This week’s podcast is about Magazine Luiza / Magalu and how they ended up as the pioneer of online-merge-offline (OMO) in Brazil retail. They have a fascinating business model.
Here are my three strategy questions about Magalu:
- Big Question #1: Will Magalu Become an “Ultimate B2C Marketplace”?
- Big Question #2: Will Magalu go full OMO? Will they be more aggressive in retail formats?
- Big Question #3: Will Magalu go full “infrastructure of commerce”?
- Alibaba’s 3 OMO Lessons for Brazil’s Magalu (2 of 2) (Tech Strategy – Daily Article)
- Why I Really Like Amazon’s Strategy, Despite the Crap Consumer Experience (US-Asia Tech Strategy – Daily Article)
- 3 Big Questions for GoTo (Gojek + Tokopedia) Going Forward (2 of 2)(Winning Tech Strategy – Daily Article)
- Why Netflix and Amazon Prime Don’t Have Long-Term Power. (2 of 2) (US-Asia Tech Strategy – Daily Article)
From the Concept Library, concepts for this article are:
- OMO / New Retail
- Infrastructure of Commerce
From the Company Library, companies for this article are:
- Magazine Luiza / Magalu
Welcome, welcome everybody. My name is Jeff Towson, and this is the Tech Strategy Podcast, where we dissect the strategies of the best digital companies of the US, China, and Asia. And the topic for today, three big digital strategy questions for Magazine Luisa in Brazil. Now, I’m still in Sao Paulo. I’ll be here another couple of days, and I’ve been spending a decent amount of time meeting with companies, bouncing around. Magazine Louisa also goes by Magalu, which is the app and name. Really interesting company. It’s been on my short list for a while. I met with them a couple weeks ago. I’ve been reading a lot about them. Super interesting. A lot going on. If you’re an investor, and I know a lot of you are, take a look at this company. I think this is one where a lot of the world is not quite aware of what this company is doing. doesn’t mean it’s a good investment, I’m not saying that, but I’m saying it well could be and it’s something I don’t think enough people are paying attention to. So you might get ahead of the curve on this one, possibly. Anyway, so I’m going to talk about what I think is going on with them. Been reading a lot about them recently. So that’s the topic for today. Now other stuff, no real housekeeping stuff today. For those of you who are subscribers, I sent you stuff on Magalu recently. I’m gonna send you a bit more later this week. I’ll also send you more about Zed Delivery and probably Mercado Libre. I’m gonna sort of round out the Brazilian companies I’ve been sort of visiting and paying attention to. And I basically visited all of those and just sort of chatted around a little bit. Okay, so that’ll be the topic. And what else? Oh, I guess an announcement. I’m launching a Southeast Asia digital tour, which is gonna be in March. We’re gonna take executives, management teams, out to probably Singapore, Jakarta, and then either Vietnam or Thailand, probably Thailand, spend a week. Visit some companies, do a lot of sort of lecturing and training on digital strategy and what’s going on. So we’re rolling that out right now if you’re curious about that for you or your company. This is probably a bit more focused on management teams, but if that’s interesting send me a note and I’ll send you the basic information. So that’s kind of happening right now. I think we’re targeting March for 2023 is the tentative dates right now. So that’s on the way. Okay, standard disclaimer, nothing in this podcast or in my writing or website is investment advice. The numbers and information for me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment advice. Do your own research. And with that, let me get into the topic. So the two concepts for today, as always, we’re trying to cover one or two concepts. This is sort of the professor side of all of this. Really… I mean, kind of vague, I suppose. These aren’t really specific digital concepts like rate of learning or economies of scale. But I put this under sort of online merge offline, which I’ve talked about before. The idea that a lot of these retailers, e-commerce companies are starting to merge their physical assets with their digital assets to give you sort of one data-driven, seamless consumer experience. Retail is sort of the frontier of that, and Alibaba kicked this off with new retail. We’ve talked about that quite a bit, but we’re really seeing that across a lot of types of businesses, hospitals, healthcare, education. It’s just that sort of retail went first. So that’ll be sort of one idea for today. OMO, in this case, would be new retail. The other one is the infrastructure of commerce, which is another actually Alibaba term. The idea that, you know, you put together the logistics assets, the web services assets, and then addition the physical stores. And they’re starting to call that their new infrastructure of commerce, that anything can be sold on this sort of infrastructure layer that they’ve been building. So we’ll talk about that a little bit because that’s an interesting question for Magalu as well. Anyway, so two sort of more vague concepts for today, but both are kind of important. And interestingly enough, I’m going to say Magalu instead of magazine Luisa because it’s easier. Magalu is a strange situation where they’re