September 17, 2013 / 11:05 AM / 4 years ago

Brazil retailer Dafiti secures $70 million from Canadian fund

SAO PAULO, Sept 17 (Reuters) - Online fashion retailer Dafiti said on Tuesday it will receive $70 million from Canada’s Ontario Teachers Pension Plan, in a cash-for-equity transaction that shows resilient investor interest in e-commerce in Brazil.

The investment, which comes as sluggish growth and inflation give some investors pause in Latin America’s biggest economy, follows heavy interest by foreign investors in recent years in the country’s $10 billion e-commerce market.

Despite the slowdown, many internet companies, venture capital groups and other investors believe the market will grow rapidly in a country with relatively low Internet penetration.

In a statement, Wayne Kozun, a senior vice president at Teachers,’ as the pension fund is known, cited “a growing middle class, huge consumption potential and significant growth in online and mobile access” as reasons for the Dafiti investment.

Dafiti, Brazil’s answer to Zappos, the popular shoe and fashion retailer owned by Amazon, is undeterred by high inflation, soaring household debt and the other economic woes that could crimp consumer sentiment.

Brazil’s economy, fueled in part by soaring consumer demand during a decade-long boom, is expected to grow by little more than 2 percent this year, compared with the 7.5 percent growth posted in 2010.

“When we look at Brazil, we don’t think only of GDP growth, but also a middle class and disposable income that continue to grow,” Philipp Povel, one of Dafiti’s founders, said in an interview.

Most encouraging is online potential, he added.

E-commerce represents only about 1 percent of all commerce in Brazil, compared with a level closer to 10 percent in the United States, Great Britain and elsewhere in Europe. Overall internet penetration is also relatively low, at about 50 percent of the population. Both factors represent a large untapped market.

In the last few years, Internet heavyweights Facebook Inc , Amazon.com Inc, Netflix Inc, Twitter and LinkedIn Corp have all started operations in Brazil.

Dafiti - a startup launched in 2011 with help from German incubator Rocket Internet - has, with the Teachers’ investment, now raised a total of $255 million. The company has also received $65 million from New York-based Quadrant Capital Advisors and $45 million from JP Morgan Asset Management.

The investments have enabled the retailer, based in Sao Paulo, to consolidate its position as Brazil’s top online fashion outlet, with 30 percent of the market. Dafiti has also ventured into other big Latin American markets, including Argentina, Chile, Colombia and Mexico.

The overall size of the Latin American market for Dafiti is worth more than $100 billion, Povel said.

“We just need to capture a little bit of that and then we will be a multibillion dollar company,” he said.

Dafiti said the Teachers’ investment would help expand its catalog in those markets, as well as increase warehouse capacity and automate operations.

Market intelligence firm e-bit forecasts that e-commerce sales in Brazil will jump 25 percent in 2013 to 28 billion reais ($12,28 billion). Fashion and accessories was the top selling segment in the first half of 2013, accounting for 13.7 percent of the orders placed in that period.

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