ASUTIL Report – Neutral
Full speed ahead for Neutral
As the Latin American border business bounces back from the impact of the pandemic, Neutral by Luryx CEO Marcelo Montico talks about the acceleration of sales growth, new shopping formats and the outlook for the rest of 2023. By Dermot Davitt.
“We were running in 2022, but now we are flying high in our accomplishments.” That’s the verdict of Neutral by Luryx CEO Marcelo Montico, as he assesses the acceleration of sales growth since the pandemic impact receded last year.
In 2022 Neutral achieved a remarkable +54% leap in sales compared to 2019 and that upward trajectory has continued in 2023, with a year-to-date increase of +43% compared to the previous year.
Founded in 1987, Neutral is among the largest and longest-established border store players on the Uruguayan side of the border with Brazil. It runs nine stores covering around 15,000sq m of retail space in six cities: Artigas, Rivera, Bella Unión, Río Branco, Aceguá and Chuy. Of these, with 38% and 24% of 2022 sales respectively, Chuy and Rio Branco are the largest locations by turnover. At US$112, Chuy is home to the highest average ticket (2021/22).
Neutral Duty Free houses some of the most striking beauty zones in the region
The company also manages its own logistics with a 6,000sq m warehouse, and is the franchisee for the Gap brand in Uruguay.
Of the sharp recovery to date, Montico says: “The substantial progress we have made can be attributed to a successful restructuring of certain business models and the unwavering dedication and capabilities of our teams.
“Our customers have regained the enthusiasm to make purchases. This is coupled with the enhanced shopping experience offered by Neutral and our esteemed colleagues, and has significantly improved our appeal to regional buyers.”
A further important factor has been the improvement in the Brazil economy, with a stable exchange rate against other major currencies a key dynamic in the cross-border business.
Montico says: “This stability allows for the natural inflation in the local currency to be effectively translated into US Dollar prices, thereby enhancing our competitiveness. In addition, this environment ensures that saving levels remain adequate, further bolstering the attractiveness of our channel.”
Against this, volatility in Argentina this year has been a negative, although, says Montico, “we anticipate a significant rebound in consumer activity next year”.
Neutral by Luryx CEO Marcelo Montico
Beyond the macro-economic factors, Neutral has also worked hard to improve the shopping experience in its stores.
“The results have been remarkably positive,” says Montico. “It is no longer sufficient to merely offer the products that customers seek at fair prices. Today, it is essential that their purchases become part of a comprehensive sensory experience for the entire family, and this is where Neutral stands out with its competitive advantages, enabling us to continue leading the way.
A further view of beauty, a key category for Neutral
“Consumers now engage with our value proposition long before setting foot in our stores. Consequently, the virtual experience preceding the visit often determines whether a customer will actually come to our physical locations. Recognising this, we are actively working on improving our virtual presence, with our app serving as a fantastic tool to attract this particular segment of customers.”
Continuing on this theme, he adds that Neutral has embarked on “a transformative journey that redefines our approach to developing our value proposition”. The approach today is around creating “immersive experiences rather than solely introducing new products”.
Armed with extensive research from consumers, including a big project conducted in Q4 2022, the presentation of key categories within the stores has shifted.
“We have embarked on developing distinct retail environments under a Store-in-Store (SIS) model featuring highly sought-after brands, including MAC, Pandora, Adidas, GAP and more”
Marcelo Montico
“By integrating these brands within our stores, we aim to enhance the overall shopping experience while increasing the average purchase value.”
“This comprehensive approach represents our commitment to catering to the desires expressed by our customers, ensuring that their expectations are met and exceeded. By combining innovative experiences, strategic brand partnerships, and a deep understanding of consumer preferences, we are confident in our ability to set new industry standards and achieve sustained growth.”
This approach is allied to the ever-important factor of savings based on the exchange rate for the key Brazilian traveller in particular.
Montico says: “With the favourable evolution of the exchange rate, we are witnessing the revival of savings across all categories compared to local prices in the neighbouring countries. This positive development has led to a resurgence of historical consumer behaviours, particularly in the beverage and beauty sectors, which serve as crucial foundations for our business.
