What Does Netshoes Brazil’s E-Commerce Company Explain The Fall Of Netshoes?

One year after the IPO on the New York Stock Exchange, the market value of Latin America’s largest sportswear e-commerce store was reduced to one-fifth. Investors disapproved of changes in company accounting

In the fight: despite the turmoil, Marcio Kumruian bets on the innovation of the sales platform and the streaming service to turn the game

Just over a year ago, on April 14, 2017, Marcio Kumruian, a co-founder and CEO of Netshoes, was on a honeymoon with foreign investors. The IPO of Latin America’s largest sportswear e-commerce store on the New York Stock Exchange (NYSE) was a success, attracting large foreign funds such as Tiger Global Management, Temasek Holdings, and Ruane, Cunniff & Goldfarb. Shares were traded at $ 18 and the company’s market value was $ 376.2 million. In a suit and tie, something unusual for a businessman accustomed to wearing sports clothes, Kumruian only heard compliments. NYSE President Thomas Farley, for example, underscored the wisdom with which the Brazilian manages the company’s finances. Five quarters later,

Last week, following the release of first-quarter results, the company’s share fell by 60% to $ 2.14. Netshoes’ market value, which peaked at $ 779.2 million on May 25 last year, melted to $ 66.5 million on May 16, 2018 (see chart below). What appears to have been the last straw for investors was a change in the company’s accounting. Until December 2017, Netshoes anticipated with the banks the debit accounts on the credit card. The money went to the cashier as revenue in exchange for a higher cost with the financial expense.

Past Joy: Kumruian (center), rings the New York Stock Exchange bell, last year. Honeymoon with investors lasted a short time (Credit: Disclosure)

When this practice of prepayment of receivables ended, the company’s cash flow dropped from R $ 396 million to R $ 60.7 million, which caused investors to question the financial health of the company. “Netshoes’ thesis was to open the capital out there because the American market is accustomed to companies that do damage. But foreign investors accept bad American business numbers and not a Brazilian company, “said Douglas Carvalho, founding partner of Target Advisor, a consulting firm specializing in mergers and acquisitions. “It was a very big misjudgment, and they were not delivering the growth they promised.”

Despite The Difficulties, Netshoes bet that innovation can seek a way out and show that it will be able to generate results in the Future.

 The company has finished migrating to a new e-commerce platform this month. It started being developed internally in 2016 to allow for more agility in upgrades and more control of technology. The expectation is that it also facilitates the personalization of the site according to the interests of each client. “We are moving from a business that is selling the products that are available to sell services and experience to the consumer,” says André Luiz Shinohara, director of marketing and sales at Netshoes. “It is a plan that we will achieve in the medium and long term, but it is important to plant a seed right away.”

Within this technological renewal, Netshoes launched in March this year the streaming TV sports channel, to broadcast sports and championships that do not find space in the mass media, but which attract the interest of a good number of practitioners in Brazil. “There are different segments and no space sports in the big media,” says Shinohara. “Now, we are in a moment to understand the profile of the interested parties and publicize their broadcasts.” For now, 50,000 subscribers mainly accompany the games of the Superliga volleyball, the National Futsal League, and the Women’s Basketball League. There are negotiations to acquire rights to athletics events. Intermediation with the leagues and federations, in addition to the production of the broadcasts, is provided by the ESM agency, by Guilherme Figueiredo, a former Globo group.

Netshoes’ strategy at this first moment is to connect people with the new streaming platform and then monetize. But for the future, the prospect is to make a profit from this business. “It could be through the sale of advertising space, institutional support of brands to specific sports, and the integration of the transmission with the sale of products,” says Shinohara. “Every company in the digital world needs to breathe technology.” This, at Netshoes, translates into the search for new features and services for the consumer. Therefore, the innovation passes through an agile team capable of developing products and services that will be the next wave of the market. One only needs to know if investors will have the patience to wait.

Netshoes Group Uses New Relic to Constantly Improve Website Performance and Customer Experience

In February 2000, Marcio Kumruian and Hagop Chabab opened a sporting goods store called Netshoes Group across the street from Mackenzie University in São Paulo, Brazil. Two years later, the burgeoning company launched its e-commerce operations, and within five years it had shut down its brick-and-mortar storefronts and moved the entire shopping experience online. Today, with more than 50 million people visiting its websites monthly, 10 million followers on social networks, and operations in Mexico, Argentina, and Brazil, Netshoes Group is the largest pure-play e-commerce sports retailer in the world—and in December of 2014, the company launched the online fashion store, Zattini.

Ensuring that innovation and performance go hand in hand

Key to Netshoes Group’s astonishing growth has been its consistently innovative use of technology. From the 3D scanner system that allows customers to compare the sizes of different shoe models (know your size in every brand!) to a mobile app that identifies tennis shoe models by photos and then enables customers to purchase them via their devices, Netshoes Group is constantly looking for ways to improve the customer experience through technology.

As Eduardo Berti, IT infrastructure manager for the company’s e-commerce department, says, “IT is the body and soul of Netshoes Group. Because we are a 100% e-commerce company, technology is our lifeblood—and it’s not just about doing flashy things on the website. It’s also about making sure that site navigation and usability are constantly optimized, so that there are no bottlenecks and that the website performs exactly as expected. Only then can we rest assured that we’re providing the best possible purchase experience for our customers.”

