THE RETAIL APPAREL INDUSTRY IN BRAZIL

A strategic analysis prepared for H&M HENNES & MAURITZ AB

Lauren Isaak 7 May 2010

CONTENTS

SCOPE OF THIS REPORT EXECUTIVE SUMMARY INTRODUCTION H&MS POSITION PESTEL ANALYSIS CONSUMER TRENDS WITHIN BRAZIL TRENDS IN THE COMPETITIVE LANDSCAPE Zara in Brazil

3 3 4 5 6 8 9 11 11 14 15 18 5

STRATEGIC RECOMMENDATIONS FINAL RECOMMENDATION AND CONCLUSION REFERENCES APPENDIX I APPENDIX II

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SCOPE OF THIS REPORT

The following report will analyse the Brazilian retail apparel industry with a view to assessing the feasibility of Foreign Direct Investment (FDI) by the company H&M. PESTEL analysis will be applied to provide a well-rounded view of the environment in which the company would be operating. In examining the current and future competitive landscape, the report will apply and elaborate on an analysis conducted using Porters Five Forces framework. Due to its importance, analysis of the consumer market is included, but will be brief due to report size restrictions. Preliminary strategic recommendations will be presented. It is proposed that further research and analyses focus on consumers, the logistics of establishing operations, and competitors strategies.

EXECUTIVE SUMMARY
As the global economic environment restructures itself post-downturn, new markets are emerging with positive prospects for investment. To date, H&M has focused on developed markets in the Northern Hemisphere, while its key rival industry leader Inditex, with its brand Zara has expanded into emerging markets as a rst mover. In selecting a new market with which to broaden its portfolio, H&M has chosen Brazil for consideration. As the dominant market for apparel sales in the Latin American region, Brazil has a large, emerging middle class and good economic credentials. While some areas are holding Brazil back, the country has been conrmed as a safe investment destination; the time for rst movers is now. The retail apparel industry in Brazil is characterised by fragmentation and impacted on by Brazils large informal economy. While low barriers to entry increase rivalry, opportunities do exist for foreign retailers with a strong brand identity, experience and a point of differentiation. There is a real opportunity for H&M to succeed in Brazil and add value to the Brazilian retail apparel market. Positioning H&M as the brand for middle-class Brazilians who shop at established leading retailers such as C&A, Lojas Renner and Lojas Riachuelo, but who aspire to shopping at Zara, the company would bridge an important gap in the market.

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INTRODUCTION

BRAZIL is the worlds fth largest apparel market (McKinsey & Company, 2007), and the largest by far in the Latin American region (Euromonitor International, 2009b). (See Clothing Footwear Value Sales gure below) The Brazilian fashion industry was worth US$37.2 billion in 2007, and is growing at a rate of over 7% per year (A.T. Kearney, 2008). Growth has been driven by 25 million consumers reaching adulthood over the last decade (WGSN).

AT Kearneys Retail Apparel Index 2008 ranked Brazil as the worlds most attractive emerging market for retail apparel investment

Employing 1.7% of the population, the industry is the second largest generator of rst jobs in Brazil (WGSN, 2008a), and as such is an industry intrinsically linked to Brazils social and economic development. The inward focus of Brazilian fashion retailers may present a barrier to foreign entrants. Due to a lack of trade relationships with the United States of America and Europe, clothing exports are low, and 97% of production is destined for the domestic market (ref). Investment in new machinery, technology and research and development (R&D) in the sector has increased, and currently amounts to US$1 billion annually (WGSN, 2008a). Despite a possible lingering inward focus in the industry, A.T. Kearneys Retail Apparel Index 2008 ranked Brazil as the worlds most attractive emerging market for retail apparel investment, ahead of China and India. An opportunity exists for H&M to be at the forefront of success in this potentially huge emerging market. Clothing Footwear Value Sales in Latin America by Country 2008 Chile Argentina Mexico

