Brazil's Magal shares surge after sales partnership with AliExpress, ET BrandEquity

Brazilian retailer Magazin Luisa said on Monday it had signed a deal with Chinese e-commerce platform AliExpress that would allow the two companies to sell products on each other's platforms, sending the company's shares soaring.

AliExpress will sell products from its premium service Choice on Magazine Luiza's marketplace, while Magalu, also known as the retailer, will sell products from its own inventory on the Chinese company's platform in Brazil.

Magazine Luisa's shares rose more than 13 percent on the news, while Brazil's Bovespa stock index rose 1 percent.

E-commerce companies from China and other Asian countries have been competing fiercely with local rivals in Latin America's largest economy in recent years, often selling a wide range of products at low prices.

In addition to Alibaba Group's AliExpress, Shee's Shopee and Shein have also established footholds in the Brazilian market, while PDD's Temu also entered the market earlier this month.

JPMorgan analysts said the partnership would allow Magal to strengthen its third-party offerings for products that are not Magal's focus, while allowing it to avoid delivery costs.

This could result in better unit economics for Magalu, which will boost conversions and repeat business, but is also contingent on AliExpress's service levels, the analysts, led by Joseph Giordano, wrote in a client note.

Chinese products for sale on Magaru's marketplace include categories such as beauty products, computer peripherals, home appliances and home improvement supplies.

“Our idea is to gradually expand the range of products available on both platforms,” ​​Magalle CEO Frederico Trajano told reporters on a conference call.

He added that under the agreement, Magal will receive a commission for each sale of an AliExpress product on its platform, and vice versa.

Products purchased from AliExpress on Magalu's marketplace will be imported through Brazil's Remesa Conforme tax incentive program, “facilitating Magalu's cross-border business,” the Brazilian company said in a securities filing.

The program, created last year amid criticism from Brazilian retailers over Asian competition, allows participating companies to declare their imports and include the tax in their product lists in exchange for faster and cheaper customs clearance.

Under the system, cross-border purchases of less than $50 are exempt from federal tax, but Brazil's Congress voted earlier this month to impose a 20 percent tax.