“Our primary objective is to maximise average purchase value. To achieve this, we go beyond simply offering what customers initially seek, and instead we introduce them to new categories and brands that may not have been part of their original consumption plans. Surprisingly, in most cases this approach has yielded excellent conversion rates. Based on this principle, we have observed extraordinary performance in casualwear, sportswear, jewellery and pet products. These categories have significantly contributed to increased spend per shopper and overall business performance.”
Average ticket – Neutral Duty Free Rio Branco and Chuy stores
Source: Neutral
In the year to date, beauty accounts for 31% of turnover, with spirits & wines at 27% and fashion at 22%.
To deepen engagement further, Neutral has raised its digital game but balanced this with more human contact as travellers return.
Montico explains: “Undoubtedly the pandemic brought about significant changes in how we communicate with consumers, and many of the initiatives we implemented to minimise physical contact remain relevant. The Neutral Class affinity programme and the online pre-purchase programme were immensely popular and powerful tools during the pandemic. However, in recent months, we have noticed a growing desire among customers for an in-person shopping experience.
Neutral sales by category 2023 YTD (%)
Source: Neutral
Power brands on display in generous space at Neutral Duty Free
“While we continue to engage with our target audience through social media and digital platforms, the moment of truth still lies in the visit to our physical stores. What has changed is that this in-store experience now involves a more prominent interaction with technology than before the pandemic.
“One impressive example of this is our RP system, which instantly analyses the records of customers who enter our stores with the Neutral app installed on their mobile devices. Based on their consumption habits, the system intelligently selects and sends them a personalised collection of active promotions that align with their interests.
“This innovative tool provides us with incredible efficiency, considering we have over 100 active promotions running simultaneously. However, not all of these promotions are designed and developed for the same type of consumer. By tailoring the promotional offers to individual customers, we can deliver a highly personalised and engaging shopping experience that meets their specific needs and preferences.”
Regional and international wines represent a core category for the retailer
He adds that this integration of technology and personalisation enhances customer satisfaction but also allows Neutral to optimise its promotional efforts, ensuring that the right offers reach the right customers at the right time. “As we continue to adapt to the evolving consumer landscape, we remain committed to leveraging technology to create seamless and tailored shopping experiences that set us apart in the market.”
Across the region, changing regulatory rules and practices continue to affect the border business, whether it is the expansion of the border store trade inside Brazil, or updated allowances. Currently, says Neutral, the biggest impact comes from the exchange rate, with many travellers encouraged to maximise their US$500 allowances.
“In terms of tourist arrivals, our country’s currency has experienced a significant appreciation against the US Dollar, making us a relatively expensive destination. This factor has led to a segmentation in the profile of visitors. Historically, Uruguay has attracted a substantial number of tourists from Argentina. However, the current exchange rate difference with our neighbouring country has impacted this trend negatively.
“Nevertheless, if this situation improves by next summer, we anticipate an increase in the number of tourists from the middle socioeconomic segment, which would result in greater consumer traffic. This potential shift in visitor demographics has the potential to positively impact our business.
“It is important to note that apart from the aforementioned exchange rate dynamics, there are no other significant regulatory factors that are currently impacting our operations. This stability provides a favourable environment for our continued growth and allows us to focus on improving our offerings and enhancing the overall shopping experience for our customers.”
It is against this backdrop that Neutral management is upbeat about the remainder of the year.
“Building on the success [in 2022], we have continued to soar in 2023. Looking at the broader regional context, the political and economic variables do not present any imminent risks of weakening for the remainder of 2023. This stability provides us with a favourable environment to capitalise on our strengths and further propel our business growth.
Considering the favourable conditions and the solid foundation of our business pillars, we have the necessary strength and potential to achieve a growth rate of over +100% compared to 2019 by the end of 2023.
“However, we are not content with stopping there. We are determined to push beyond this milestone and explore opportunities to surpass even our own expectations. With our unwavering dedication and strategic initiatives, we are confident in our ability to continue exceeding targets and setting new benchmarks for success.”
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The Moodie Davitt eZine
Issue 324 | 6 June 2023
The Moodie Davitt eZine is published 14 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail kristyn@moodiedavittreport.com