Brazil

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H&MS POSITION
H&M is the worlds second largest clothing and footwear specialist retailer (Euromonitor International, 2009c). Headquartered in Sweden, the company has a presence in 37 markets (H&M, 2010). H&M has predominantly focused on European and North American markets to date, while its major competitor industry leader Inditex has been able to reap rst mover advantages in emerging markets under a more aggressive expansion strategy (Euromonitor International, 2009c). H&M seeks to increase the number of H&M stores by 10-15% per year (H&M, 2009). Notwithstanding Inditexs presence, the potential of emerging markets is relatively undiscovered. Due to a downward trend in H&Ms northern hemisphere markets (Euromonitor Internation,

A fast fashion retail strategy and solid competitive advantages place H&M in a good position to consider the Brazilian market

2009e), combined with increasingly erce and diverse competition (Euromonitor International, 2009c), H&M has judged it timely to assess the feasibility of expansion into Latin America, via Brazil. As one of the BRIC economies, Brazil is emerging as a major market. Early entry would put H&M in a good position to take advantage of the growing economy to expand and establish a wide customer base. A fast fashion retail strategy and solid competitive advantages place H&M in a good position to consider the Brazilian market. The companys business model, which has evolved to stay viable in the competitive fast fashion industry, comprises strong control of the logistics process, low inventory, and exibility to change collections rapidly to adapt to consumer tastes, and allows H&M to undercut most rivals (Euromonitor International, 2009c). This strategy is suited to populous markets, a criterion Brazil easily satises. Positioning in the low-priced clothing segment would allow H&M to appeal to a wide range of consumers, while its clear competitive advantage in terms of fashion, desirability and international reputation would provide a means to differentiate from local competitors.

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PESTEL ANALYSIS
Political
Brazil will hold a presidential election in October 2010. The ruling leftist Workers Party (PT) is expected to win the election, which will see Brazils statist model of development continue (EIU, 2010). Tax reform is urgently needed, but not foreseen to occur in 2010 (Euromonitor International, 2010c). Clothing and footwear retailers incur taxes of up to 42% (Association for Shopping Centre Retailers [Alshop] in Euromonitor International, 2010c). A dramatic increase in the number of Chinese clothing exports to Brazil, and the effect of the ood of cheaper garments on the domestic clothing manufacturing industry is causing domestic associations and unions to lobby the Brazilian government (Euromonitor International, 2009e). Although no action has yet been taken, the government may take protectionist measures if the trend continues. There is a high level of corruption in Brazil. Companies operating in Brazil will be subject to learning jeitinho the way to get things done with the Brazilain public sector (Euromonitor International, 2010d). Brazil belongs to the free trade zone Mercosur, offering foreign companies access to Argentina, Uruguay and Paraguay (Euromonitor International, 2010d). Brazil imposes a tariff of 35% on textile and footwear imports from countries outside Mercosur (WGSN, 2008a).

Economic
Macroeconomic stability is now well-entrenched in Brazil (Prideaux, 2009). Government policies have targeted low ination and fostered strong economic growth (Economist, 2009b; see Appendix I Real GDP Growth). As a result, Brazil was the largest recipient of FDI in Latin America between 2003 and 2008 (ref). The effects of the global nancial crisis were felt in Brazil, where GDP contracted by 0.7% (Euromonitor International, 2010d). The governments response to the crisis was to cut sales taxes and increase lending by state-owned banks (economist). This spurred domestic consumption (see Appendix Consumption as % of GDP), mostly by lower-income consumers, and is regarded as a main reason for Brazils resilience during the global downturn (Euromonitor International, 2010c).

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In September 2009, rating agency Moodys elevated Brazil to investment grade (Economist). Standard & Poors have also upgraded Brazils longterm sovereign debt to investment status (WGSN, 2008c).

Sociocultural
At 193.7 million in 2009 (Euromonitor International, 2010d), Brazil is the largest consumer market in Latin America (see Appendix Population growth). Brazils is also a young population; around 60% of people are under 29 years old (A.T. Kearney, 2008) (see Appendix Population age). Brazils middle class is growing at an unprecedented rate. The Governments Accelerated Growth Program (PAC) and Bolsa Famlia program are largely credited with this reduction in inequality (Euromonitor International, 2009e). Annual disposable income in Brazil is also steadily increasing across all classes (See Appendix ADI, and ADI of decile 10). Apparel has been among the rst categories to benet from an increase in disposable income (see Appendix Consumption expenditure on clothing). The Brazilian attitude towards consuming is shaped by habits developed during Brazils era of hyperination in the 1980s and early 1990s, when consumers would rush to spend their wage packets before rapidly rising products wiped out their value (Euromonitor International, 2010a).

