is around 5% or 6% of public companies. There is very little margin for an increase in the cost of capital which, in practice, was 1% or 2% and, now, is around 7% or 8%.
As a result, American companies are suffering and will suffer. And along with this comes tariff inflation, which is only for the first time, but still scares the population and the supermarket. Beef arrived in the United States at prices that had never been beaten before. It is a very delicate moment, of settling down, of adjusting.
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I don’t believe tariffs are permanent damage. The world will settle down. For example, President Trump placed tariffs on Brazilian soybeans. China bought the excess that went to the United States and Brazilian soybeans did not suffer. As a result, American farmers who sold to China are suffering, which causes a reversal of values from what was intended with the tariffs.
It’s a time of volatility and it won’t go away quickly. There’s still another six months to a year of a lot of talk about these tariffs, but, in the end, I think the world is based on a super sustainable level of tariffs that doesn’t affect the local operations of each of the brands, of each of the retailers.
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IM: With the idea of being a global company, how is the company positioning itself with the political changes that are happening in the world?
MG: The world is moving towards tribalism and isolationism among countries. My generation lived an almost utopian search for globalization, of wanting globalization for the good of society. Now, in practice, we see the world going in the opposite direction. With tribalism prevailing: countries prefer to make bilateral agreements rather than negotiate in blocks. This is dangerous.
This political instability in the world is dangerous, but perhaps not avoidable. So, since it is not avoidable, the business class and executives must extract their best, which is to prepare companies for turbulence.
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Periods of turmoil come. The ‘not normal’ was the last 20 years that we lived in ‘non-turbulence’. It is not desirable, but it is normal for wars to occur. History proves this. What we have always done at VTEX is: run the company as if it were in a crisis so that when the crisis comes you know how to navigate it.
VTEX’s numbers show this: the margin improvements, both gross and net, show this. And the fact that we reacted ahead of our competitors, in fact, presents VTEX as a better positioned alternative to the market than we were two years ago.
IM: You talked a little about China and wanted to bring up the arrival of Asian giants that have had a major impact on the national market, such as Temu, Shopee and Shein. How do Brazilian companies need to prepare to navigate this new scenario and what impact did you see being within VTEX?
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MG: The way you prepare for this is by spreading the risk. Instead of waiting for others who are more capitalized or more prepared or with better cost structures than yours to enter your area, you have to prepare yourself in cost structure, in capital structure to enter other people’s area. The world of trade is global. Aberrations exist where brands live and survive locally, but the world of trade is global.
Was Brazilian retail prepared for the entry of Shein, Shopee and Temu? No. But, now, Magazine Luiza and Casas Bahia are much better companies in terms of operation than they were before, because they were asleep in the need to modernize.
In this sense, the entry of these other companies is very good, because, in this way, Brazil has become a truly free country, where companies from outside can enter and compete on equal terms. This is wonderful, because companies here, by competing on equal terms, create talent and a burden on their shoulders that allows you to fight abroad.
Brazil is too small for Brazilian companies. Today, the best-selling private jet in the United States is from Embraer. Weg is present in I don’t know how many locations around the world. VTEX is in 43 countries. How many more?
We shouldn’t see foreign competition as something we shouldn’t have. This seems to me like that thing where a mother or father creates an overprotection of their child that doesn’t let them live and, deep down, when the child leaves home, they’re going to suffer a huge blow. I am in favor of opening the market for these companies to enter and force Brazilian companies to leave as well. But there is another side.
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IM: Can you explain?
MG: The other side of the coin is the brands that enter by building channels. Or they buy with a cost of capital much lower than the Brazilian cost of capital or the American cost of capital. And then I ask myself, why don’t Brazilian companies also enter China and export through China through the same channels? These are operational paradigms that we have here in Brazil and that have to fall.
Let’s remember that not only new channels entered Brazil. You see companies like Oppo, TCL, Midea, companies that have their origins in Asian manufacturing, the Asian cost of capital and the Asian way of working. These companies will be the largest branded companies in these categories in the world, because they operate at a different efficiency than companies in the Western world. Can you compete in terms of manufacturing? Some yes, some no. So, we will choose the manufactures that Brazil will be able to compete with. For example, shoes. Brazil is highly competitive in footwear and we should export footwear all over the world.
There is a really cool case of a brand owned by two Brazilians, incredible, that is having a huge success and that no one knows is from Brazil, Larroudé. They export 98% of Brazil abroad and are conquering the United States.
More and more companies here have to take advantage of the fact that others come here so that we can also go abroad. And retail doesn’t lose much with this diversity of brands. The more brands you have, the more access to merchandise, at a good cost, the Brazilian consumer will have. Retail and companies in the sector benefit from this diversity of brands.
The macro world changes very quickly. What doesn’t change is a company’s operational capacity. In this sense, there is a lack of homework for businesspeople and executives in terms of efficiency, so that companies can choose their future.
