The fashion franchising market in brazil

The Fashion Franchising Market in
BRAZIL
Speaker:
Haroldo Monteiro
Planning & Management

The Fashion Franchising Market in BRAZIL
• Franchising- investment opportunity vs. current economic conditions;
• What is the size of the Retail Apparel Industry in Brazil;
• The fashion franchising market in numbers;
• What is the potential for apparel franchising?;
• Brand movement away from capital cities: opportunities for
franchisers and franchisees;
• Shopping centers as the driving force for fashion franchise growth;
• Foreigners also want to franchise fashion in Brazil!!!!!
• Challenges in fashion franchise operation;
• The new fashion consumer – What’s changing in this market?
• What does the market expect with the arrival of major international
apparel store chains to Brazil ?
• Why are franchises in the Fashion Business market so attractive?

Investment opportunity vs. current economic scenario
PIB Nacional= Brazil GDP Growth
Fat. Franquias= Franchise Sales Growth

The Fashion Franchise Market in Numbers
Once again growing faster than the GDP
• In the first three months of the year, the franchise industry billed
10% more than in the same period of 2013, spurred by areas such
as services and its micro-franchises of building maintenance and
cleaning, in addition to hotels and apparel.
• Using an analysis by brand: 82% reported higher sales, 3% no
change and 15% decreased volume. In terms of number of outlets,
3,890 new stores began operations during the period, representing
3.4% rate of opening vs. 1% closure of points of sale
Quarterly Survey of Performance

Legenda Slide 5
Comparativo da evolução do Setor de Franchising no Brasil= Comparative
Evolution in the Brazilian Franchising Industry;
Variação= Variation;
Faturamento= Sales Billings;
No. de franquiadas= No. of franchisees;
No. de franquias= No. of franchises;

More and more, retail apparel chains use this growth strategy, which has
been supported by financial institutions with loans to franchisees, thus
creating a virtuous cycle.

1993 – Company stops manufacturing and enters the retail segment
2007 – Company makes a new public stock offering
2009- Its shares begin to appreciate in value

Franquia - oportunidade de investimento x
momento da economia
Copo meio cheio ou copo meio vazio?
A half-full or half-empty glass?

Half-empty glass
 Whoa! Half
Empty. Definitely
Half empty!
Listen to what you
are saying! Always
a pessimist!
The current Brazilian economic scene has a risk factor which
must be analyzed carefully by anyone going into the world of
franchising.

Some factors have been affecting this growth !
• Measures to stimulate consumption did not achieve the desired
effects;
• Consumers are still very much in debt ;
• And delinquent payments have stabilized at high levels, thus
bringing about an economic decline.
• Large investors “have put their feet on the brakes”.
• The government “artificially holds back inflation” , making the
market mistrustful;

Fonte: Serasa Experian
Economic Indicators
95
100
105
110
115
120
125
Feb/09 Aug/09 Feb/10 Aug/10 Feb/11 Aug/11 Feb/12 Aug/12 Feb/13 Aug/13 Feb/14 Aug/14
Índice Nacional de Expectativa do Consumidor (INEC)
By Felipe Rangel
National Consumer Expectations Index (INEC)

Source: Serasa Experian
Economic Indicators
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Tendência - Tomada de Crédito Pessoa Física
By Felipe Rangel
Trend- New Personal Loan Volume

Source: Serasa Experian
Economic Indicators
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
Tendência - Inadimplência do Consumidor
By Felipe Rangel
Trend- Consumer Delinquency

But….
½ Air
½ Water
Technically,
The glass is
always full

A sentence often heard during the peak of our economy’s boom
– “It’s time to invest in your own business”, some investors think,
“─ We’ve never had conditions like these to invest”, some other
say.
Sentence often heard by those who like to take advantage of
opportunities in times of economic uncertainty
– It’s time to invest in your own business”, some investors think,
“─ We’ve never had conditions like these to invest”, some other
say.

Euphoria gives way to planning
Greater chance of success

Slower growth makes for more favorable negotiations with shopping
centers

• A survey made by IBOPE Inteligência reveals that the average
vacancy rate in the 36 projects inaugurated in 2013 was 50%,
meaning that, out of every two stores, one was closed for lack of a
tenant.
• Among shopping centers inaugurated starting in September, the
average occupation rate in 21 of them was 38%.
Source: IBOPE

News published on 8/14/2014 at 6:08PM
• High lease costs makes number of bankruptcies increase in the
Campinas retail trade.
• According to Acic, 430 business closed their doors in the first 6
months of the year.
• New store openings were 20% lower than in the same period of last
year.
• High commercial lease values contributed to the closings. "Many
entrepreneurs cannot open new businesses due to high lease
values, in addition to other difficulties. – Director of the Chamber of
Campinas Store Owners (CDL), Fernando Piffer
• IN 2014, 1,254 companies started doing business vs. 1,556 in the
first half of last year, a drop of 20%. In addition to lease costs, lack
of planning and investment requirements in excess of tolerable
levels also contributed to the demise of companies.
Source: g1-Globo.com