Technological
Government spending on transport infrastructure was 0.1% in 2007, in comparison to the 7% recommended of developing countries by the World Bank (Economist, 2009c). In general, transport infrastructure in Brazil is in urgent need of renewal. President Luiz Incio Lula da Silva has announced an US$886 billion infrastructure investment plan to be carried out by his successor should the party win the election (Soliani & Simoes, 2010). Major infrastructure projects planned in preparation for the 2014 World Cup and 2016 Olympics (Moura, 2010), may spur further renewal. Advances in technology are poised to enable retailers to use store cards to track customers purchases for the rst time, allowing them to develop customized marketing and more targeted promotions (ref).

Legal
The informal market is a major issue for retailers in Brazil. However, new laws introduced in 2009 to ofcially establish the individual microentrepreneur will bring a signicant number of individuals into the formal economy (Euromonitor International, 2010c).

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CONSUMER TRENDS WITHIN BRAZIL

Demand is increasing at a higher rate among lower-income classes (WGSN, 2005). Having never had as open access to certain products and services, shopping is a novelty for middle-class consumers, who are keen to experiment. Two important characteristics of Brazils population are size and age 60% of the population is under 29 years of age (A.T. Kearney, 2008). Young Latin Americans interest in novel, innovative and creativity-driven products (WGSN, 2007a) will be benecial for new brands that can market themselves well. Brazilian consumers like to spend (McKinsey & Company, 2007) but do not tend to plan purchases in advance. The experience of luxury brands Tiffany & Co. and Louis Vuitton in Brazil indicates Brazilians afnity for spending; Tiffany has more stores in So Paulo than anywhere else in the world, and until recently Louis Vuitton made its largest prots per square foot from its So Paulo stores (Economist, 2009a). A survey taken by WGSN (2007b) revealed that 48% of Brazilians bought on impulse. Further, it found that 85% of buying decisions in Brazil are made at point of sale, compared to 64-72% common in most countries (WGSN, 2008d). Brazilian consumers are very open to purchasing on credit (McKinsey & Company, 2007), a tendency that has been fostered by Brazilian retailers. Many major Brazilian department stores and apparel companies targeting the middle class issue privatelabel credit cards which allow customers to pay for items in monthly installments. Such policies have had a large impact on the middle-class consumers purchase behaviour; he or she will rst consider whether they can afford the installment, rather than if the product is worth the total end price (WGSN, 2008d). The purchase behaviour of Brazils middle class is characterised by aspiration. However, many Brazilian fashion chains and shopping malls employ a strategy using both aspiration and inclusion convincing the consumer that he or she can buy a product and feel comfortable in the store - to attract middle-class consumers (WGSN, 2008d). It is also important to acknowledge the inuence of telenovelas (TV soap operas) over the desires of the middle class. For millions of Brazilian women, telenovelas are the primary source of fashion information (WGSN, 2007a). To capitalise on the shows popularity, Brazilian fashion retailers have featured famous soap opera actresses in their campaigns, and run barbecues a popular pastime for the middle class - with celebrity guests as a promotion activity (WGSN, 2008d). European apparel retailer C&A has run campaigns featuring Brazilian supermodels.

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TRENDS IN THE COMPETITIVE LANDSCAPE

Industry analysis using Porters Five Forces framework found that rivalry and barriers to entry are most responsible for reducing the protability of the industry. Bargaining power of buyers and suppliers had a moderate impact. (See Appendix Porter)

