The challenges faced by Brazil’s Magazine Luiza should be familiar to retailers everywhere. Modernizing a legacy business for the digital world takes grit and determination, and uniting distinct online and brick-and-mortar operations is often more marathon than sprint.
Factor in the overwhelming complexities of the Brazilian economy — a landscape marked by political corruption, an aging tax code that dings companies with crippling burdens, faltering investment interests and the looming threat of recession — and survival becomes the all-consuming priority for most businesses. Thriving would be a miracle.
That then makes Magazine Luiza something of a miracle worker.
Known for selling electronics, appliances and books, among many other products, 62-year-old Magazine Luiza has emerged as a force in retail in a tough emerging market. Over the last three years, the company has nearly doubled revenue, increased its net profit 600 percent and expanded market share more than 5 percent across its core business. Today, it’s one of the country’s top performing stocks, which is no small achievement dealing with a turbulent economy. On Thursday, recession fears heightened with the news that the Brazilian economy shrank in the first quarter of the year.
It’s a sobering backdrop for any retailer. And yet, “Magalu” remains in a bidding war with Centauro to acquire footwear company Netshoes. The former recently upped its bid to $93.2 million, hoping that will be enough to seal the deal.
Comparisons to Amazon abound. And yet, Magalu has done what the U.S.-based e-commerce titan couldn’t: It defied the odds and found success in Brazil.
Not that Amazon hasn’t tried. Since landing in the area in 2012, the American company looked poised to quickly ramp up and dominate, like it has in other areas. It established a third-party merchant platform, hired staff and scooped up property for a major warehouse hub near São Paulo. But the country that inspired the Amazon moniker seems to have been tougher to crack than the American e-tailer anticipated, with delays and complications slowing its roll out in the region.
Meanwhile, over the last few years, Magalu poured its efforts into refashioning its operation for the demands of omnichannel business.
“They built up this legacy platform and this organization around it that was rigid and didn’t give them flexibility,” said Pravin Pillai, global head of industry solutions at Google Cloud Platform. “As you can imagine, there was a ton of legacy infrastructure and legacy platforms in place.…They needed some immediate options to infuse some agility in their organization.”
Magalu turned to Google for help. The priority “was to build a platform capable of running at any cloud provider,” Andre Fatala, chief technology officer for Magazine Luiza, told WWD. This sort of flexibility is a major trend in cloud computing these days, and it just so happens to be a specialty of Google Cloud Platform.
Ranked third behind Amazon Web Service and Microsoft’s Azure, Google’s cloud business was rebranded and officially introduced last month at the Google Cloud Next conference. The pitch: Offer e-commerce retailers and other companies a sort of modularized set of tools that can work together as a seamless system or on an á la carte basis.
Sundar Pichai, Google’s chief executive officer, summed it up at the conference: “Today, most of the world’s enterprise computing still happens on-premise. It hasn’t moved to the cloud yet, because the path forward is complex and daunting, and full of difficult decisions. How do you modernize in-place without having to jump completely to the cloud? How do you bridge incompatible architectures while you transition? And how do you maintain flexibility and avoid lock-in?”
For Magalu, that meant that it could revamp its systems without disruptions or security problems, and quickly at that.
“Both the cloud platforms and APIs enabled us to develop and deliver new products and solutions much faster,” Fatala said. APIs, or application programming interfaces, allow distinct applications to tie into each other and work together.
The retailer has been using Google tools Apigee and Kubernetes, as well as others like Firebase, to help speed the process. The tools exposed which areas in its legacy systems the company needed to focus on, and they offered ways to manage them and connect all the dots.
Not that Magalu was a luddite to begin with. The company experimented with “virtual” stores as far back as 1992, when it installed multimedia ordering kiosks in its physical locations, many of which are still operational across the chain’s 162 stores.
Over time, it became clear that brick-and-mortar couldn’t be the only focal point. The rise of mobile technology became a drumbeat too loud to ignore. So Magalu didn’t.
The company developed a shopping app and, according to Fatala, it now boasts 33 million downloads and funnels roughly 41 percent of its online orders. The goal, the cto added, was to build a “superapp” that attracts consumers by letting them shop, pay bills, top-up cell phones, book transportation and purchase meals.
“We want to digitize Brazil by democratizing access to technology, enabling millions of Brazilians to buy their first smartphone, to have good mobile internet plans,” he said. “And by doing this, a whole new share of connected customers will be able to gain access to knowledge, to improve their lives and enjoy our platform, both as customers or as providers.”
It’s somewhat akin to Amazon’s approach, which uses a spate of services to draw consumers into its ecosystem, from streaming, smart home control and voice assistants to tablets, TV boxes and food delivery.
Brazil, however, seems to have become a nonstarter for Amazon, at least for now. So in that sense, Magalu, aided by Google, appears to have out-Amazoned Amazon. And, according to a blog post Fatala penned for Google, the company is planning “to migrate our entire e-commerce platform onto GCP.”
From there, the company has plenty of motivation and opportunity to keep the momentum going.
By Magalu’s count, it serves more than 18.2 million active customers, equating to roughly 13 percent of Brazil’s consumer market. It’s a healthy share, but by no means the majority. He also cited a Euromonitor International statistic that online accounts for just 7 percent of sales there.
Square that against Pew Research Center’s calculation that, over the last four years, Brazil’s smartphone adoption quadrupled to 60 percent. In the U.S., home of the first iPhone’s release in 2007, adoption of advanced handsets sits at 81 percent.
In other words, there’s voracious appetite for mobile experiences among a Brazilian user base that’s not only growing by leaps and bounds, but has an immense runway. In that environment, the market seems poised for radical growth in e-commerce, m-commerce, social commerce and mixed environment strategies like omnichannel and BOPIS — or “buy online, pick up in store.”
Little wonder then why some of the world’s biggest tech and e-commerce companies have had their sights set on Brazil, from Google, Amazon and Alibaba to Walmart.
Given the options, it’s natural that Magazine Luiza would sign with Google. The tech giant’s launch of a data center in Brazil in 2017 helped paved the way, and it’s no secret that it considers retail “a very important vertical,” as Google’s Pillai put it.
Perhaps more importantly, for all of Google’s ambitions in the sector, it’s not currently poised to crush the local competition. And that’s increasingly becoming a key factor for modern retailers or chains looking to become one, no matter where they are — whether Manhattan, Los Angeles, New Delhi or São Paulo.