MEXICO CITY — The ouster of Brazil’s embattled President Dilma Rousseff is expected to have a relatively neutral effect on the country’s retail downturn, though it could gradually boost consumer confidence in the near-to-medium term, analysts said.
Brazil’s Senate voted Wednesday 61 to 20 to expel Rousseff amid claims that she rigged the federal budget to conceal a ballooning deficit and links to state bribing scandals.
But investors and the public had long expected the impeachment, which sent Brazil’s bourse down 1.5 percent Wednesday amid concerns that her replacement, Michel Temer, will have trouble steering the economy out of its worst recession in 100 years.
Brazil’s downturn, expected to push gross domestic product down more than 3 percent this year, has thrown fashion retailers into the abyss, with some analysts predicting sales could fall 20 percent this year.
Guilherme Assis, an analyst with broker Brasil Plural, said the 20 percent forecast is too high but same-store revenues will likely decline 5 percent this year.
Life has been so difficult that the two largest fashion groups and licensors — In-Brands and Restoque — were expected to merge amid mounting losses. However, the two called off those plans recently.
“What happened yesterday was a milestone for Brazil [referring to Rousseff’s impeachment] but it doesn’t change the forecast for retailers,” said Assis, who covers clothing retailers Marisa, Guararapes (a textiles group that owns the affordable fashion Riachuelo chain) and Cia Hering, among others.
“The macro figures are very weak with very high unemployment and they keep deteriorating. Consumer confidence may improve and send some people back to the shops, but we don’t expect a major improvement this year.”
Luiz Cesta of Vorantim brokerage agreed, adding that retailers and consumers had expected Rousseff would step down. Consequently, most company shares were relatively unchanged on the news.
For the rest of the year, “most retailers are not looking at high top-line growth prospects,” Cesta said, though he noted improving consumer confidence may provide a slight boost in the Christmas season.
Next year, however, the outlook could improve on the back of Temer’s expected reforms to narrow the budget deficit, tame inflation and generate jobs for 12 million unemployed, he added.
Meanwhile, Brazil’s hosting of the 2016 Olympics in Rio de Janeiro has also had little effect on apparel sales in Latin America’s largest economy.
“In general, companies have mentioned that the Olympics were unhelpful,” said Richard Cathcart, an analyst at Bradesco in São Paulo covering Alpargatas and others. “It has been similar to what happened in London four years ago — people spent a lot of time in front of the TV instead of shopping.”
But every cloud has a silver lining. Cesta said Lojas Renner, an apparel-focused department store chain, will see same-store sales gain 5 percent in 2016 amid a deep restructuring to mirror Zara’s fast-fashion prowess.
“They have very good execution,” Cesta noted. “They know how to make good collections and put the product at the point of sale at the right time in the right areas. They have tried to get closer to what Zara does with its fast-fashion model and are introducing push-and-pull logistics to capture higher margins and replenish stores faster.”