kind of on the frontier of OMO. I mean, if there’s a couple companies in the world that are really pushing the boundaries of OMO, you got to point to Alibaba for sure. The supermarkets, the hypermarkets, the department stores, now the fashion stores, mom and pop shops, online merge offline. But you really can point to Magalu as well. And I’ll explain their sort of history, which is a strange sort of happenstance where they ended up on the frontier of this. Now they’re not as advanced as what’s going on in China, Asia. And you can say that a lot about Latin America. The e-commerce world here is at an earlier stage of development. Things move a bit slower. But definitely in terms of, if you’re looking for OMO in Brazil. or OMO in Latin America, I think you have to point to Magalu as arguably the leader. And I’ll explain why. Okay, so a little bit of background. I went to their headquarters, which is just sort of on the northern side of Sao Paulo. I went there a week or two ago and I chatted with their investor relations folks. Simon, Vanessa, if you’re listening, thank you. That was awesome. It was a lot of fun. I asked them a lot of questions. So this is all public information here. Obviously, nothing here would be considered private or inside in any way, shape or form. Most everything I’m citing is from their investor relations publications, which you can find on their website. But I sort of went to their headquarters in the North and they had been on my radar for at least a year because I come to, let’s say Brazil, Latin America more, Southeast Asia and I’m pretty confident looking at business models. I feel like that’s in my strike zone. I can look at the structure and I can say, that’s an airplane, that’s a car, that’s a bicycle, this one’s faster. But the other half of that equation is always management. How good is the team? And when I move into a different culture, like going from China, US to Brazil, I’m not as good at reading people. There’s too much of a cultural difference. I mean, I can spot a good Chinese CEO and management team versus a weak one, like at a thousand yards, just because I’ve been there for so long. And it took a long time to get culturally comfortable. And I would say the same thing about the US. I’m pretty comfortable. Southeast Asia, I’m getting there. Latin America, Brazil, no, I’m not. So I have a hard time reading management teams and spotting who’s the A team, who’s the B team. who’s kind of a phony. Well, I can kind of spot the phonies. So my standard thing is when I bounce around Brazil, I always ask people, especially investors, hedge funds, other managers, who are the top three to four management teams, digital-ish, in Brazil that you think are just, you know, who’s the Steve Jobs? Who’s the Jeff Bezos? And if you ask that enough times, you get the same answer over and over and over. So I’ve been asking this for a year. In the top three to four, every time I ask this question, someone mentions Magazine Luisa. Almost every time. The others might be Mercado Libre, Lojas Renner, Lojas Henner. New Bank is frequently mentioned. And then some others. So if you’re a Brazilian company and they didn’t mention you, don’t take it personally. A lot of companies get mentioned. But generally in the top, let’s say three to five, it’s usually Magazine Luisa is on the list for. really performing in terms of digital. So that got them on my radar a year ago. And I’ve been going through their stuff a little bit. So that was kind of why I was excited to go and meet with them. So anyways, took the Uber up to the north side of Brazil. They’re kind of in, I’m sorry, north side of Sao Paulo. They’re kind of in, I don’t know, not awesome part of town up near one of the airports. It’s, you know, it ain’t a neighborhood you hang out in a lot, but they have a pretty cool facility up there. You know, historically, Magazine Luisa was a retailer out of Franca, which is sort of a municipality, just to the northeast of Sao Paulo. And, you know, it was founded a long, long time ago. It was a store there. The basic history is, okay, someone started a retail store 50 plus years ago, washing machines, refrigerators, stoves, large appliances you might find in the home. to a lesser degree, maybe home appliances, blenders, things like that. So it was sort of in that white goods area, larger store, but I wouldn’t call it a department store. They came out of that background as opposed to say a fashion focus. Lojas Renner, they do a lot of fashion. They’re kind of more on that side. So let’s say they’re in that side of the spectrum and they evolve out of Franca, one store. The daughter of the founders, very famous woman here, Luisa Helena Trajano. I always pronounce everything wrong in Portuguese. I’m sorry for that. I always say it was Spanish, but it’s basically Luisa. Everyone knows Luisa, the richest woman in Brazil. No, she took over the store over time from her parents, became sort of the director superintendent, really in 1980s to 90s. really took over in the early 90s. And along the way, this chain of stores grew to a thousand plus retail outlets all across Brazil, 18 states. You fast forward to today, 1500 outlets, more or less, stores in 900 cities, something like that. I may have that second number wrong. I was told that, I gotta