Argentine retailers aim to keep pace with changing demand and online shopping

After the manufacturing industry, the wholesale, retail and repairs sector is the second-largest component of Argentine GDP, contributing 13% in 2017, according to the National Institute of Statistics and Censuses (Instituto Nacional de Estadística y Censos, INDEC). As with other sectors, the effects of the economic recession that began in 2015 are still being felt. Rising prices and economic uncertainty have changed consumer behaviour to favour low-cost and wholesale goods at the expense of regular supermarket chains and shopping malls. According to INDEC’s national accounts report, private consumption increased by 3.6% in 2017, a figure consistent with the annual GDP growth of 2.9%. At the same time, sales volumes in a number of product categories decreased as consumer purchasing power remained somewhat stagnant. However, the potential for a rebound is clear as sales figures picked up again in the beginning of 2018, and burgeoning segments, such as e-commerce and boutique shopping experiences, gained more ground.

Global Comparison

While retail is a fast-growing sector globally, the economic troubles in Argentina have curtailed expansion. According to international research firm América Retail, international retail consumption in 2017 grew by 1.9%. This was led by e-commerce, which rose by 15%, followed by discount stores (5.2%) and wholesale (4.4%). Retail sales in Argentina failed to keep up with global trends, contracting by 1%. With a decline of 5%, supermarkets and hypermarkets suffered the biggest sales drop, attributed to the falling popularity of frequent shopping trips to purchase smaller quantities.

Other worldwide trends include the increased use of e-commerce as internet penetration rates rise and sites like the US’s Amazon.com and China’s Alibaba steadily increase their international presence. The segment represented 5.8% of total global retail sales in 2017. E-commerce penetration in Argentina remains well below the global level, but above its regional peers. As a share of the total worldwide e-commerce market, Argentina was the only Latin American country to surpass 0.1%, accounting for 0.6% of global e-sales, according to consumer behaviour consultancy Kantar Worldpanel.

E-commerce

As local internet penetration and the popularity of smartphones increases, however, e-commerce is expected to see significant expansion over the coming years. Online shopping in Argentina accounted for around 2.7% of total retail sales in 2017, and that share is expected to increase to 2.9% in 2018 and to around 3.2% in 2019, according to statistics agency Statista. Reports on e-commerce growth vary, but most indicate a positive outlook. According to Statista, the segment is expected to reach an estimated $6.8bn in 2018 and $9.7bn in 2021. While a 2016 report by BI Intelligence forecast that online retail sales would increase to $12.4bn by 2019, which would make Argentina the fastest-growing e-commerce market in Latin America.

An annual study of e-commerce by the Argentine Chamber of Electronic Commerce (Cámara Argentina de Comercio Electrónico, CACE) revealed that in 2017 Argentines bought 96m products online, worth an estimated AR156.3bn ($8.1bn) and representing 1.3% of GDP. That same year, turnover at e-commerce businesses grew by 52%, with the number of orders rising by 28% year-on-year (y-o-y) to a total of 60m. Research group Prince Consulting told local media in February 2018 that it forecasts e-commerce to continue its rise, surpassing the rate of inflation, driven by the steadily increasing number of online buyers and internet users.

Shopping online is already a common phenomenon, but has become a more regular practice in Argentina in recent years. CACE data revealed that in 2017, nine out of 10 adult internet users, representing 18.3m people, had bought something online at least once. Of that figure, more than half, or 10.2m people, had done so in the last six months of when the survey was given. Around 11% of the population are heavy e-commerce users, meaning that they purchase something online at least once a week. This figure represents strong growth from 7% registered in 2016. Flights, hotels, mobile phones and accessories, and sportswear were the most frequently purchased items on the internet in the second half of 2017. According to CACE, there is room for growth particularly with cosmetics and with food and beverage products, which are the least developed.

The behaviour of online consumers is also changing, with sales from mobile devices accelerating faster than sales from desktop computers. Purchases made from smartphones and tablets grew from 17% in 2016 to 27% in 2017, while the usage of PCs, laptops and notebooks dropped from 79% to 73% in the same period. Increased smartphone usage is likely boost e-commerce growth significantly.

Convenience Foods & Supermarkets

Changing consumer patterns are having broad impacts on the retail sector. The supermarkets and convenience stores segment registered a decrease in sales of 2.7% in 2017. Declining consumption was partly attributed to high tax pressure on firms, which is often passed on to shoppers, and high inflation rates. Profits at supermarkets decreased by 2% in 2017, in line with sector trends that saw the total market share of supermarkets shrink from 15.3% to 13.6% between 2015 and 2017. Most of this terrain was won by wholesalers, whose market share rose from 6.9% to 9.2% in that same period.

This situation has led local supermarket chains, including Vital, Diarco, Maxiconsumo and Makro, to adjust their business models to include lower-priced products. Brands are beginning to embrace discount schemes in alliance with some bank credit cards to attract costumers. Generic brands are also gaining ground. Discount US retailer Walmart has identified rising interest in its generic and own-brand products over better-known retail brands, according to retail sector research company IGD Retail Analysis. This has led the company to target a 20% increase on its personal-brand products, which accounted for 13% of the company’s sales in 2017.

