Brazilian Retail News

Year 10 - Issue # 379 - São Paulo, March, 21h, 2011

Phone: (5511) 3405-6666

Gucci, L’Occitane and Sephora confirm

plans for Brazil
Three of the top European fashion and cosmetics brands
recently stressed the importance of Brazil in their foreign
expansion plans. French Sephora has confirmed the opening
of its first stores in the country, in March next year, with the
goal of building a 16 stores chain in São Paulo and Rio
de Janeiro until 2014. Last year, Sephora’s owner LVMH
acquired 70% of Sack’s, Latin America’s largest online
perfumery and cosmetics retailer. Another French company,
L’Occitane wants to triple its store account in Brazil until
2014, from today’s 55 shops. Italian Gucci intends to open
four more stores in Brazil until the end of 2012, from today’s
only shop at Iguatemi mall, in São Paulo.

Brazilians to spend and save more money this year

According to Cetelem BGN’s study “Observador Brasil 2011”, last year the average income of the Brazilian population
went up in almost all income groups and regions. The disposable income rose 45.22% over 2009 and, with it, spending
rose, but part of the resources left was targeted to savings. Although shopping intention for 2011 has gone up, 79% of
interviewed people intend to save more money this year, following a move also reported in 2010.

British Debenhams to open 15 shops in the

country
British department store chain Debenhams, owner of 165
shops in the UK, Ireland and Denmark, intends to open up
to 15 stores in Brazil until 2015. The company is present in
23 countries, in Europe, Asia and the Middle East, with 62
franchised stores. Debenhams plans to open 100 stores in
the next three years and Brazil has been considered a top
priority for the company.

B2W increases profits and sales

B2W, the country’s largest online retailer, said it ended 2010 with net sales of R$ 4.07 billion (US$ 2.45 billion), 12.1%
more than in 2009. The company’s Ebitda has gone up 12.3% year-on-year, to R$ 547 million (US$ 329.52 million), or
13.4% of the net sales. B2W said, however, net profits were down 45.8% year-on-year, to R$ 33.6 million (US$ 20.24
million), due to exceptional costs.

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Brazilian Retail News
Year 10 - Issue # 379 - São Paulo, March, 21h, 2011
Phone: (5511) 3405-6666

Sonae Sierra takes action to lower water

consumption
The concern on the water consumption has always
been present in the Sonae Sierra Brasil’s ten shopping
centers, in São Paulo, Amazonas and Brasília, that together
receive eight million consumers per month. The malls have
been implementing a series of initiatives to lower water
consumption to 4.75 liters per consumer, 8.5% less than
in 2010. Nine of the company’s ten malls have also been
certified with the ISO 14001, also known as “green ISO”,
and all shopping centers invest in training and awareness
campaigns.

Midclass gets 20 million people more

Over 19 million people have gone up to the midclass last year, making this the largest income group in Brazil. According
to Cetelem BGN, there are today 101 million midclass consumers in the country. Last year consumers were able to
purchase goods as cars, electronics and real estate, making lower income people rise up the social ladder to the mid-level.

Building supplies’ sales rise in February

Trade group Abramat said building supplies’ sales in Brazil jumped 11.46% in February year-on-year, in the 16th
straight rise. Over January, sales rose 5.52%, leading year-to-date sales to rise 6.35% over the first two months in 2010.

Internet sales soar 40% in Brazil

In Brazil, online retail sales ended 2010 with total sales
of R$ 14.8 billion (US$ 8.9 billion), 40% more than in
2009, according to e-bit. The performance was above the
consulting company’s forecast of R$ 14.5 billion. There
were reported more than 40 million shopping orders last
year, by almost 23 million people. Average sales reached
R$ 373 (US$ 224.69) and the leading categories were home
appliances (14%), books, magazines and newspapers
(12%), health, beauty and medicine (12%), computing (11%)
and electronics (7%). For 2011, online sales are expected
to go up 30%, to R$ 20 billion (US$ 12.05 billion).

Brazilian Retail News 2 21/03/2011

Brazilian Retail News
Year 10 - Issue # 379 - São Paulo, March, 21h, 2011
Phone: (5511) 3405-6666

Coca-Cola prepares clothing stores in Brazil

Plans for the opening of the first Coca-Cola Clothing stores in Brazil have gone forward and the company will open
shops from August on. Initially, there will be opened three stores in São Paulo and two in Rio de Janeiro. Northeast and
South regions will also receive stores, in a franchising model. The stores will be opened by AMC textile group, Coca-Cola
Clothing’s licensee in Brazil and owner of brands as Forum, Triton and Forum Tufi Duek.

Magazine Luiza launches travel agency

Magazine Luiza, Brazil’s third-largest electronics retailer, will launch in April its travel business Luiza Viagens, focusing
on the mid-class consumers. The new venture will be developed in a partnership with Azul airlines, whose travel packages
will be available at Luiza’s 600 stores in the country at very affordable prices and instalment conditions. To offer a service
completely adapted to an audience not used to travel by plane, Luiza Viagens will replace expressions like “check-in” and
“check-out” for other ones easier to understand by people who don’t speak English.