check it a little bit. So massive operational footprint, one of the largest retailers in the country. Okay, I think that’s pretty common. We see that in a lot of countries. We see that sort of, you know, evolution of the retail space. And if we look at, you know, what they were doing, even if I walk into one of their stores today, you know, it’s not like a Carrefour and it’s not like a Walmart. You know, it’s not at that level of sophistication you might say, say in the US. But it’s nice. I mean, it’s large appliances, washing machines, refrigerators. There’s going to be TVs and phones, so there’s usually electronics section. There’s portable electronics, things like blenders. And then they’ve expanded into some other smaller categories recently. Some furniture, they’re getting into beauty. They’re getting into a lot of other smaller categories right now. Now, then something kind of interesting happened starting in the early 1990s. that set them up for e-commerce. It was really fortuitous, which was they started doing what they call virtual stores. And this would be a really small store. I mean, it doesn’t even have to be a store. In some cases, I think it’s almost like just a kiosk or a desk or something, with the sales associate, who would sell things that aren’t located in the store. And back in the 90s, that meant showing video cassettes of here’s the stuff we have, would you like to see? catalogs, multimedia, but it’s kind of this asset light approach where, look, we don’t have the inventory here, we don’t even have much of a facility. We’ve really just got kind of some sales staff that are out selling to their neighbors, their friends by various mechanisms where you’re placing orders that are then fulfilled later. And that makes a lot of sense when you start thinking about smaller cities in Brazil, villages, you know, where… But they don’t have the infrastructure, and you’re not going to have a massive inventory there, and you want to offer a broader selection of products. It’s a very good business model, these sort of virtual stores. And I’m told that they did a somewhat similar version even in the big cities, where yes, they would have a large store in the major city, which they do. But they were still smaller than their competitors, and they would still complement what you see in the store with some sort of catalog or multimedia. where you could buy things that weren’t in the store. It’s a really clever business model, it’s very good. But you can see how that would tee them up for the emergence of e-commerce, 1998, 2000, 2003, in that price range. If you’re already sort of doing this catalog-based version, the idea of adding a website, and then you say, you’re in our store, look at the website, or in your home, look at the website, come down to our store and get it. That’s only a half step from where they were. So that’s kind of how they got started. And then they had, I don’t know, either good luck or good planning or something. But the son of Mrs. Luisa, Frederico Trajano, I’m sure I’m saying those names wrong, sorry about that, was in private equity in the US around this time period, 2000. Was well aware of e-commerce, internet, what was going on. came back to the family business and sort of launched the e-commerce division. So that was, you know, that was really good. Not succession planning, but that was a really nice capability to bring in at the moment. Traditional retail was gonna start getting disrupted by e-commerce. So he comes in, he starts building the e-commerce out for Magazine Louisa. And this is why, you know, they’re sort of the OMO pioneer of Brazil. And I think that’s the right way to think about them. Because when they started to build e-commerce, 2000, 2003, that period, they were always integrating it with their physical stores and their existing logistics distribution network. It was never just, hey, we’ve got an app and now we have a store. It was always based on that. So closely tying your e-commerce capabilities, activities to your existing physical stores and distribution operations, that sounds a lot like what we now call OMO. And people have called this different things along the way. People talk omni-channel, various things. But you can see how they kind of ended up in somewhat of the similar place as Alibaba today. So instead of… They have these distribution points. You can order something, pick it up at the store. The distribution point delivers it to the store. But they were already probably shipping from the distribution points. Let’s say it’s a refrigerator. that was already going to people’s homes. You wouldn’t ship that to the store. So they already had the sort of B2C delivery in some form, and then going from the catalog or multimedia to the website, you could see that’s a natural step. So it was a really interesting sort of situation that put them on this path, 10 to 15 years ahead of most everybody, at least a lot of groups. Anyways. So I kind of call them the fortuitous or the accidental IOMO pioneer of Brazil. That sort of evolves over the next 10 to 15 years. Now I’m summarizing the history as best I understand it from reading in various articles. That may not be totally correct. I mean, these are, I’m reading articles in Forbes and stuff that were from 10, 15 years ago. That