Although the sales of consumer goods have declined over the past two years, according to Kantar Worldpanel, the Argentine retail market still has potential for growth. Argentines consume approximately 41% more fast-moving consumer goods (FMCG) than the average Latin American person. The consultancy detected the biggest difference in the consumption of non-alcoholic drinks, dry foods and personal hygiene products, with Argentines consuming around double the regional average.

A rebound in supermarket and convenience store performance could be on the cards if preliminary figures for 2018 hold steady. Supermarket sales figures for February 2018 totalled AR20.6bn ($1.1bn), representing a 1.5% y-o-y expansion.

Shopping Centres

Similar to the situation with supermarkets, total sales in shopping centres contracted by 3% in 2017. However, shopping centres are an important facet of the industry, with a total of 37 malls in greater Buenos Aires along and the progressive opening of the economy leading to an increase of imported consumer goods.

The growing popularity of e-commerce, a preference for wholesale goods and rising household savings are among the factors contributing to the recent decline in mall sales.

Local media also reported in June 2018 that shopping centres in Buenos Aires province were reporting a higher number of empty units as a result of rising rents and the impact of currency depreciation, which is pushing up the prices of imported goods. Adding further pressure, Kevin Zanola, president of the Association of Commerce and Industry in Morón, told local media that the increased use of bank cards for purchases imposes additional costs to sellers, which is a contributing factor to the shop closures.

Yet, throughout the second half of 2017 sales figures started to recuperate posting a 2.8% y-o-y increase. This trend continued in early 2018, with the latest data by INDEC showing that total sales in shopping centres amounted to AR4.49bn ($232.5m) as of February 2018 – an increase of 24.1% y-o-y. Business turnover also expanded by 6.6% y-o-y in the same period. Clothing and footwear posted the highest growth, with 37.2%, followed by food court sales (16.3%), and electronics and household appliances (15.6%). This positive performance looks set to continue. Although e-commerce is gaining a more relevant role, in the short-term, it is not expected to impact physical sales, according to global retail specialists Lizan Retail Advisors.

Boutique Shops

Global brands have yet to hold a substantial position the Argentine retail market, mostly due to years of restrictions put in place by the administration of former President Cristina Kirchner. However, the lack of large-scale brands – coupled with expensive rental prices at shopping malls and rising inflation rates – has contributed to the growth of boutique shopping areas. In the city of Buenos Aires, for example, the number of small boutiques and ateliers have sprung up in popular neighbourhoods, such as Palermo and San Telmo.

Although official numbers are unavailable, small-scale shops have gained ground in 2016 and 2017, with business transactions taking place in retailer showrooms often located in residential buildings or garages to cut back on operational costs.

The weekly open-air market based in San Telmo has also witnessed a rapid growth in undertakings, with entrepreneurs opening new businesses and moving activities to the historic neighbourhood. These types of businesses tend to cater to a younger, more conscientious consumer with eclectic international tastes, indicating that a new breed of Argentine consumer is moving away from traditional habits.

Car Sales

Alongside the positive performance of the car manufacturing industry (see Industry overview), the first quarter of 2018 has seen automotive retailers posting positive gains. The Association of Argentine Automotive Dealerships (Asociacion de Concesionarios de Automotores de la Republica Argentina, ACARA) reported that in the first three months of 2018, 271,284 new cars were registered, representing an 18.1% increase compared to the same period the previous year. In March 2018 a ranking of the most popular brands by new car sales was headed by US firm Chevrolet, Germany’s Volkswagen and France’s Renault, with sales of 11,915, 11,871 and 11,252 units, respectively. This was followed by the US’s Ford Motor Company (10,679), Italy’s Fiat Automobiles (9333), Japanese firm Toyota (8771), France’s Peugeot (6755) and Citroën (2644), Japan’s Nissan (2003) and German firm Mercedes-Benz (1438).

However, looking ahead, the sector is not without its challenges. In April 2018 Dante Álvarez, the president of ACARA, told local media that despite the impressive sales records of the first quarter, the instability of the Argentine peso and the rise in value of the dollar could affect the price levels of new vehicles and have a negative impact car sales in 2018.

Outlook

Economic uncertainty and an increase in product prices in 2017 dampened consumption, according to market research agency Kantar TNS, which said in June 2018 that the economic expectation index had dropped by 8% y-o-y in the second quarter as the population has a less favourable view of the country’s economic and employment situation. This negative perception affected the purchasing habits of the 35-to-49 age group most strongly.

Looking forward, retail will witness a moderate growth tied to the improving performance of the economy and the reconfiguration of financial policies, according to market researcher Nielsen. Possible price increases of public utilities and continuing inflation are among the factors that will negatively affect consumer behaviour and their consumption expectations. However, consumers are expected to regain confidence in the market, with consumption levels forecast to recover in the second half of the year as GDP growth consolidates and unemployment continues to drop (see Economy chapter).

Argentina’s slow but steady economic recovery, in combination with job creation, is expected to trigger a reinforcement of consumption levels, with e-commerce potentially reaping the greatest benefits of this development. The FMCG segment is expected to grow by 0.7% in 2018, according to Kantar World-panel, which will likely be driven by a 1.3% increase in employment in the private sector and a rise in pensions, the consultancy said in March 2018.

Meanwhile consumer purchasing power will likely be affected by a number of factors, including a planned rise in public transport fares, which is forecast to reduce incomes by up to 26% for lower-income families, an increase in the cost of public services and a 1.5% dip in mean salaries in real terms.

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