Industry structure
There is a high degree of fragmentation in the retail apparel market. An important feature of market share in the industry is the fact that many small retailers are involved in informal business activities, and capture a cost advantage by practising tax evasion. Consequently, leading retailers account for as little as 10% of total volume sales, in comparison to the 60% of sales believed to be captured by smaller local retailers (Euromonitor International, 2009d). Informal retailing is beginning to be addressed through a combination of police crackdowns and initiatives to bring informal players into the formal market, such as tax reform (Euromonitor International, 2010c). Supermarkets such as Extra and Carrefour also sell private label clothing brands, but are perceived to be of inferior quality (Euromonitor International, 2009d). Recent events in Brazils fashion industry will impact upon the competitive landscape in the retail apparel industry. While Brazils fashion industry is still considered to be in its infancy, it has begun to see dynamic merger and acquisition activity (WGSN, 2008b). Seeking to create brand management groups similar to the European conglomerates Louis-Vuitton-Moet-Hennessy (LVMH) and Pinault-Printemps-Redoute (PPR), private investors have acquired leading brands previously owned by families. Major holding groups include AMC Textil, IM Group, Inbrands and Artesia (Euromonitor International, 2009e). Consolidation will benet Brazils fashion industry, but may present initial challenges to established retailers. For current retailers, consolidation is expected to increase competition in the high-end market. As a holding group experiences economies of scale in resource procurement, and gains bargaining power with suppliers, it will be in a position to provide greater growth opportunities to designers brands (Euromonitor International, 2009e). Although a long-term prospect, an increase in the number of brands, especially ones with strong brand identities, will inevitable force weaker players out of the market. In such circumstances, the industry may see a trend whereby leading retailers begin to acquire smaller brands to sustain their growth (Euromonitor Internationanl, 2009e).

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Leading retailers strategies and tactics

The top three retailers in Brazil are Lojas Riachuelo, Lojas Renner and Europes C&A (Euromonitor International, 2009d). A constant challenge faced by the leading retailers is gaining market share from the informal market. Middle class expansion has presented an opportunity for growth, and retailers have capitalised by increasing distribution to middle-class areas in major cities, launching exclusive clothing lines at more affordable prices, and expanding their facility to offer consumer credit (Euromonitor International, 2009e). Small retailers are limited in their capacity to compete on this level.

Most people buy at C&A or other big chains. I see a gap for shops more oriented by fast fashion like Hennes & Mauritz. We look for a Zara, but with more economic tags. - WGSN, 2007a

Offering a delity store card is a widespread practice, allowing retailers to keep track of their customer base and encourage store loyalty. In 2007, C&A issued 16.5 million cards, Lojas Riachuelo issued 13.2 million and Lojas Renner 12 million (ref). At present the main benet of store cards is to increase brand loyalty as a means of increasing sales, however, developments in the technology will soon allow retailers to collect more information about their customers (Euromonitor International, 2009b). Midsized retailers are expected to begin to offer store cards in the near future. A report by WGSN (2005) suggests that Brazilian retailers must improve in the following areas. Development of a consistent brand identity Provision of a more dynamic in-store experience for shoppers Long-term planning Investment in training for local staff, to improve employee retention rates (ref) and customer service, with a view to developing relationships between employees, customers and the brand. The expansion of Inditexs Zara into Brazil has introduced local retailers to the concept of fast fashion. The top three leading retailers as well as some mid-sized retailers such as Marisa and Hering have incorporated some aspects of fast fashion into their business models by producing planned collection items (adapted from fashion shows) as well as quick reaction items (adapted from soap opera trends) and increasing the frequency with which collections are launched (Euromonitor International, 2009e). While Brazilian retailers lag behind their European counterparts with undeveloped systems for logistics and trendspotting, the introduction of aspects of fast-fashion into retailers operations has won them market share from the informal market and stimulated consumption of clothing (Euromonitor International, 2009e). Development of systems and further income growth over the longer term is expected to embed the fastfashion concept in the Brazilian clothing retail industry (Euromonitor International, 2009e).