appears to be the common story I’ve heard. maybe take that with a little bit of grain of salt, but I think that’s probably directionally accurate. Okay, so that’s your story. That’s magazine Luisa Magalo. We fast forward to today. Really we fast forward to let’s say 2014 to 2018. This is when things in my opinion start to move much faster. This is when Frederico takes over as CEO. So he’s been working in the company for 15 plus years. He steps up, succession, family run business. He takes over, really leans into this. I mean, I’ll give you a bunch of the stuff they’re doing, really leans into this. A couple things jump out at me as particularly important. Number one, let’s say 2014, they launched Louisa Labs. I’m not sure exactly when he sort of took over SEO, right in that time period. But Luisa Labs turns out to be sort of their engineering core. One of the weaknesses virtually all retailers have when they go against a retailer trying to go digital is always outgunned by an e-commerce giant, like let’s say Mercado Libre or an Amazon, in terms of pure tech firepower. I mean, these companies have thousands of engineers and software people, and usually you’re outgunned as a retailer in this regard. You don’t have that many people. You generally don’t have the cashflow. It’s harder to recruit them. Your management are not those people. That’s usually a major difference. Okay, so they launched Louisa Labs. The numbers I got told, which I’ll have to check, is 400 plus developers work there now. They work on 45. what they call squads, which are really teams. This looks a lot like the organizational structure of something like Amazon, where they’ve got a core group of engineers, tech people, who are continually being deployed in teams against whatever the most important digital initiatives are. And so they’ve always got these sort of projects running all the time, the teams going against it, very important. 2015, they launched their mobile app, Magalu, which is pretty cool. I play with it a lot. It’s pretty fun. And then really, let’s say the big one, 2016-ish, they launched their marketplace. Now this is the big gun. What’s the difference between a very successful Rela Taylor who’s very good at digital and an e-commerce juggernaut? Amazon. Alibaba. The difference is the marketplace platform. That is like, you know, my standard joke is like, having a great operational footprint with stores and warehouses, that’s your army. But the marketplace platform, that’s the Air Force. And generally speaking, a military without an Air Force almost always gets beat. A marketplace platform is just incredibly powerful as a business model, there’s no way around it. It has a tremendous consumer offering, every, you know, this massive long tail of products that you can offer. Consumers love that. It gets you network effects. The market tends to collapse to three, four, maybe five marketplaces in a major geography. We will see 10, 20, 30 major retailers in a country. We don’t see 10, 20, 30 marketplaces. We see three to five. so it collapses to a major player. It’s usually three, four, five, something like that. There’s some room for creativity there. And usually what you see is you see a couple ultimate marketplaces like Amazon where we have everything you need, every product you can imagine. That’s Taobao as well, that’s JD. But then we can also see some specialty plays as well. Secu. There’s some room for creativity, but it ain’t 10 to 15 to 20 companies. It’s five, maybe. And those models throw off a lot of cash flow. Companies that have those tend to outspend their rivals on things like logistics and IT innovation over time, and they generally get stronger and stronger over time. We see it over and over. So the fact that they jumped into a marketplace model, that’s a huge move. So it’s a very interesting history with the, you know, some fortuitous or maybe just lucky situations that have led them to where they are today, which is really, let’s say the frontier of OMO in Brazil, which is the largest market in Latin America by far. E-commerce here, you know, the numbers are generally between five and 10% of all retail in Brazil is now online. It got a nice pop during the pandemic. It’s… tracking down a little bit, let’s say 8%. Okay, you compare that to somewhere like China where 20 plus percent, 25%, depending what sector you’re looking at, is now online. There is a long runway here. You know, there’s a lot of room for growth in this country. It’s earlier in the stage. And you have this interesting situation where you have this, you know, this physical retailer, which has sort of ended up doing OMO for quite a long time. Anyways. Let me sort of jump to, okay, what are the three big strategy questions going forward that I think are going to potentially alter the trajectory of this company, because that’s kind of what I do. I mean, I’m better at the bigger strategy moves. Now, if you go to their website, you can pull up their investor relations presentations. They have ML Day, which they have lots of, you know, all their key people present. Pretty good slides. is very thoughtful, incremental improvements in a couple areas. And really, I would characterize most of this as growth. We are gonna keep growing the business, the core business as it is right now. And