One of Brazil’s largest retail chains, and today the most valuable of them (over BRL 170 billion), Magazine Luiza (or Magalu, as it is better known in e-commerce) now presents itself as the most extensive ecosystem to buy and sell items in Brazil. The primary vehicle of this ecosystem is the Magalu app. Initially created to be another sales channel back in 2015, the app has been gradually increasing its functionalities. More recently, it started selling clothing, hygiene items, and even food.
In January 2020, Magalu created its own digital account, called MagaluPay and managed by a subsidiary dedicated to its digital payments business. It’s another step on the path to becoming a super app, originally trod by Chinese giants like WeChat, which was born as a messaging app and today offers a string of services. Magalu ended the third quarter of 2020 with more than 2 million users on Magalu Pay and an average of 30 million monthly active users on all its online platforms.
To understand the change from a brick-and-mortar retail chain created in 1957 to an ecosystem that today hosts 40,000 sellers and offers logistics, financial, and advertising services, LABS spoke with Vinicius Porto, CX director at Magalu and director of Luizalabs, a technology and innovation laboratory created in 2014 within Magalu’s research and development nucleus.
Porto has been working at Magazine Luiza for two years. He arrived at the company through an acquired startup, a strategy that has been widely used by Magalu for rapid growth towards a digital ecosystem. Last year alone, Magalu acquired Estante Virtual, Stoq Tecnologia, Canaltech, InLoco, AiQFome, HubSales, GFL, SincLog, and Hub Prepaid.
Porto was the co-founder of PorqueNão, which provided services and digital products to Luizalabs and other large companies in Brazil, such as Heineken, Suvinil, Dotz, Itaú, and Reserva. At the end of last year, Magazine Luiza went through a restructuring, and through this process, a new board dedicated to the customer’s experience was created. This new board reports directly to the CEO, Fred Trajano. Porto now manages this area, in addition to design, R&D, social branding, and CRM.
TO LABS, he explained that Magalu’s goal is to become the Brazilian retail operating system. For this reason, the company has heavily invested in marketing for Parceiro Magalu, a platform to attract small retailers to the online market, and that was implemented during the COVID-19 pandemic.
Since its launch, the Parceiro Magalu app (which charges 3.99% of the small retailers’ sales) has added features such as product registration by barcode, order tracking via the Brazilian postal service Correios, and a section of business intelligence unifying (physical and digital) sales and management data. According to the company, 75% of orders sold by Parceiro Magalu have free shipping, considering local or national delivery.
The more than a thousand brick-and-mortar stores spread across Brazil (a large portion of them in cities with up to 500,000 inhabitants) were crucial to one of the company’s most audacious projects in 2020: fast shipping. In total, Magalu is present in 21 of the 26 states and recently started to operate in the North of Brazil. Still, it has important rivals in the region, such as Bemol in Amazonas. For this reason, Porto believes that there is always room for the company to grow in Brazil before expanding to Latin America. Follow the main excerpts from the interview below:
LABS – Where did the idea for the Magalu ecosystem come from?
Vinicius Porto – The company has always been very clear that it did not want to be a traditional retailer with a digital area, but rather a digital platform with physical points and human warmth, a humanized service. We could not lose this asset that is extremely strategic for us. Other than that, it has the company’s mission. Magalu’s mission is to give access to many people, which is currently the privilege of the few, since its inception 63 years ago.
The re-reading of this for the current times, that is, how we fulfill this mission, is through Brazil’s digitization. But to digitize Brazil, a country of this dimension, there is no way for us to do this alone.
Today we understand that we are the operating system of Brazilian retail. We are digitalizing the small retailer, facilitating online commerce through the marketplace and the various services we started to grow with Magalu-as-a-Service.
LABS – And were all the acquisitions part of Magazine Luiza’s strategy of becoming an ecosystem?
Vinicius Porto – Last year alone, 11 acquisitions of various types were made. Technology in financial services with Hub Fintech; content with Canaltech; food delivery via AiQfome; Estante Virtual for the book market and 3P (third-party seller). This is the way we have been organizing ourselves to be able to fulfill this digitization mission in Brazil.
So, we are looking at startups and companies that in some way help us to fulfill that mission: transforming Magazine into a great platform that helps to foster this ecosystem that we are talking about, of Brazilian retail.
