Despite the Recession How Is the Fashion Industry Doing in Brazil

This article is part of a serial on COVID-19 focusing on how the outbreak is affecting industries.

As the coronavirus (COVID-19) incidence advances in Brazil, economic fallout and major impacts are expected in different consumer goods and services industries. This comes not long after industries were showing signs of recovery following the country'south economic crisis in 2014-2018.

Euromonitor International forecasts another year of negative real Gross domestic product growth for Brazil in 2020. While we foresee some categories benefiting from spikes in brusk-term demand, most industries foresee major negative impacts on sales in 2020. This is especially true in services industries, where consumption occasions that did non take identify due to the lockdown cannot be made up in future consumption events.

Regardless of the industry, however, of import mutual denominators should bulldoze consumer behaviour in Brazil over the side by side few months:

•  Bottlenecks in production chains and distribution: Reduced workforces may create or worsen pre-quarantine scenarios;
•  Sales concentration in some industries in Q1 and Q2 2020 may non be sustained throughout the whole year: The level of product inventories is unprecedented for Brazilian industry, and manufacturers were not prepared to manage unexpected production;
•  Reframing of consumption occasions: While in that location are new occasions boosting need for products like streaming and video games, others, similar restaurants, hotels and amusement, are being harmed by lost opportunities;
•  Resistance exam for retailing: Omnichannel structures have get more than important than ever and will consistently be tested in a scenario where non-essential stores must remain airtight;
•  First things first: Prioritisation of essential items may offset the timid signs of recovery many industries were trying to accomplish after the economic crisis in 2014-2018 – the effect of unsustainable authorities expenditures, political instability and economical model failure.

Unemployment and confidence levels are the central indicators of Brazilian market resilience

According to Euromonitor International's Macro Model, the bear upon of COVID-19 on our baseline forecast for Brazilian existent GDP volition lead to a turn down of 1.0% in 2020, while the impact of a COVID-xix Deep Recession would pb to a similar downturn to that seen during the crisis of 2014-2018.

If a COVID-19 Crunch scenario consolidates, however, unemployment rates and existent GDP growth will be significantly worse than in 2016 (the worst year of the crisis), leading the Brazilian market to mostly collapse. The Latin American outlook volition exist bailiwick to further downgrade revisions if COVID-19 outbreaks worsen.

Potential Macroeconomic Scenarios Due to COVID-19: Deep Recession and Crisis

Source: Euromonitor International Macro Model

Beverages: prioritisation of essential items

As the COVID-19 outbreak intensifies in Brazil, consumers are returning to "crisis style", copying many habits acquired during the economic crisis of 2014-2018. This means prioritisation of essential items, especially due to concerns nigh unemployment.

Bottled h2o and coffee are set to see the greatest rises in demand in the short term, particularly through larger pack sizes, as these are considered essential items for most Brazilians, who are looking for the most affordable unit prices. In the case of bottled h2o, bulk sales are expected to offset volume declines seen in the last couple of years, while intermediary packs (5-8 litres) should proceed to grow in book terms.

Spirits, however, might struggle. On-trade establishments will suffer the biggest impact due to mandatory lockdowns in major cities, which are set to be followed by others in the coming weeks. Such a scenario might have a negative impact on ever-rising volumes of gin and recovery of vodka, previously additional due to the popularity of Gin & Tonic and Moscow Mule cocktails respectively.

Additionally, the US dollar commutation rate has reached BRL5.0, compared to a previous charge per unit of BRL4.49 earlier the first example was confirmed on 26 February 2020, with a pregnant impact on prices of imported drinks, mainly spirits and wine.

Packaged food: sales concentration on not-perishable items in Q1 and Q2 2020

Packaged food volition undoubtedly do good in the short term, as consumers are staying at dwelling and replacing "eating out" occasions with bootleg nutrient. The most important items have been staples (rice, pasta and sauces/condiments), shelf-stable vegetables (the first items that supermarkets set purchase limits on), frozen ready meals and snacks. In full general, products with longer shelf life are preferred during the quarantine, while chilled products such equally yoghurts and ice cream are non considered cost beneficial at this betoken.

Such a positive scenario in the short term, yet, does not necessarily mean peaks in year-based sales in the second half of the year due to leftovers of longer shelf-life products. Other challenges are distribution logistics afflicted by a reduced workforce, raw materials shortage (especially those which are harvest dependent) and bottlenecks in packaging supply, equally with glass manufacturers, for instance.

Engineering science and connectivity: digital services rise at the expense of technology-based products

With quarantine stipulated in virtually states in the country, digitalisation and online commerce and services have been greatly favoured by the "stay-at-abode policy", with both eastward-commerce, delivery and streaming platforms seeing a surge in demand. It will also strengthen online adoption and mitigate concerns surrounding digital consumption in the long term, which are all the same quite mutual in Brazil.

On the other manus, technology-based products – similar smartphones, wearables and other small consumer appliances – accept felt the COVID-19 accident, with the beginning quarter forecasting retraction within the industry. This is because of reduced production and distribution efficiency (due to a reduced logistics workforce), fewer import products making their way from China, postponement of production launches and devaluation of the Brazilian currency, increasing manufacturing and import costs.

Even so, there are outliers to this scenario, such every bit calculator peripherals (as more people adopt home office standards), food preparation appliances and video games.

Home care and hygiene: intensification of home care and focus on basic hygiene products

As replication of other countries' scenarios, toilet paper has become one of the principal demanded products in the weeks of quarantine in Brazil, resulting in disruptions of supply and availability in many grocery stores.