that really means making sort of steady progress in a couple things. And number one on that list would be You know, let’s just keep increasing our product selection. We’ll add more and more new categories. They’ve been adding gaming, they’ve been adding furniture, they’ve been adding beauty, they’ve been adding sports. Now their marketplace model lets them do this more aggressively than in the past when they were primarily a retailer. And today they’re still operating both as a retailer and a marketplace, but you know, 70 plus percent of their sales are now coming through the marketplace as opposed to a direct retailer. But okay, let’s say within their current stuff, number one, let’s keep growing, what drives growth, let’s increase the product selection. Keep bringing in customers, keep bringing merchants onto the platform, let’s grow our core business, let’s keep adding more product selection, let’s keep adding more locations. That’s just growth 101, step after step after step. Very good. The other thing they focus on a lot is improving the logistics, particularly the delivery speed. That’s a major driver of customer satisfaction and usage and things like that. So they keep investing in their logistics, their stores, integrating the digital aspects into both of those with a real focus on what percentage of our orders were delivered within 48 hours. And whether it’s our products or as a marketplace, what percentage in 48 hours. So you hear a lot of talk about that. And then the third metric, it looks like it’s just measuring the user experience at pretty much every touch point, going into the store, calling in to do something on the phone, the point of delivery, returns, things like that. They got NPS scores all over the place. So they’re measuring those three things with the idea that if we keep improving on those three things, we keep growing, which I assume is probably true. Okay. That’s all fine. That’s not really something I think that I have much to say about. That’s more daily operations, weekly operations, as opposed to significant strategy moves. But if you look at all their growth numbers, they all look quite good, particularly the marketplace. Okay. Now, let me qualify that last statement. They did get a pretty good bump during the pandemic, which is now, I assume, coming down, flatlining. But so if you look at the last two to three years numbers, it’s not gonna be representative generally. Okay, so what do I think are the big three strategy questions going forward that could really alter the trajectory of this company that I think maybe the market is not factoring in yet, right? I always look for stuff where I feel like I can get ahead of the curve and maybe see things other people don’t because I do digital strategy. So these are kind of the three I’m thinking about. Okay, number one, can Magalu become an ultimate B2C marketplace. Now that phrasing, the ultimate B2C marketplace, I’ve used that from time to time. That is the idea, I think this was a McKinsey term from like 2014 or something. It’s the idea that, people often call this a super app too. I don’t like that term though. Look, we know they’re building their marketplace. That’s their most important digital initiative by far. That’s how you go from a very successful retailer to an e-commerce powerhouse. That’s how you do it. You have to have a marketplace. If they can make the jump, that makes them a different animal, okay? For all the reasons I just said, it tends to be winner take all. So, okay, so they start bringing merchants onto their platform. They start providing them with everything they would need. Advertising, logistics, payment. I don’t know, online capabilities, helping them go from analog to digital to create their first store, everything. People often refer to this as retail as a service. I think Magalu uses this phrase, JD used to use this phrase for a while and then they dropped it. Okay, 2016, 2017, 2018, the marketplace is just rolling out. They’re bringing on mostly analog small merchants to sell. The numbers they’re saying now… four years later is 200,000 merchants. Okay, if that’s true, and you have to tease those apart, not all merchants are created equal, but regardless, that sounds pretty good, but you’d have to dig into it. And then within that, they’ve also dramatically expanded sort of the categories they offer. One of the reasons you bring in the small merchants, not the small merchants, your non-core business product categories. is because you start to access the long tail of products. You’re not just doing refrigerators, appliances, stoves. Now you’re offering everything. And they’ve been expanding in lots of product categories, leaning into their marketplace sellers. So sports, fashion, utensils, information, beauty, telephone, I mean, lots and lots of categories. And they say that now 52 plus percent of all of their sales are coming from these sort of new product categories as opposed to their core traditional categories. Okay, that all looks good. So okay, we look at the marketplace. I’m still going to dig into this a lot more, but so far the numbers I’ve seen, everything’s pointing in the right direction. Okay, I think people understand that. My question is, are they going to go from that? to the ultimate B2C marketplace, an ultimate