Internet user base rises to 73.9 million

The number of people with internet access reached 73.9 million in the fourth quarter last year, according to Ibope Nielsen
Online, rising 9.6% year-on-year. Total internet access at home or office went up 19.2% year-on-year, to 67.5 million.

Brazilian Retail News 3 21/03/2011

Brazilian Retail News
Year 10 - Issue # 379 - São Paulo, March, 21h, 2011
Phone: (5511) 3405-6666

Momentum
The world’s next largest retail market – part 2
Marcos Gouvêa de Souza - CEO, GS&MD - Gouvêa de Souza

With a population of 1.3 billion people, less than half of them living in cities, China is a country filled with contrasts, specially the
poorness of the rural regions when compared to some urban areas, an issue the local government has been trying to lessen.
Forecasts point to a growing population, in spite of the strict birth control that authorizes only one child per family: in 2040, there
will be 1.54 billion Chinese.
The strong growth of retailing in the country, with a 21.8% sales rise in 2008, 15.5% in 2009 and 18.4% in 2010, however, is
one of the most important characteristics of this economy. Soon, the world’s second largest market considering the Purchase
Parity Power (PPP) will become the world’s largest retail market.
The families’ spending accounts for 37.5% of the country’s GDP and is a little bit above US$ 1,600 per person, and 59% of it
are dedicated to food. As a reference, in Brazil food consumption goes closer to 40% of the total family spending and the more
mature a market is, the smaller the market share of food over the total market.
For a long time foreign investments in the Chinese retail were controlled, as an alternative to the creation of a protection to
local players: foreigners should ask for clearance for new stores. Walmart, for instance, opened its first store in 1996, soon after
starting its operations in Brazil. The benefits modern retail formats offer to population, as cleaner shops, better product offer and
more price competition, made, from December 2004 on, the government allow the expansion of foreign chains through organic
expansion or joint-ventures with local players.
But even today, retail is a highly fragmented segment. In the food sector, the top five players account for less than 4% of the
market, in spite of an expressive number of stores and strong sales. China Resources Enterprise, with over 4.500 shops in the
country and sales over US$ 10 billion, owns little more than 1% of the total food market. Bailian’s Lianhua chain, has around
5,500 stores and its sales are close to US$ 8 billion. French Auchan has little more than 200 stores; Carrefour, around 600
stores; and Walmart, more than 300. Walmart also runs TrustMart chain, purchased in 2007.
The dominant store format in the Chinese food retail, decisively, is the small moms and pops stores, but the presence of
supermarkets, supercentes, hypermarkets, cash&carry stores and warehouse clubs grows by the minute, as well as convenience
stores in the cities. Specially due to the foreign presence and local players who, inspired by the competition, have updated their
operations.
To cope with the vigorous growth of the demand, players have been basic in the service offer, focusing on products, prices
and promotions. In the more modern food stores, all the perishable categories have been on the spot, with a broad product offer.
Hypermarkets and supercenters have been mainly in the most important urban centers, what demanded the creation of
private-owned bus fleets to serve customers. These stores are several stories up and, clearly, the food stories account for most
of the traffic, specially in the perishable areas, with an interesting offer even of living fishes, snakes, frogs and turtles, as well as
a plethora of fishes and other dry animals.
This preference for natural, non-packaged goods, lead to, in some stores, lanes to purchase rice, flour and fruits in bulk, bagged
by the consumers themselves; or to purchase eggs, also in bulk, as they’ve been perceived as fresher and are preferred over
the pre-packaged found in the same stores.
Another characteristic is that credit alternatives are very limited, basically through banks and credit card companies, as there
is still a strict government control inhibiting expansion and spending, as there are not more aggressive tools. Even the access to
credit cards is very limited, and only to residents. In some stores there is a special check-out for international credit card holders.
And as credit becomes more widespread, with a more decisive retail action in this sector, the growth potential will be explosive,
leveraging the forecast this will be the world’s largest retail market.
In the next week, we will return to this issue.

Brazilian Retail News (BRN) is a weekly newsletter published by GS&MD - Gouvêa de Souza with the most important news
on the Brazilian retailing. The content can be freely used, once the source is quoted. If you want any information on BRN or our
services, please send an email to publicacoes@gsmd.com.br or access GS&MD - Gouvêa de Souza at www.gsmd.com.br.

Gouvêa de Souza & MD Desenvolvimento Empresarial Ltda.

Av. Paulista, 171 - 10º floor
Paraíso – São Paulo – Brazil – Zip Code: 01311-904
Phone: (5511) 3405-6666 – Fax: (5511) 3263-0066

Brazilian Retail News 4 21/03/2011