Americanas’ Unraveling Will Likely Worsen Wave of Layoffs In Brazil

Guararapes, the owner of Riachuelo, Méliuz, CVC and Yoki, announces thousands of layoffs at a time of economic slowdown in Brazil and worldwide

An Americanas store, one of the chain's 3,600 branches throughout the country and dependent on capital to operate. Photographer: Gustavo Minas/Bloomberg.
January 24, 2023 | 10:49 AM

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Bloomberg Línea — With its filing for bankruptcy and restructuring last week, Brazilian retail giant Americanas (AMER3) justified its request by claiming it needed to save around 100,000 direct and indirect jobs, and while there is not yet any information regarding the number of job cuts at the company, the threat of layoffs adds to recent staff cuts and factory closures by other Brazilian companies.

The scenario impacts both economists’ and companies’ analysis of consumer trends and the outlook for the sector, as companies across the country seek to cut costs amid the adverse economic scenario.

In the case of Americanas, the main challenge is to maintain the operation of its 3,600 stores in 900 cities, and a marketplace of 150,000 vendors with a cash flow limited to 800 million reais ($155 million) at the time of the bankruptcy filing, added to which is the growing distrust among banks that used to provide loans, as well as that of suppliers, sellers and customers.

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Layoffs and cost-cutting have been the order of the day in recent weeks. Last week, Méliuz (CASH3), a digital financial services platform, announced the layoff of 59 people, equivalent to 6% of its staff, citing the need to ensure its financial survival in the face of a challenging and uncertain economic scenario.

Also in the retail sector, Guararapes (GUAR3), the parent company of the Riachuelo store chain that hired Safra in search of an investor partner, announced the closure of a factory in Fortaleza, Ceará, and its dismissal of 2,000 employees earlier this month, as reported by Bloomberg.

The cuts reflect, on the one hand, the weakening of the business outlook, but on the other, a more drastic measure to contain the advance of costs and in a bid to preserve margins.

Guararapes’ shares have accumulated a drop of close to 50% in 12 months, with a devaluation of about 15% in January.

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Another company affected was multinational food producer General Mills, owner of the brands Yoki, Kitano and Häagen Dazs. The company closed Yoki’s largest unit in Paraná, in the municipality of Cambará, and the closure, which is expected to occur by the end of the year, will mean 750 direct job losses, and of around 300 indirect jobs.

CVC (CVCB3), the largest tourism company in the country, earlier this month laid off around 100 employees, which represent 4% of its payroll. The cuts mainly affected areas such as IT (with a reduction in outsourced workers) and support areas.

In an interview with Bloomberg Línea in November, CVC’s CEO Leonel Andrade pointed out that the integration of physical stores with its Internet platform would result in efficiency gains, with management paying attention to the evolution of its high levels of debt.

Toyota is also preparing for the closure of its plant in São Bernando do Campo, in São Paulo, following a decision announced in 2022. The car maker plans to transfer 200 of the 550 employees to other plants in the in the state of São Paulo, in Indaiatuba, Porto Feliz and Sorocaba, according to information from the Sindicato dos Metalúrgicos do ABC.

The broader effect on the economy

The weakening of employment has already been a reason for alerting economists in view of more recent data regarding job cuts.

“The data [from November] confirm the deceleration in the labor market observed also in our proprietary IDAT-Emprego index and in the formal jobs index. This deceleration is likely to continue going forward, since we expect GDP growth of 0.9% in 2023,” economists Natalia Cotarelli and Matheus Fuck of Itaú Unibanco (ITUB4), in a report on the employment figures from IBGE’s National Household Sample Survey.

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For the country’s largest bank, 2023 will likely close with an unemployment rate higher than that of 2022. In a report, Itaú's team maintains the rate projection of 8.2% in 2022 and 8.5% in 2023.

“We evaluate that the November data show a labor market in deceleration, but that it probably remains overheated. In our assessment, the unemployment rate remains low more due to a reduction in the participation rate than due to employment growth,” wrote economists led by Ana Paula Vescovi at Santander (SANB11).

The Brazilian government releases unemployment data with a delay of almost two months. The country’s statistics agency IBGE states that the unemployment rate closed the third quarter of 2022 at 8.7%, with 9.5 million people unemployed.

The northeast region had the highest percentage of unemployed, with 12%, followed by the southeast (8.7%).

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In October, the unemployment rate decreased to 8.3%, however.

The Ministry of Labor and Social Security’s December unemployment figures show a net formal job creation of 135,500 in November. “With the contractionary monetary policy, the most sensitive sectors are already starting to show clearer signs of deceleration, so that this was the third consecutive month in which this happened in the pace of job creation,” according to brokerage Genial Investimentos.