March 22, 2013
By Angela Kapp
With Chinese New Year – the Year of the Snake – and Carnivale both happening last month, I wanted to offer a few viewpoints on these two very hot countries: China and Brazil. Many luxury brands and retailers are looking for growth and both these markets offer alluring opportunities and increasingly sophisticated consumers.
While I cannot pretend to have the same hands-on knowledge of Brazil as I do of China, on my visits to these countries this past year, I was struck by the vast difference in these two emerging markets.
So, for those of you considering entering or growing your retail or online businesses there, here are my top five differences:
1. Infrastructure. China is at least five years ahead of Brazil in much of the infrastructure necessary for retail and online commerce.
Although it still depends on a variety of courier networks of varying quality, in China most retailers guarantee delivery one to two days in Shanghai and Beijing, and two to three days in most tier 2 and 3 cities.
In Brazil, there is a lack of quality providers, which is a major business opportunity. This is particularly true when it comes to ecommerce.
Getting a package to its destination outside of major Brazilian cities can be a major challenge – a week at a minimum. Online retailers tell me their customer service reps often deal with apologies when packages still have not arrived within the two weeks.
2. Taxes and your friend, the government. Talk to any Brazilian business owner and he or she will tell you that 30 percent of their money and 50 percent of their time is spent on taxes – not avoiding them – but trying to figure out what they are.
Remember that Brazil is a series of city-states, and all those politicians want their piece of the action.
As recently as this past summer, Brazil’s legislature was arguing over who should pay taxes on ecommerce: the state which ships or the state which receives?
In China, taxes are a little simpler, but bookkeeping is not, especially if you are a WFOE (Wholly Foreign Owned Enterprise).
The paperwork usually requires at least one "Chinese bookkeeper" and do not be surprised if you get a visit from your local authorities. They can visit anytime they like.
3. Your local competition. Here, China and Brazil have some similarities: do not underestimate your local competition in either country.
Take just two examples. In China, Ochirly, a young woman's fashion brand, was recently invested in by L Capital, the venture arm of LVMH that paid $200 million for 10 percent of the company. Yes, that is right – a company you have probably never heard of has 400 stores in China and a valuation of more than $2 billion.
In Brazil, where direct sales are very popular, look at Natura, a $3 billion revenue cosmetics company which towers over Avon in this important market.
Online, Brazil's Net Shoes and Mercado Libre are strong local players, with a new crop of burgeoning, venture-funded online retailers on the rise.
Your competition in China could be a multinational corporation or a guy in a one-room apartment in Shenzhen who is happy to make 10 renminbi (RMB, local Chinese currency) more this week.
4. Your partners online. While Brazil is much more nascent than China – its ecommerce is the size of the U.S. ecommerce in 2002 – their cast of characters is very much the same.
Google, Amazon, and Facebook are all there, building the networks and making acquisitions, as you would expect.
In China, while Amazon is present, it does not dominate. TMall, Taobao and 360Buy do. Not Google, but Baidu dominates, with 360.com.cn rising rapidly in search market share.
5. Last and most important: the consumer. Brazilians are as distant from Chinese as their two countries are. Their tastes, values, behavior and aspirations are in stark contrast to our friends in the Middle Kingdom.
The examples are numerous, but just a few:
a. International brands. Chinese cannot get enough of them, while Brazilians know and love their own. Chinese often assume that international brands will be higher quality, in some cases with good reason, and very much associated with status. Brazilians still want the status, but have more pride in local brands.
b. “Self improvement." Brazil is quickly becoming the plastic surgery capital of the world. Those beach babes rarely have their original body parts. Surgeons in China are more likely to fix cleft palates and, yes, the Chinese will avoid the beach or at least sit under an umbrella.
Fragrance, meanwhile, is a national pastime in Brazil, where on holidays the street will be washed with scent – literally. The Chinese meanwhile, favor skincare, although young girls are not immune to Justin Bieber’s fragrance, like most around the world.
c. Price and value. Every consumer is value conscious, but the Chinese take it to whole new level. Many take delight in negotiating – or shall I say haggling? – the price down.
The poor Brazilians have been saddled with import duties and high taxes for so long that they have grown accustomed to paying more for almost everything. Their answer to high prices? Finance everything from lipstick to the Louis Vuitton handbags. Most retailers offer six to 12-month payment plans.
WARMEST WISHES and much success in the Year of the Snake – Gong Xi Fa Cai!
Angela Kapp, a former senior executive at Estee Lauder Cos., is Tucson, AZ-based luxury advisor and investor in U.S. and international multichannel retail initiatives. Reach her at firstname.lastname@example.org.