While the unforeseen spike in the short term should non reverberate a peak in yr-based volume sales for the category, such strong demand in Q1 should contribute to concentrated production and distribution efforts for this category. Every bit many consumers already stocked significant volumes of toilet newspaper, positive performance should be followed by a sales drib as the situation stabilises.

In the week after the first COVID-19 case in Brazil in February 2020, general home cleaning products already presented significant volume sales rises, in anticipation of the quarantine catamenia. Concerns with home cleaning and personal hygiene are high, benefitting sales of dishwashing items (as more people melt and consume at abode), bleach and surface care. However, for these categories, a year-based book sales increase is expected as consumers are developing the habit of cleaning their households more frequently.

Manner: i of the Brazilian sectors most impacted by lockdown

If the irksome-paced growth of fashion categories was a business organization related to the weak macroeconomic indicators in Brazil over the last couple of years, the pandemic scenario represents a big shock. Apparel, footwear, personal accessories and eyewear have been completely deprioritised at a time when most families are focused on stockpiling food and hygiene items.

As fashion categories' operations are strongly full-bodied in concrete channels, and the chief retailers are closing all their stores for an undetermined menstruum, expectations rely on the quarantine duration to foresee when and how the manufacture tin minimise impacts.

In the showtime semester, Mothers' 24-hour interval sales (celebrated in May) are expected to exist severely harmed. In the best-instance scenario, a shorter return to fashion categories' pre-COVID-xix sales level in 2-3 months would bring possibilities for recovery in Q2. Retailers are already engaged in negotiating sector agreements with the federal government to reduce costs (taxes and rental fees) to soften the losses.

Beauty and personal intendance: singled-out scenarios based on the essential nature of products

COVID-19'south bear upon on the beauty and personal intendance industry will mostly nowadays two distinct scenarios. In the personal care space, sales should not nowadays a negative performance. In fact, sales of categories such as bath and shower are expected to abound in the brusk term, with many consumers looking for items such as bar and liquid soaps.

According to Euromonitor International's price tracking system, Via Pricing, sales of liquid lather presented over a 20% weekly price increase between February and March 2020, showing the effects of high need for items considered essential to prevent contamination.

Bath and Shower Items: Weekly Cost Variations During COVID-19 Scenario

Source: Euromonitor International Via Pricing system. Note: Prices in BRL, from 1 February 2020 to 31 March 2020, weekly basis

As for beauty-related items, a different scenario is expected. With several consumers staying at dwelling house, categories like color cosmetics and fragrances are expected to perform poorly, as these are unremarkably related to "going out". Due to lost "going out" occasions during the quarantine, sales of these products should not run into a year-based recovery. Together, these two categories represent almost ane-third of total dazzler and personal care value sales in Brazil, potentially contributing to negative overall sales for the industry in 2020.

Consumer health: consumers look for immune arrangement-boosting solutions

Consumer health is ane of the few industries to accept been additional past the outbreak. Consumers rushed to drugstores aiming to purchase all sorts of products that merits to boost immune systems and potentially target COVID-nineteen symptoms. Items such as Vitamin C, multivitamins and even natural products such as propolis were hardly seen in many outlets from the get-go of March onwards.

Since confirmation of the starting time case in Feb, prices take soared in the country. Vitamin C, for example, posted a growth rate of almost 200% on a weekly basis, from Feb to March 2020, according to Euromonitor International'due south Via Pricing organization. However, with the heated demand, there might be a lack of of import raw materials to sustain production and supply in the medium term, potentially offsetting short-term positive results throughout 2020.

Immunity-Arrangement Boosting: Weekly Pricing Variations During COVID-19 Scenarios

Source: Euromonitor International Via Pricing Organization. Notation: Prices in BRL, from 1 February 2020 to 31 March 2020, weekly basis

Services: government help needed to maintain service sectors in 2020

Dissimilar goods, which consumers tin buy later the crisis, services such as travel and tourism and consumer foodservice will non benefit from the recovery of pent-up demand. The consumer foodservice manufacture expects the government to denote a parcel of emergency measures, capable of bearing a monthly benefit to restaurant workers for the next iii months, to prevent mass layoffs.

Although delivery activities are however immune, fifty-fifty in cities where a quarantine has been established, the delivery marketplace in Brazil is composed mainly of contained players that rely on commitment every bit a complementary operation, making it bereft to recoup for the loss of revenues associated with the closure of dining areas. Therefore, although players are looking for diversification into delivery options, virtually of them practise not have delivery operations that are robust enough to rely only on delivery activities.

Retailing, in plow, is seeing heated activity for nearly grocery channels, as well as for drugstores and pharmacies. However, nearly all other store-based channels are expected to confront months of sales at record lows. Players which demonstrate greater robustness in their operations in digital channels, both in terms of user experience and logistics operations, will be able to mitigate part of the impact of the lockdown. E-commerce represented viii% of total Brazilian retailing value sales in 2019, with this ratio expected to increase in 2020 as the crisis boosts demand for this channel. Digital payments are expected to benefit from this movement as well.

Lastly, the travel and tourism industry sees a much less encouraging outlook. With virtually fourscore% of lodging players closed and all parks and tourist attractions have had operations suspended, the industry expects the government to help pay employees' salaries within the adjacent few months. Co-ordinate to trade association estimates, tourism in Brazil could lose around USD6.2 billion without the support of government assistance. Euromonitor International'south Travel Industry Forecast Model expects that the baseline scenario for inbound arrivals to Brazil will decrease past 50% in 2020, while the deep recession scenario presents a 54% subtract for the category in the same year.

The following specialists contributed to this report:

•  Angelica Salado
•  Elton Morimitsu
•  Guilherme Machado
•  Marcel Motta
•  Marília Borges
•  Pedro Alves
•  Ricardo Sfeir
•  Rodrigo Mattos

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