“GOOD NEWS FOR FRANCHISERS AND FRANCHISEES”
• Better commercial location opportunities are appearing;
• Shopping centers are offering locations with lower lease costs;
• They are offering locations with better key money terms;
• Sometimes commercials locations are offered at no additional
“cost”;

“GOOD NEWS FOR FRANCHISERS AND FRANCHISEES”
”
• Better conditions for franchisees to open stores;
• Lower or even waiver of franchise fees may occur;
• Better inventory financing conditions;
• Better conditions for franchisers to negotiate commercial locations
for their franchises;

What is the size of the Retail Apparel Industry in Brazil
?

What is the size of the Retail Apparel Industry in
Brazil?
This year, every Brazilian is expected to spend, on average, R$ 810.84
on clothing, with total expenditures of R$ 138 billion, distributed
among the different social classes as shown in the graph below:
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
A B C D e E
Source: IBOPE

Gastos com Vestuário- Por classe= Expenditures on clothing-
By social class

This year, every Brazilian is expected to spend, on average, R$ 810.84
on clothing, with total expenditures of R$ 138 billion, distributed
among the different social classes as shown in the graph below :
15.1
54.9 56.2
11.8
A B C D e E
Valor (em Bilhões)
Brazil?

Valor (em bilhões)= Amount (in billions)

Brazil?
Spending potential by region
The South Region is the one with the highest expected spending per
capita, R$ 941.67, followed by the Central West Region, with R$
917.49, and the Southeast Region, with R$ 863.49. Residents of the
North Region are expected to spend R$ 695.98 per capita and in the
Northeast, R$ 632.11.

Região Classe R$ (bilhões)
Sudestes
B 29,1
C 26,9
Classes with the lowest spending potential by region:
Classes with the highest spending potential by region:
Região Classe R$ (bilhões)
Nordeste A,B,C,D e E 8,7
Centro-Oeste D e E 0,849
Brazil?

Região= Region
Classe= Class
R$ (bilhões)= R$ billions
Sudestes= Southeast
Nordeste= Northeast
Centro-Oeste= Central West

DISTRIBUTION STATISTICS
• Apparel items are distributed through 140,700 outlets spread all
over Brazil;
• 48,000 are located in shopping centers.
• Independent stores represent 38% of sales in Brazil,
• Department stores specializing in fashion products represent 30%
of the sales.
• The 15 largest retailers in this market account for 16% of industry
sales.
Brazil?
Source IBOPE

Fashion Markets in Numbers Seen by Foreigners
Brazil is the fifth most attractive country in terms of apparel
retailing
A study made by consulting company A.T. Kearney considers Brazil as
one of the best opportunities for investment among emerging
economies
Brazil?

Índice de Varejo de Vestuário= Apparel Retailing Index
Turquia= Turkey
México= Mexico
Malásia= Malaysia
Rússia= Russia
Arábia Saudita= Saudi Arabia
Brasil= Brazil
Emirados Árabes Unidos= United Arab Emirates

Fashion Markets in Numbers Seen by Foreigners
• The growth of the middle class, greater perception of fashion and
an expanding shopping center market helped Brazil to rise from
seventh to fifth place on the A.T. Kearney Apparel Retailing Index.
• The country is the largest apparel market in South America, with
US$42 billion in sales, three times that of Mexico, ninth on the
ranking, with US$ 14 billion. Pietro Gandolfi, director at A.T.
Kearney, points out that domestic and foreign companies should
continue to invest in Brazil over the next two or three years. “All
players, who are not currently directly present in the country, are
looking this way”, he said.
Brazil?

Source: ABF
12.14% Growth (2013/2012); 15.52% CAGR (2013/2001)

Faturamento-2001 a 2013= Sales
Billings-2001-2013

Source: ABF
13.91% Growth (2013/2012); 11.15% CAGR (2013/2001): Number of Chains

17.40% Growth (2013/2012)

Unidades: Próprias + Franqueadas 2001 a 2013=
Outlets: Owned +Franchised 2001-2013

What is the potential for apparel franchising?

What is the potential for apparel franchising?
• Changes in the population’s consumption patterns – “Fashion is in
fashion”
• The speed and democratization of information have made lower social
classes desire fashion products
• The change in perception of fashion by men
• Increase in the number of shopping centers, which have made leisure and
shopping venues the same
• International fashion companies have discovered Brazil as an option to
franchise their brands
• The need for domestic brands to gain “muscles” have given investors more
options to invest in this segment of fashion/franchising
• Product exclusivity makes it possible for “boutique” franchisers to
continue growing their business and be able to compete with department
stores.

