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Global Report: Brazil

Brazilians love to shop. I should know, I am one.

The Paulistanos - people from São Paulo - refer to their local shopping mall as their praia (beach). They can while away the hours there. It’s more than shopping - it’s a way of life.

When H&M opened its & Other Stories concept store in London last month, the newsfeed on my Facebook page showed two ‘likes’ for the retailer - both from Brazilian friends, despite H&M having no physical presence in Brazil. Brazilians are also voracious consumers of social media.

Add Brazil’s BRIC status to the mix, and UK fashion businesses have a compelling reason to trade there. But nothing is ever that simple, and those who have looked at the Brazilian market often stop at the first hurdle: sky-high import duties. At a recent Retail Week conference, Debenhams international director Francis McAuley urged the UK Government to lobby to reduce these taxes, while outgoing Aurora Fashions chief executive Mike Shearwood added: “We know there’s a desire for our product in Brazil - we can see it online - but it’s impossible
to compete there because of the 80% duties.”

Simone Ricci of UK Trade & Investment Brazil says the Brazilian government “is not doing anything to address it. Brazil is very protective”.

But it is not impossible to compete in Brazil. Inditex has 45 stores in the country for Zara and Zara Home. The retail group has adapted its business model to the Brazilian market by manufacturing its collections for southern hemisphere markets (including Australia and South Africa) in Brazil and Argentina, thus avoiding import duties.

Only one third of the product sold in its southern hemisphere Zara stores is the same as that sold in northern hemisphere territories.

Arcadia is also enjoying success in Brazil, after recently opening its first Topshop store in São Paulo’s JK Iguatemi shopping mall. Iguatemi is also Arcadia’s franchise partner, with whom the business was due to open its second store in São Paulo as Drapers went to press. “We got to a point when we opened our first store and we were selling out, our sales were phenomenal,” says international director Paul Gould. “We’ve not tweaked the range at all. The brand is so well-known globally. We spend a huge amount of time looking for new partners in each market. They actually come to us, with blogs and Facebook pages showing that people are desperate for our product.”

So successful has Arcadia’s entry into Brazil been that Gould says the business will look to launch other fascias and ramp up the number of Topshop stores, with locations in key cities including São Paulo, Rio de Janeiro, Porto Alegre, Belo Horizonte and Brasĩlia.

Both Inditex and Arcadia have clearly done their homework - understanding the consumer and the way the Brazilian fashion market operates is vital. Brazil’s clothing market, which is worth £44bn, is dominated by domestic, mid-market, own-label multiples, but compared with the UK it remains incredibly fragmented.

According to Brazil Confidential, a research and analysis service from the Financial Times, even market leader C&A accounted for less than 3% of the 6.5 billion garments sold in Brazil. It adds that the major listed retailers - Hering, Lojas Marisa, Lojas Renner and Riachuelo - only accounted for a fraction of that amount, reporting revenues of R$10bn (£3bn) in 2011. Flávio Rocha, chief executive of Riachuelo, which has about a 1.8% share of the fashion market, expects major players to increase this to between 10% and 15% in the coming years.

Brazilians are also used to paying for clothes in instalments, so retailers must be credit facilitators too.

Competing with established local mid-market players on price is clearly a challenge for UK businesses, but they should see the opportunities too. “Brazilians are very sophisticated, well connected, linked to all social medias and very open to get to know new brands,” says Ricci. “UK brands are very well recognised and Brazilians are fully aware about their quality and design. Well-known brands like Fred Perry and Superdry, and designer brands like Christopher Kane and Jonathan Saunders, would do well.”

Ricci advises UK businesses to launch strong marketing campaigns to raise brand awareness and points to Fred Perry’s TV ads during soap operas as a good example. If there is one thing businesses must understand about Brazilians, it is their love of soap operas. President Dilma Rousseff recently changed her schedule because it clashed with the final episode of one soap opera that had gripped the nation.

Finding a good local partner - be it in property or logistics - is fundamental to trading in Brazil, but not easy.

“Brazilians do business with people, not with companies,” says Ricci. “This is why building relationships is extremely important.”

Farfetch, which offers boutiques an online platform to trade internationally, has done just that. Brazil is among its top five markets and the business has a team of 50 on the ground. Farfetch works with DHL, which in turn works with local partners, says Farfetch chief operating officer Andrew Robb: “We use couriers exclusively.

It’s the only way to get service guaranteed.” Infrastructure in Brazil remains a problem, with postal strikes common.

Robb adds that increased access to the internet across the country has fuelled an interest in fashion among Brazilians: “Brazil is about five years behind in terms of online marketing, and [ecommerce] infrastructure [is even further behind]. But online is booming. For a UK business, Brazil should be a key emerging
market, but I wouldn’t over-invest.”

Anita Balchandani, partner at OC&C Strategy Consultants, which has recently worked on a report with Google on the internationalisation of ecommerce, says ecommerce will “fundamentally alter international expansion”.

The report found that the top five most searched for international retailers by Brazilians were Asos, Topshop, Feelunique.com, John Lewis and Net-A-Porter.

“The definition of fashion in Brazil is not linear. It needs to incorporate health and beauty too,” she says. “Most [UK] businesses are treating Brazil as a market to ship to, rather than to actually serve. Business should start to think of Brazil as a base for design, as a source of supply.”

Brazilians’ appetite for UK fashion is clearly there, but there’s no easy answers to success.

Find out if there’s demand, do your homework and think creatively.

Osklen

Osklen

Osklen

Founded in 1986, Brazilian sportswear label Osklen started as a mountaineering brand, but since then, owner Oskar Metsavaht has built it into a more fashion-forward offering.

Osklen started showing at New York Fashion Week during spring 13 (having previously shown at São Paulo Fashion Week) and combines its technical background with a fresh, unmistakably Brazilian flair. Colourful outerwear, directional shapes and strong prints form the basis of the autumn 13 collection.

www.osklen.com

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