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Zara in Brazil
While C&A and Lojas Renner increasingly target consumers with lower incomes, Zara Brasil Ltda positions itself as an aspirational brand for Brazils slightly more afuent consumers (Euromonitor International, 2010b), emphasising the stylish and fashionable qualities of the brand. Zara has 25 Brazilian stores, located at upmarket shopping malls in major urban centres (Euromonitor International, 2010b). As a foreign retailer, Zara has resisted issuing a private label credit card, and does not use popular Brazilian fashion models or actresses in its advertising (Euromonitor International, 2010b). In comparison to leading clothing retailer C&A, whose success is partly drawn from its extensive advertising campaigns (Euromonitor International, 2010c), Zaras advertising is minimal (Euromonitor International, 2010b). Zara mainly imports its merchandise, with products transported by air to increase the frequency with which new items arrive at stores (Euromonitor International, 2010b). However, it has also developed relationships with around seventy local suppliers, and provides training to build Brazilian clothing manufacturers capabilities (Euromonitor International, 2010b).

STRATEGIC RECOMMENDATIONS
The best business location
In line with the companys practice of locating each H&M store in the best business location (H&M, 2009), H&M should commence its Latin American expansion in So Paulo. So Paulo ranks above Santiago, Buenos Aires, Mexico City and Miami as the best city to conduct business in Latin America (Amrica Economa Intelligence, as cited in Euromonitor International, 2009a). So Paulo is located in the Southeast of the country. Also containing the city of Rio de Janeiro, this region offers the largest potential in Brazil in terms of market size and consumption. In 2006, the Southeast accounted for 55.5% of all household expenditure, equivalent to US$358 billion (Euromonitor International, 2008). Migration to So Paulo is forecast to continue at a steady rate (Euromonitor International, 2008), guaranteeing access to a large market as Brazilian incomes simultaneously rise (See Figure city map).

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So Paulo ranks among the top ve leisure destinations in Brazil, and hosts nearly 75% of the largest international events that are held in Brazil (Euromonitor International, 2009a). This also offers H&M opportunities to capture the tourist market.

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Positioning
H&Ms key rival Inditex has positioned its label Zara as an aspirational brand for Brazils more afuent consumers, situating stores in upmarket shopping malls in major urban centres (Euromonitor International, 2010b). It is important that H&M pursues similar positioning, to maintain the image of quality and style that it has been successful in establishing worldwide. However, an insight showing existing demand for international style and quality at affordable prices is a reminder that Brazil is undergoing major structural change to its current demographics. Brazilians are becoming wealthier. This presents H&M with a signicant opportunity to enter Brazil relatively early and take advantage of the growing economy to expand and establish a wide customer base, as Inditex was able to do in the Russian market (Euromonitor International, 2009c). H&M should not ignore the opportunity to win the loyalty of middle-class Brazilians as their purchasing power increases. Capitalising on aspiration and inclusion as drivers of desire in Brazilians fashion purchases, this report recommends

...a signicant opportunity to enter Brazil relatively early and take advantage of the growing economy to expand and establish a wide customer base

that the company position shopping at H&M as an attainable goal; possible and worth striving for. A pricing strategy offering a percentage of products at lower and more achievable prices could support such a position. There is much room for H&M to differentiate itself from Zara and achieve great success in Brazil. The strength of the H&M brand lies in high prole advertising, collaborations with inuential designers and personalities, dynamic stores and international experience (Euromonitor International, 2009c). Zara Brasil does not advertise extensively, and does not use local celebrities to promote its brand (Euromonitor International, 2010b). This report recommends that H&M build on its strengths to take a contrasting approach. Launching H&M in Brazil with a collaboration between H&M and a high-prole, inuential Brazilian fashion icon such as model Gisele Bundchen, would convey understanding and appreciation of local culture, and be a huge hit among the fashion-conscious customers of Brazil.

Production
To date, H&M works with independent suppliers via regional H&M production ofces, and does not own any factories (H&M, 2009). In the short term, a greater percentage of items may need to be imported from H&M production ofces in other regions. However, it is advisable that H&M aim to establish a production ofce in Brazil and work with local suppliers, similarly to Inditex, to demonstrate its commitment to Brazil and guard against any possible protectionist measures the Brazilian Government may impose on clothing imports.