B2C marketplace. That’s Alibaba. We don’t just offer products. We offer services. We offer digital content. We do movies. We do food delivery. We do hotel reservations. We do travel. We do everything a consumer could possibly want in one app. That’s the ultimate B2C marketplace. And we’ve seen them take a… They did do an acquisition for a food delivery company. They’re actually doing quite a lot of M&A stuff, which I’m gonna dig into some, quite a lot actually. They’re pretty aggressive. So that’s the jump. And that really takes a different mindset. That’s like, look, we’re no longer an omni-channel company. We don’t just do stores and we sell products. We sell everything our consumers can need. which is really how Alibaba sees themselves. They don’t see themselves as just products anymore. They haven’t thought that way for a long time. They see themselves as solving, constantly evolving consumer needs. And whatever they are, they can identify them because they’re so data rich. They can identify jobs to be done for consumers and we’ll go after them. They’ll do restaurants, they’ll open supermarkets, they’ll run the supermarkets. They’ll stream movies, they’ll open a movie studio. They will do hotel reservations, they will do flights, they will deliver food. Anything, I mean, they serve their consumers any way they can. That’s a different mindset. I haven’t heard that language from Magalu yet. What I’m hearing language-wise is, you know, we’re an e-commerce company with physical and apps, omni-channel, that sort of stuff. You can sort of think of Amazon as the same way. They haven’t gone full ultimate B2C marketplace like Alibaba. They went from e-commerce to things like books and videos and Amazon Prime, but they’ve never really gone too far beyond that, which is not uncommon in a developed Western country where you have good solutions for a lot of things. When you’re in a developing economy like Brazil and China and Southeast Asia, you have a much larger field you can run in because there’s a lot of consumer needs that are not being met by anybody. So that’s sort of my first question. Are they gonna go from omni-channel, e-commerce, app plus stores to full ultimate B2C marketplace? That would be pretty cool actually. Okay. Big sort of strategy question number two. Will they go full OMO? So online, merge, offline. Now they’ve sort of come at the online, merge, offline thing like we’re gonna digitize our core business, which has always been sort of in white goods, large appliances, but you know, they sort of built from there. They digitized it, they combined it with the marketplace, but the OMO stuff is really within their core business. That’s not how Alibaba did it. Alibaba started as a major e-commerce player. And then they decided we’re going to go into physical retail. And they really took out a white piece of paper and said, where would physical plus digital have the most power, regardless of whether it fits our current business? And that’s how they came up with supermarkets. And I mean, I’ve told this story before. I asked, you know, Alibaba president Michael Evans. You’ve got so many initiatives going along in O.M.O. You’re doing supermarkets, you’re trying convenience stores, you’re doing fashion stores, you’re doing department stores, shopping centers. Which one of those is the most exciting for you? And he basically said it was supermarkets. Supermarkets have a tremendous number of use cases that you can go after with digital tools. A lot of stuff, it’s family dinner, it’s Sunday morning brunch. It’s, I need something at 2 a.m. because I’m hungry. But more than just the use cases what the consumer has, you have to stop thinking about supermarkets as markets. What supermarkets really are, are the forward contact point with your consumers. Virtually everybody lives within one to two kilometers of a supermarket and they all go several times a week. So. It’s not just about selling groceries. It’s about this is your primary point of contact with your consumers and you can put anything in there. So they do groceries, they do products, they do services. They do a lot of stuff at these almost like forward logistics points and then they do on-demand delivery. So when you come at OMO with a blank sheet of paper, you wouldn’t come up with… we should do white goods and department store like stuff, which is kind of what Magalu does, you would come up with supermarkets and hypermarkets as the number one target. I think what Magalu is doing, it would be within the top five targets. It wouldn’t be number one. I think fashion is also very powerful when you do OMO because there’s a lot to the experience you can digitize. So are they gonna do what Alibaba did, which is… really go full OMO and start to experiment with lots and lots of different store formats. Some which exist in really two to three years. Alibaba bought 400 hypermarkets. They opened a couple hundred. They bought 30 department stores. They bought 17 shopping centers. They bought fashion stores. They launched projects everywhere. They did furniture stores, which turned out to be really good for OMO. And though even today, they are experimenting with new formats for stores all the time. So are we going to see them sort of step away from their traditional type of retail and just