Brazilian Magalu Enters Partnership with AliExpress to Boost Digital Retail

Brazilian Magalu Enters Partnership with AliExpress to Boost Digital Retail
Photo: Shutterstock 26.06.2024 480

This is the first time a Brazilian retailer has become a partner of an Asian giant.

Magazine Luiza and Alibaba’s AliExpress announced a strategic agreement with the potential to transform e-commerce competition in Brazil.

Under the agreement, AliExpress will become a retailer on Magalu’s online marketplace, for a specific product line, and the Brazilian retailer will sell its items on the Chinese company’s platform. The companies signed a memorandum of understanding on Monday (24) in Hangzhou, China, and the agreement comes into force in the third quarter.

This is the first time a Brazilian retailer has become a partner of an Asian giant and also the first time Alibaba, through AliExpress, has entered into a strategic partnership with a company outside China. Magalu has never listed and sold its products through another platform. The negotiation, which began at the end of 2023, involved around 100 people at Magalu. Combined, the two companies total more than 700 million visits per month and 60 million active customers.

Analysts pointed out that the agreement increases Magalu’s supply of items, improving assortment, with the potential to increase visits to its website and customer recurrence. However, it does not solve Magalu’s competitiveness issues, some analysts argued.

There is room for new agreements involving other online marketplaces in the segment. “This announcement opened a door and could take national retailers out of their comfort zone, reducing the resistance of local chains to Asian retailers,” says a retailer of domestic and foreign chains.

The agreement was closed amid accelerated international competition in Brazil, while Magalu and “Ali”—as AliExpress is known in the market— seek to reduce their weaknesses. Magalu’s online channel growth slowed, despite a downsizing by competitor Americanas. AliExpress is weak in high-value items, a segment in which Mercado Libre has grown recently.

While Magalu seeks to maintain its relevance compared to foreign rivals (Mercado Libre, Amazon, and Shopee), AliExpress works to avoid being recognized as a foreign brand selling “trinkets.” The strength of the Magalu name could have a positive impact on this effort and help AliExpress consolidate its presence in other categories.

Estimates indicate that Mercado Libre already has 42% of online sales in Brazil, and could reach 50% in two to three years. Calculations based on the sector’s gross merchandise value (GMV) and data from Neotrust show that the Americanas’s crises led to a transfer of sales mostly to Mercado Libre and Shopee.

Furthermore, China’s Temu—owned by PDD Holdings, which also controls Pinduoduo, China’s third-largest e-commerce platform—has arrived, offering aggressive deals to attract customers. People familiar with the deal point out that the announcement is not an isolated reaction from both companies to Temu’s entry into the country in June. Conversations between the two parties began even before Temu confirmed its entry into Brazil.

With the deal, AliExpress could improve its product distribution, which is on the group’s radar. Its logistics are currently operated by Cainiao, the company’s global arm in the area, with support from Brazil’s postal company Correios. The companies signaled that a delivery agreement with Magalu is not ruled out.

Under the signed agreement, both companies can earn from an increase in customer recurrence and visits. Each will pay a commission on sales to the partner, as in a conventional marketplace operation. In the market, the commission on sales rate ranges from 10% to 22% but the two companies have not disclosed any numbers.

It should be recalled that the Brazilian Senate passed a bill slapping international competitors. At 20 percent tax on low value international purchases of up to 50 U. S. dollars, a response fueled by national retailers against the rise of Asian competitors in the country, despite their still low penetration in Brazil's e commerce and retail as a whole. 

According to consultancy firm Payments Commerce Market Intelligence, domestic players make up  94 percent of total e commerce sales in the country, which includes retail, travel, ride hailing, digital goods and services.  

Sources: Valor International, The Brazilian Report

digital markets  Brazil  China 

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