Magazine Luiza Acquistions Position It to Challenge Amazon in Brazil — Analysts

RIO DE JANEIRO, BRAZIL – The purchase of the ‘Estante Virtual’ (“Virtual Bookshelf”) by Magazine Luiza intensified the threat against Amazon’s growth in Brazil, according to analysts.

Closed at R$31 (US$7) million, the acquisition occurred last Thursday, January 28th, in an auction held at the 2nd Bankruptcy and Judicial Reorganizations Court and marks yet another step in the expansion of the company’s , which also owns Netshoes, Zattini and Época Cosmetics.

For Alexandre Machado, managing partner of GS&Consult, the new acquisition is in line with the company’s goal of being a company present in more diverse areas, particularly in e-commerce – by adding platforms and companies with a digital concept.

In addition to incorporating the “know how” of new businesses and expanding the company’s categories of operation, the operation can also increase gains in the areas of management by incorporating the structure with professionals with new perspectives, points out the analyst.

Some market reports suggest the change seems to be positive, which may strengthen its SuperApp with the addition of new sellers in the ‘Estante Virtual’ to Magalu’s marketplace, in addition to attracting new customers to its platform.

Far beyond the expansion of the book category, the purchase will also increase the company’s database, reinforcing the decision-making process based on information about consumers’ purchasing habits.

“The know-how and the base of new customers are the two major benefits of the purchase, because with them, it can offer its entire ecosystem of products and solutions for this new audience, excluding those that may be overlapping. Magalu is a big player that is aggressive and will bother the smaller ones and the ones that are struggling, like Saraiva”, points out Machado.

Another issue to be considered in the operation, according to Murilo Breder, Levante’s analyst, was the price that Magazine Luiza paid for the ‘Estante’.The platform works with a minimum acceptance rate of 20 percent – above the average rate of 12 percent recorded in e-commerce business, was purchased at a price well below what ‘Livraria Cultura’ (‘Cultura Bookstore’), under judicial reorganization, had expected.

“Magazine Luiza has taken yet another step towards becoming ever closer to a Brazilian Amazon. This is a deal that the company can make very profitable, mainly because, unlike the purchase of Netshoes, which it needed to make a financial contribution to the company after the purchase, in the case of the ‘Estante Virtual’, this may not necessarily happen,” says Breder.

The analyst further notes that with the incorporation of the ‘Estante Virtual’ into the Magalu ecosystem, the retailer could move ahead of other bookstores and marketplaces in the book segment, due to its efficient network of deliveries, consisting of 17 distribution centers and 1,100 more physical stores.

“The company is increasing the range of products it has and the market perceives this, because they are a case that has already risen greatly in recent years and may rise further. And with the decrease in unemployment and the increase in consumption, it may profit even more from Magalu Pay and Netshoes in this scenario”.

With the purpose of being the “operating system of the Brazilian retail”, the company will offer a digital account in partnership with Bank of Brazil. The service includes the Cash-in option, deposits in physical stores, payments of agreements and bills (also available in QR Code) and peer-to-peer money transfer.