With this in mind, the tech team at Netshoes Group knew that when it came time to migrate its e-commerce operations to a new platform, that platform would need to be thoroughly vetted—comparing the performance of the new with the old. Finding the right tool for this task, however, proved difficult.

“We went to the global market and searched for some tools, but no single tool was able to provide us with all that we wanted,” says Thiago Cotting, lead systems engineer for Netshoes Group. The reason? Netshoes Group was not content to assess just application and server performance—as did most such tools. Instead, it wanted something that could monitor both the Internet and back-office environments—in other words, a tool that could link Netshoes Group’s technological vision with the all-important business decisions that drive performance.

“With New Relic, we’re able to focus on not just the applications and technology but also on the impacts any bottlenecks might have on the business.”

Thiago Cotting Lead Systems Engineer, Netshoes Group

Optimizing performance by understanding every aspect

The answer came in the form of a tool recommended by one of Netshoes Group’s partners. Says Cotting, “One of our partners had already been employing New Relic for his personal use, and he suggested that we investigate it for the task at hand. My team did just that and ended up implementing it immediately. Installation was quick and simple; all of the instructions were right on the website, and within a few hours we had already pinpointed and analyzed bottlenecks in the database that we were able to improve right off the bat. That, in turn, enabled us to accelerate the migration process with a better platform than the one we previously owned.”

And that was just the beginning: Today Netshoes Group uses every New Relic tool it can get its hands on to monitor every aspect of its business. For Netshoes Group Head of IT Infrastructure Rafaela Paiva, that means starting and ending each day with New Relic: “The first thing I do every morning when I come into work is open my New Relic APM dashboard—that is if I haven’t already accessed it from my smartphone or tablet at home. If we’ve just launched a campaign or done something that will bring market visibility to Netshoes Group, I’m able to see from that dashboard the immediate impact of our efforts. If users have tripled as a result of a newly launched campaign, for example, I know that I need to act quickly—adding or removing servers. New Relic gives me ease of mind because I always have a good idea of how our environment is working as a whole.”

Cutting echoes Paiva’s assessment, pointing also to the use of New Relic Synthetics, New Relic APM, New Relic Browser, and New Relic Insights as key factors in keeping the Netshoes Group site up and running and delighting customers. “With New Relic, we’re able to focus on not just the applications and technology but also on the impacts any bottlenecks might have on the business,” he says. “This is huge for us.”

By using New Relics Synthetics, for example, the company can monitor its sites throughout Latin America from the users’ perspective—seeing response times and availability every minute of every day. This is enormously helpful for maintaining service-level agreements (SLAs), says Cotting, because New Relic provides Netshoes Group with monthly reports showing the status of all its web pages. “That means that each month, we can compare the reports and see if we’ve increased or decreased our response times or improved our availability,” he says. “This is one of our favorite New Relic features because it ensures that we have representative figures on how our website is performing and real indicators of areas we need to work on.”

Relatively new to Netshoes Group’s New Relic product mix—but gaining traction fast—is Insights. Through the use of Insights dashboards, the company can combine real-time data on user consumption (such as which pages are getting the most hits, what campaigns are generating the most sales, and how products are performing regionally) with infrastructure technology information. “This is incredibly powerful stuff,” says Cotting, “because we can now link IT with marketing, providing up-to-the-minute results about how our customers are shopping in our store—information that our marketing and e-commerce folks can use to close deals.” Best of all, the easy visual representation of the information in the New Relic dashboards means that it’s accessible to all—not just the admitted “data nerds” in the IT department.

“Every minute that our site is slow or we’re unable to deliver value to the consumer, we lose revenue and fail to achieve our primary goal—the sale of products. New Relic helps our team save an enormous amount of time and energy diagnosing problems and monitoring our technology.”

Eduardo Berti IT Infrastructure Manager, Netshoes Group

Constant monitoring for constantly improved operations

The longer Netshoes Group employs New Relic, the more benefits it continues to discover. Chief among them, however, is the time savings it affords for both customers and employees. Explains Berti, “Every minute that our site is slow or we’re unable to deliver value to the consumer, we lose revenue and fail to achieve our primary goal—the sale of products. New Relic helps our team save an enormous amount of time and energy diagnosing problems and monitoring our technology. And that, in turn, ensures that our customers’ dealings with our site are fast and effective.”

So just how much time does New Relic save Netshoes Group technicians? Both Cotting and Paiva put that number at 30%. What’s more, swift identification and resolution of problems mean that downtime all but disappears and availability approaches 100%. Says Cotting, “If for some reason our website starts to crash, we can immediately see the problem in New Relic as well as what’s causing it. This means that we can turn off a feature or go back and change or add more instances to the website, and in that way guarantee that the site will be available.”

The Result: increased agility, better decision-making, and improved customer service. Says Paiva, “I manage and oversee both the corporate pillar and the e-commerce pillar, and New Relic is key in helping me meet the needs of both. With New Relic providing visibility into the environment as a whole, I can be more assertive when a situation needs to be fixed as well as when business decisions need to be made. In the end, it’s our customers who benefit the most, and that’s exactly how it should be.”

Going forward, Netshoes Group plans to continue making full use of the New Relic toolset—especially Insights, which the company has just begun to scratch the surface of through its recent trial. Says Paiva, “With Insights, we see the potential for using New Relic to add value to the entire business chain—combining technological insights with real insight into user behavior so that our marketers and business leaders can make better decisions.”