LABS – Have Magalu’s physical stores acted as distribution centers in Brazil’s interior to facilitate logistics?
Vinicius Porto – We have more than 1,100 stores today throughout Brazil and just over 10 large distribution and fulfillment centers. The stores start to play this [logistic] role of having the merchandise that has the best fit with that region. And this comes from a lot of data analysis and artificial intelligence, which help us make this [products] allocation correctly. For us, this is crucial. In any e-commerce company, what the consumer expects is a fair price and fast delivery, and Magalu’s delivery times are dropping dramatically.
So today we build this platform that we call ship-from-store. And it has been gaining more and more participation. Our deliveries happen more and more with speed at a national level.
Because it is one thing to say that I deliver in a day or two in Sao Paulo, a major city, but that serves a small portion of the population. When you think about operating in the North and Northeast regions in Brazil… In the past, it took up to 16 days to deliver a parcel there; that kind of thing is unacceptable.
LABS – Is there a difference between the Magazine Luiza consumer in physical stores and the virtual store?
Vinicius Porto – We do not see a difference between online and physical consumers. We understand that they naturally have different profiles because we have a middle-class customer that accounts for a major part of our customer base. We understand that part of these consumers is still going through a digitization process in e-commerce.
E-commerce accounted for a very small percentage of Brazilian retail; if I am not mistaken, it was around 5% to 7% before the pandemic and accelerated a lot due to COVID-19.
So what we see is more and more consumers interacting on both channels, but we are quite agnostic about the channel itself. This was also reflected in this reorganization that we did at the end of last year; internally, we no longer have this type of division [physical and virtual].
Today, business unit directors think of all channels. For us, the channel doesn’t matter, but the consumer does. The consumer is unique. He or she can fulfill the [purchasing] journey in several ways.
LABS – Can you distinguish the difference between the user experience in the online form and physical form?
Vinicius Porto – One of the first products that Luizalabs built is called Bob, a proprietary recommendation system [Bob is responsible for all product recommendations at magazineluiza.com]. It is clear that, in the digital environment, it is easier [to work with customers’ data]. But what is more important, and this has everything to do with our past, a large part of Luizalabs talents dedicate themselves to building digital products for the physical stores and its staff.
How do you identify a person within the establishment? You identify the customer at some point in the journey; you do not identify that he or she entered the store, but perhaps at the time of the transaction. We now have information that feeds our salespeople so that they can offer a better-customized experience.
This is a characteristic of Magazine Luiza; we have a vast majority of our stores in cities with less than 500,000 inhabitants. So the relationship is super important in this context. We cannot worry about having a super customized experience online but not offering any offline customization.
LABS – How can 5G improve the brick-and-mortar store service system?
Vinicius Porto – 5G can help us evolve the [in-store service] system, not just stay on top of the current system. There is a startup that helps in the identification of the customer entering the store. Today we already talk a lot about facial recognition, that kind of thing. One idea is to try to make all these intersections; with this type of technology, we can identify the person earlier in the day, obviously respecting all issues of LGPD (General Data Protection Law).
With the data issues well protected and with our consumers’ permission, which is something that we respect a lot, it is a type of thing that would be possible.
LABS – Do you consider working with social commerce and voice commerce?
Vinicius Porto – The company has always been very oriented towards innovation, looking for new ways to improve the customer experience. I cannot be so specific, but, indeed, there is no turning away from it. Today, the volume of transactions by social commerce on Alibaba, I think, exceeds 300,000 per day. This is taking shape, and at some point, it must also be part of our reality. But the visual [drive] is still very strong today for retail in general. So it’s up to us who are on this side of the desk to think carefully about [the possibilities of] voice interface. But I do not doubt that it is a natural path.
LABS – Does Magazine Luiza intend to expand to Latin America?
Vinicius Porto – It is a more personal and unofficial view. We are in a country so big that I wonder why we should take the focus away from here to start looking at other markets right now. We recently entered [the states of] Pará, Mato Grosso do Sul and the Federal District. We still have a lot of room to grow within Brazil. Perhaps starting to target other territories now is a loss of focus.
Brazil’s digitization work is still far from being completed; [we have walked] baby steps. But nothing prevents us from making a move in that direction in the future.