The once red hot Brazilian economy is cooling and the days of posting annual gains in e-commerce of more than 100% are past, but Netshoes.com sees a solid path to future growth and eventually profitability by diversifying its product mix and launching new shopping categories, says corporate development and investor relations director Glauco Desidério.
Instead of merely paying attention to web sales growth, Netshoes is working to become profitable—and build on its base as one of the Brazil’s biggest and most established web merchants. “Now we look to grow in a sustainable way,” Desidério says. In 2014, Netshoes, No. 5 in the 2014 Internet Retailer Latin America 500, grew web sales about 15.5% to $687.4 million from $595.2 million. And while Netshoes, a sporting goods e-retailer selling online in Argentina, Brazil and Mexico since 2000, isn’t profitable, it is working to get there soon, Desidério says.
After losing about $30.2 million in 2014 and $23.2 million in 2013, Netshoes expects to break even in 2015 by its count as measured by earnings before interest, taxes, depreciation and amortization, or EBITDA. The aim is to eventually become profitable, though the company has yet to set a definitive date, Desidério says. Netshoes presently is growing slightly less than the growth of overall e-commerce in Brazil, which web and e-commerce consulting firm says grew 24.3% to $11.55 billion in 2014 from $9.29 billion in 2013. But over the last five years Netshoes has grown at a compound annual growth rate of nearly 30% and sees future growth coming from its efforts to diversify.
Netshoes likes to stay ahead of emerging e-commerce trends in Brazil, Desidério says. For example Netshoes in 2012 developed a mobile commerce site for Brazil, a country where 70.4%—141 million—of the population of 200.4 million uses a smartphone, says e-commerce research firm eMarketer. In 2014 mobile represented about 20%, or about $137.5 million, of all e-commerce sales, the company says. That’s double the percentage of mobile as a piece of web sales in 2013 when mobile accounted for 10%, or $59.5 million. That represents 131% growth in mobile sales for Netshoes in 2014 over 2013.
Netshoes continues to develop mobile commerce—the company’s mobile app for iPhones, iPads and Android devices has now been downloaded more than 1 million times. At the same time it is introducing new merchandise under its own brands. In the fall Netshoes, which carries about 40,000 SKUs in its online inventory, launched its first line of private-label merchandise called “Go New.”
The new private-label series includes a variety of products, ranging from bikes and exercise equipment to shoes, apparel and accessories. Another new company-branded line is called “All4One,” a line of wearable devices such as web-enabled wrist bands that track metrics such as calories burned and number of steps walked or run.
Today private-label products only account for about 4% of total inventory, but NetShoes expects that could increase to up to 15% in two or three years. Netshoes’ private-label brands are aimed at budget-minded Brazilian web shoppers that want alternatives to higher-priced branded products. “Private-label products also can sell at a higher margin than third-party products,” Desidério says.
The Brazilian economy is cooling—growth was essentially flat in 2014 compared to 2010 when Brazil’s gross domestic product—the value of all goods and services produced—grew by nearly 8%, according to the Brazilian central bank.
But there is an established middle class that, while cautious in their discretionary spending, still like shopping online for quality goods with affordable prices, Desidério says.
Netshoes sees big mass merchants such as B2W Digital and Wal-Mart Latin America spending heavily to grow across numerous categories in Brazil. In 2014, B2W, No. 1 in the Latin America 500, grew web sales 30.6% to $2.99 billion. Wal-Mart Latin America (No. 4) does not disclose its online sales in Brazil, but Internet Retailer estimates the big U.S. retailer increased its web sales in Brazil 67% in 2013 to $640.5 million.
Netshoes plans to build on its base of loyal shoppers and offer them a more diverse selection of affordable merchandise based on their past, current or predicted purchasing behavior. Another way Netshoes is diversifying is with the launch last December of Zattini.com, an online apparel and accessories site. Zattini.com carries more than sports clothing, including more than 12,000 products from 70 brands such as Calvin Klein, Colcci, Levis, Diesel, Lacoste, Dumond, Jorge and Bischoff. The apparel site was Netshoes’ latest foray into launching more e-commerce sites outside of its primary market of sporting goods. Zattini.com is aimed at Netshoe’s core shopper and leverages its existing technology, fulfillment and delivery infrastructure, Desidério says. “We will build a profitable and sustainable future because we can leverage our very established base of operations and because we know who our customers are,” he says.