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Final recommendation and conclusion

Preliminary research and analysis into the Brazilian market and retail apparel industry show Brazils great potential as an investment destination for H&M. H&Ms past success has occurred in exciting markets where high purchasing power and interest in fashion characterise the population (H&M, 2009). Brazil is widely tipped to be the worlds fth biggest economy by Rio de Janeiros 2016 Olympics (Euromonitor International, 2010a), a prospect exciting to both Brazilians and foreigners (Economist, 2009b). Further, with a huge population, strong middle class growth and consumers who love to spend, Brazil shows strong promise for companies in the fast moving consumer goods sector. From the secure entry point of So Paulo, H&M would be poised to begin rst its Brazilian, and subsequently, Latin American expansion. While further research is recommended, this report nds Brazilian expansion a viable prospect for H&M.

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References
A.T. Kearney. (2008). Brazil is most attractive emerging market for apparel retailers looking to invest abroad. Retrieved March 25, 2010, from http://www.atkearney.com/index.php/News-media/brazilis-most-attractive-emerging-market-for-apparel-retailers-looking-toinvest-abroad.html The Economist. (2009a). A better today. Retrieved April 12, 2010, from http://www.economist.com/specialreports/displaystory.cfm?story_ id=E1_TQRNJVDT The Economist. (2009b). Getting it together at last. Retrieved April 12, 2010, from http://www.economist.com/specialreports/displaystory. cfm?story_id=E1_TQRNJQRV The Economist. (2009c). Condemned to prosperity. Retrieved April 12, 2010, from http://www.economist.com/specialreports/displaystory. cfm?story_id=E1_TQRNJVNV Economist Intelligence Unit (EIU). (2010). Country outlook: Brazil. Retrieved April 12, 2010, from https://eiu-bvdep-com. ezp01.library.qut.edu.au/version-2010126/cgi/template. dll?product=101&user=ipaddress Euromonitor International. (2008). Top 10 consumer trends in Brazil [Data le]. Available from Passport GMID http://www.portal. euromonitor.com.ezp01.library.qut.edu.au/Portal/ResultsList.aspx Euromonitor International. (2009a). Global travel and tourism: City brieng So Paulo [Data le]. Available from Passport Global Market Information Database (Passport GMID). http://www.portal. euromonitor.com.ezp01.library.qut.edu.au/Portal/ResultsList.aspx Euromonitor International. (2009b). Clothing and footwear: Trends, developments and prospects [Data le]. Available from Passport GMID http://www.portal.euromonitor.com.ezp01.library.qut.edu.au/ Portal/ResultsList.aspx Euromonitor International. (2009c). Hennes & Mauritz (H&M) AB in retailing [Data le]. Available from Passport GMID http://www.portal. euromonitor.com.ezp01.library.qut.edu.au/Portal/ResultsList.aspx

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References contd.
Euromonitor International. (2009d). Clothing in Brazil [Data le]. Available from Passport GMID http://www.portal.euromonitor.com.ezp01. library.qut.edu.au/Portal/ResultsList.aspx Euromonitor International. (2009e). Clothing and footwear in Brazil [Data le]. Available from Passport GMID http://www.portal.euromonitor. com.ezp01.library.qut.edu.au/Portal/ResultsList.aspx Euromonitor International. (2010a). Brazil, a model of retail resilience [Data le]. Available from Passport GMID http://www.portal. euromonitor.com.ezp01.library.qut.edu.au/Portal/Magazines/ IndustriesHeavy.aspx Euromonitor International. (2010b). Zara Brasil Ltda retailing Brazil [Data le]. Available from http://www.portal.euromonitor.com.ezp01. library.qut.edu.au/Portal/ResultsList.aspx Euromonitor International. (2010c). Clothing and footwear specialist retailers Brazil [Data le]. Available from http://www.portal. euromonitor.com.ezp01.library.qut.edu.au/Portal/DocumentView.aspx Euromonitor International. (2010d). Business environment: Brazil [Data le]. Available from http://www.portal.euromonitor.com.ezp01.library. qut.edu.au/Portal/DocumentView.aspx H&M Hennes & Mauritz AB. (2009). Annual report part 1. Retrieved March 29, 2010, from http://www.hm.com/gb/investorrelations/ nancialreports/annualreports__investorannualreports.nhtml H&M Hennes & Mauritz AB. (2010). The world of H&M. Retrieved April 15, 2010, from http://www.hm.com/nl/abouthm/theworldofhm__ worldofhm.nhtml McKinsey & Company. (2007). How half the world shops: Apparel in Brazil, China, and India. Retrieved March 25, 2010, from http:// www.mckinseyquarterly.com/How_half_the_world_shops_Apparel_ in_Brazil_China_and_India_2075 Moura, F. (2010). Brazil infrastructure projects require $85 billion in nancing. Retrieved May 1, 2010, from http://www.businessweek. com/news/2010-02-01/brazil-infrastructure-projects-require-85billion-in-nancing.html

