Building on the Brazilian border opportunity
With a new wave of stores set to open in coming months and traveller allowances set to rise from December, the platform is in place to grow the fledgling Brazilian border duty free business.
By February next year, 21 duty free land border stores are scheduled to have opened in Brazilian territory, a strong mark of progress for a channel that only received legislative permission in 2018.
That progress was discussed at the Latin American border store conference (Encuentro de Frontera), hosted virtually on 24-25 November by South American Duty Free Association ASUTIL and CEFSU, the Chamber of Uruguayan Free Shop Operators. It brought together legislators, retailers and brand owners to examine the opportunities and challenges facing the sector.
As previously reported, legislation allows 33 Brazilian cities to open border duty free stores with neighbouring states. Currently 12 are open, many of them having begun trading in the past year. These include seven in Uruguaiana, plus one each in Jaguarão, Porto Xavier, Barra do Quaraí, Porto Mauá and Paraná.
A further nine are in the “implementation phase” according to influential regional politician Frederico Antunes, and should open by February. In Rio Grande do Sul, three stores will be run by Brasil Free Shop (in São Borja, Quaraí and Barra do Quaraí), two by New York Free Shop (one store in Uruguaiana, another in Barra do Quaraí) and a further store by Da Barra Duty Shop in Barra do Quaraí.
To the land border duty free stores already open (above left) a further nine (right) will be trading by February
Duty Free Americas and Liberty will open stores at the popular border crossing close to the Iguacu Falls (Foz do Iguaçu), while Top Internacional will open a store at Guajará-Mirim.
Although COVID-19 and travel restrictions (including border closures) dealt a blow to the fledgling trading channel, better times are on the way, said ASUTIL Secretary-General José Luis Donagaray.
“By 8 December Uruguay will be the only country in this region that will continue with its tight border restrictions,” he told a press conference on 26 November. “By then, Argentina will have opened its borders to cars, buses and other transport, and a week later air travel will resume. Chile will ask you for a negative PCR but will not enforce a quarantine and that is from the end of November. Brazil requests health insurance and sometimes a PCR but its borders are open. Uruguay is still only open to Uruguayan citizens and residents, with quarantine for visitors.
The new stores are aminly run by independent retailers and will join those run by leading players Duty Free Americas and Dufry (the latter's Uruguaiana store pictured)
“So this will be an opportunity for most of the border shops, apart from those on the Uruguayan border. Those will lose a lot of tourists.”
Another key development is the extension of the duty free allowance for individuals from Brazil from US$300 to US$500, which takes effect from December. From 1 January 2020, the duty free allowance for travellers entering Brazil via a land border increased to US$500 (and for air travellers from US$500 to US$1,000); the latest update permits Brazilians to also take advantage of the higher allowance.
Donagaray said: “That has an impact with the opportunity to increase spending on many categories. This will change the mix and the average ticket we believe. We see electronics benefiting in particular, including white goods.”
For Brazil’s government, it also offers the chance to encourage travellers to shop at home, much as governments elsewhere (led by China) are repatriating luxury and duty free spend.
Organisers hailed the latest virtual border store conference as a success, and plan to host it as a physical event if possible in 2021. Pictured are ASUTIL Secretary General José Luis Donagaray and Carlos Loaiza, Secretary General of CEFSU, the Chamber of Uruguayan Free Shop Operators, at the 2019 event.
Donagaray said: “This has been the result of a lot of work with legislators to encourage and create this new channel. They now understand the opportunity that the border business presents and see that it brings other benefits.
“Not only that but we are no trying to encourage the Brazilian government to update all of its duty free legislation. Although we have the stores, online retailing is going to stay and that is competition. So we have to adapt. There will be great changes ahead. Travel looks like it will not recover until 2024 or later, so we need to open our minds about the possibilities for duty free and be aware of what might happen.”
Reflecting on the Encuentro de Frontera, Donagaray hailed the event as a success, with strong participation from decision makers in Brazil and Uruguay, plus regional retailers and some brand owners. “We had 72 participants, as well as the speakers, and we are happy with that for a virtual event,” says Donagaray. “Last year it was face to face and we were introducing this new channel of business. It’s not the same as having direct contact of course. Next year we plan to host everyone in the region once again. This event will continue, and will reflect the development of this area of business, with many smaller, more family-owned companies than you see elsewhere in duty free.”
*ASUTIL and International Association of Airport Duty Free Stores (IAADFS) will host the 2021 Summit of the Americas as a virtual event on 5-9 April. It is being organised in partnership with The Moodie Davitt Report (which recently hosted the acclaimed Virtual Travel Retail Expo) as an innovative, user-friendly, and cost-efficient virtual event.
ASUTIL joins IAADFS in hosting the Summit of the Americas in virtual format in 2021, in partnership with The Moodie Davitt Report
Uruguayan association warns over viability of Free Shop business
Carlos Loaiza, Secretary General of CEFSU, the Chamber of Uruguayan Free Shop Operators, has warned that the viability of the sector is under threat as travel restrictions slow border shopping to a trickle.
In an interview with leading Uruguayan newspaper El País, he outlined the challenges, saying that border store operators are unable to pay staff or their tax bills, such has been the COVID-19-related downturn in business. Uruguay’s borders remain closed to all but citizens and residents, with the usually flow of visitors from Brazil in particular a problem during the pandemic.
Loaiza said that the situation has been made worse by deteriorating economic conditions in Brazil and competition from duty free stores that now operate on the Brazilian side of the border.
He said that the only solution may be to permit Free Shops to sell to the local market in Uruguay.
The industry association conducted a study (via Grant Thornton Uruguay) calculating that the value of retailers’ stock fell by -53% in March and -83% in April. The tax impact of this was a -87% drop in April payments (versus the same period in 2019). The value of the industry has now slipped to 2016 levels, he said.
Loaiza also underlined these stores’ economic importance. The three major stores generate 7%, 5.4% and 4.9% of jobs in their respective areas. Overall Uruguay’s Free Shops employ 2,150 people, representing 1.4% of those employed in the country’s retail industry.
Carlos Loaiza says that liberalisation of the Free Shops market on the Uruguayan border is urgently needed
The Moodie Davitt eZine Issue 287 | 30 November 2020
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