start looking for the best opportunities to go OMO, regardless of whether it fits their current platform? which would mean a lot of M&A, and it would mean a lot of experimentation. Are they gonna buy a major market, supermarket in Brazil? Are they gonna buy convenience stores? Are they gonna do something like hypermarkets and then start to innovate on store formats, which is what Alibaba’s doing right now. So that’s kind of question number two. I think that would change the trajectory of the company. Well, I shouldn’t say that. My understanding of the trajectory, I don’t know what they’re all talking. about. I’m just reading reports. So maybe they’re already doing a lot of stuff. Okay, last one. Will they go after sort of full infrastructure of commerce? And this is another Alibaba, because they’re the other big OMO company. They talk about we are the new infrastructure of commerce. That’s what they’re building. That their e-commerce business, what sits on top of their infrastructure, may end up being the less interesting of their two businesses long-term. Yes, they have e-commerce, they have Taobao, they have Tmall, they have all of that, but they’ve also built up this new infrastructure, which is the new retail stores. the smart logistics plus the cloud business, they’re going to offer that to everybody for any type of commerce. That infrastructure business may end up being more interesting long term than the e-commerce business. That’s pretty much what Daniel Jang, the CEO, has said. He didn’t say it would be, but I think he said it might be. That’s why they refer to themselves as now an infrastructure company as well as an e-commerce company. Anyways. Now all of those three things I just said, well let’s say the last two, the full OMO and the full infrastructure play, both of those require a lot of cash flow. The reason digitized retailers don’t normally do that is because they don’t throw off that type of cash flow. But if you’ve got a robust marketplace like Mercado Libre, like an Alibaba, then you have the type of cash you can do that, usually. It’s not always the case, but typically, yeah. So it’s kind of all depends on that marketplace first, which is what I’m watching. Okay, so those are kind of my three points. I’ll put those in the show notes. Those are sort of strategy questions I would point to for the company, let’s say within two to three years that I’d look for, maybe sooner. I mean, they’ve got a pretty cool pathway right now. And if you look at what they’re doing in their logistics and their distribution, there’s a lot of clever innovative stuff they’re doing by using their retail stores as sort of service points for merchants. And there’s a lot going on on sort of the physical asset side of the company. Anyways, I think that’s enough for this one for today. Really interesting company. This is really sort of my first pass thinking on this, so I may end up correcting myself over the next couple months. But I think I’m on target here mostly. And the two concepts for today, just to review, online merge offline. sometimes called new retail, but I think OMO is better. And then the infrastructure of commerce, this idea of smart logistics plus new retail plus cloud is sort of a new type of infrastructure that certain companies are building, Alibaba’s one of them. Amazon is definitely moving that direction, although they’re not really doing the new retail piece so much, but they’re definitely doing the cloud and the smart logistics like all the way. Anyways. And I would expect Mercado Libre to be moving in that direction as well. Whether they will jump into new retail and start doing physical retail is kind of an interesting question. I suspect they won’t. I think, you know, that is something you typically see in more of the later stages of development of e-commerce in a country. You know, there’s a lot of growth that can still be done in Brazil with just where we are today. And also, it’s a bit harder here. So I think that’s probably… If we’re in phase two of e-commerce in Brazil, let’s call that phase three or four. So probably not there yet, but who knows? You never know. Okay, that is it for the content for today. As for me, I’m in the last, I don’t know, four to five days here in Brazil, and then I’m heading out to California to see my family, and then back to Thailand. So I’ll be back there, I don’t know, October 20-something, which I’m… I’m really ready to get home. I’ve been on the road for over three months now, so I’m kind of mentally tired of that. I’m looking forward to being home for a while. But it’s been a pretty great trip, just back to back here in Brazil. Tons of meetings. I’ve only got a couple left this week, so it’s been slowing down, which is nice. And that’s that. So yeah, I think I’m mentally ready. Turns out my endurance for traveling is not what it once was. Looks like… Two to three months is about right for me right now. So we’ll see, but pretty fantastic trip here. A lot going on and yeah, met with a lot of interesting companies, working with clients, that’s a lot of fun. And then yeah, back to Brazil. I’m sorry, back to Thailand, so it’ll be great. Anyways, that’s it for me. I hope everyone is doing well and I will talk to you next week. Bye bye.
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