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References contd.
Prideaux, J. (Speaker) (2009). Business and nance in Brazil [streaming video recording]. Retrieved April 12, 2010, from http://audiovideo. economist.com/?fr_story=f517e79a20b5fe34e4fc650273eda7f238c b6296&rf=bm Soliani, A. , & Simoes, C. (2010). Lula unveils $886 billion Brazil investment plan for successor. Retrieved May 1, 2010, from http:// www.businessweek.com/news/2010-03-29/lula-unveils-886-billionbrazil-investment-plan-for-successor.html WGSN. (2005). Country prole: Brazil. Retrieved March 29, 2010, from http://www.wgsn.com/members/business-resource/research/ br2005feb22_012104 WGSN. (2007). Focus on Brazil. Retrieved March 29, 2010, from http:// www.wgsn.com/members/think-tank/features/ti082307_index WGSN. (2007b).The Brazilian apparel market. Retrieved April 5, 2010, from http://www.wgsn.com/members/business-resource/regionalfeatures/br2007aug03_081344 WGSN. (2008a). Brazil sourcing guide. Retrieved April 5, 2010, from http://www.wgsn.com/members/business-resource/global-sourcing/ br2008feb20_083434 WGSN. (2008b). Investors target Brazilian fashion companies. Retrieved April 5, 2010, from http://www.wgsn.com/members/businessresource/regional-features/br2008may01_084225 WGSN. (2008c). Brazil: Fashions new frontier. Retrieved April 5, 2010, from http://www.wgsn.com/members/business-resource/strategytalk/br2008jun12_084654 WGSN. (2008d). Brazils middle class: Targeting new consumers. Retrieved April 5, 2010, from http://www.wgsn.com/members/ business-resource/regional-features/br2008aug08_085254

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Annual Disposable Income

Appendix I

Consumer Expenditure on Clothing

Consumer Expenditure as a % of GDP

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Real GDP Growth

Appendix I contd,

Population Estimates

Population Age Shift

Euromonitor International, 2010

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Appendix II

BARGAINING POWER OF BUYERS

Moderate + Buyers are plentiful, and purchases per individual are small in volume. + Product is increasingly differentiated. + Retailers may inuence purchases through branding and advertising, to appeal to consumer values beyond price, such as prestige, style and social status.

RETAIL APPAREL INDUSTRY STRUCTURE

Porters Five Forces
RIVALRY AMONG EXISTING COMPETITORS
Intense + Industry growth is strong, at 7% a year. Sector suffers from the informal market. Clothing retailers are numerous. Large retailers must collectively ght a battle with the informal market, as well as compete with each other. (Therefore price competition intense)

High level of choice. Despite loyalty programs, buyers switching costs are considered low.

THREAT OF SUBSTITUTE PRODUCTS OR SERVICES

Low + Clothes are essential items. + While it is possible for buyers to make their own clothes, as income increases and time is increasingly lled with work, they will be less likely to. + Bespoke tailoring is not a practical option

+ Small retailers ability to capture advantages of the informal market forces informal retailers to stay small-scale. Rivalry gravitates to price competition. Product is perishable; the shelf life of most garments end with the next trend.

BARRIERS TO ENTRY
Low + Larger, more established retailers have more purchasing power with clothing manufacturers. + Brand loyalty created by store credit schemes. Capital requirements are low enough for individuals to enter (although obviously on a small scale). The informal market presents a way for individuals to enter without many additional set-up costs (excluding capital).

BARGAINING POWER OF SUPPLIERS

Moderate+ Suppliers are numerous. High tariff attached to imported textiles.

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