Shopping Centers as the driving force for
franchise growth

Source: Alshop
Franchise Market Growth vs. Shopping Center Growth
Growth in the Number of Franchises vs. Shopping Centers

No. de Shoppings= No. of Shopping Centers
No. de Franquias= No. of Franchises

Brazil closed out 2013 with 459 in operation
Source : IBOPE
Shopping Centers as the driving force for franchise
growth

Number of shopping centers in operation by year
Source: Cadastro de Shopping 2014:
Shopping Centers as the driving force for franchise
growth

Shoppings em operação= Shopping Centers in operation
Crescimento % em quantidade de shoppings= percentage growth in the
number of shopping centers

Brand movement away from capital cities-
opportunities for franchisees and franchisers
This growth is more and more associated with the market movement
away from the capital cities, and is growing stronger away from the
large cities.
Today, the franchising brands are synonymous with these new
shopping areas, centers or strip malls, as the percentage share of the
mix in these new ventures, of franchises is between 60% and 70%. This
“change of address” is taking place due to lease costs, which are lower
in small cities.
Source: Franquia & Global Opportunities Magazine

There are two main factors which are leading new ventures away from
the large cities, according to IBOPE Inteligência’s geo-business
coordinator, Fabio Caldas. “The first is the lack of space in the large
cities as shopping centers require a plot of at least 10,000 square
meters. The second aspect is, that when these spaces do exist, the
price of land is so high that it kills projects.”
Brand movement away from capital cities-
opportunities for franchisees and franchisers

• The shopping centers opened in 2013 -> Focus on municipalities with
up to 500,000 inhabitants.
• A study by the Shopping Atlas, an IBOPE Inteligência tool, shows
that, of the 36 ventures opened last year, 42% are in cities with up to
500,000 inhabitants.
• For 2014, the forecast is for 73% of new openings to occur in cities of
this size.
Franchise movement away from capital cities-
“Shopping Centers are the driving force of this
growth” – in numbers

Source: Cadastro de Shopping 2014
Projects currently under development or being
constructed

Região= Region
No. de Shoppings (2014 a 2017)= No. of Shopping Centers (2014-2017)
Norte= North
Nordeste= Northeast
Centro-Oeste= Central West
Sudeste= Southeast
Sul= South
Brasil= Brazil

Franchise movement away from capital cities- “Shopping
Centers are the driving force of this growth”
Source: Alshop

Região= Region
No. dos shoppings= No. of shopping centers
% por região= % by region
Capitais= Capital cities
Interior= Other cities
Total Geral= Grand Total
No. de shoppings novos em construção= No. of new shopping
centers under construction;

Source: Alshop

Shoppings em construção por região= Shopping centers under
construction by region
Qt de shopping= Quantity of shopping centers
SUL= South
SUDESTE= Southeast
CENTRO-OESTE= Central West
NORDESTE= Northeast
NORTE= North

According to a survey by the Brazilian Franchise Association (ABF),
made with its associates:
• Franchising is present in 38% of Brazilian municipalities,
• There are franchise operations in 2,092 Brazilian cities.
• Most chains focus on municipalities between 50,000 and 100,000
inhabitants

Brazil is becoming a fashion country – Consumers are more detail-oriented.
Brands have started to develop strategies to create a shopping
experience
• Brazilian brands invest more in visual merchandising;
• Design stores are becoming more important;
• Concept stores gain more space – flagships;
The new fashion consumer – What is changing in this
market?

• A Data Popular Institute survey indicates that Class C (lower middle
class) spending on fashion products has grown 153.2% over the last
decade, net of inflation;
• 52.1% of the Class C interviewees consider it important “to be in
fashion”, basically the same as those in Classes A and B, where the
percentage is 56%.
market?

Why fashion is the next great attraction for Venture Capital Funds
• A trillion dollar business, fashion is already ready to attract venture
capitalists who want to take advantage of the opportunity to earn
high returns
• Just like for traditional venture capital companies, if you are smart
enough to see the enormous potential in fashion, you will start
looking for your next new hires, not at Stanford, but in the fashion
industry.
• Jay Deng is an angel and venture capitalist based in New York. He is
also founder and CEO of Diva for Less.
Accessibility – “The great wager”
More and more, people want to look great for less
market?

Big Data
One of the most worrisome problems retailers continue to face is
knowing what to buy and stock on their shelves
Personal Stylist On Line
market?

Retail / E-commerce /Apparel
Only 10% of clothing is bought on-line and there is a good reason for
this: how it fits.
PhiSix Moda Labs, which was created using a technology which
creates 3D models from photos of clothing. Now on-line buyers can
see exactly how something will fit no matter what the item is.
market?

Men’s fashion
Nowadays, being a metrosexual is no longer looked down upon. Men
have a strong desire to dress well and we are starting to see new
ventures like Frank & Oak go after this growing segment of the fashion
market.
market?

Men finally are discovering that liking fashion and dressing well have
nothing to do with their sexuality; in other words, they won’t be any
less manly if they use colored pants! On the contrary, precisely because
they are sure of themselves that they can be daring and dress
something they really like. They can also be open to try new ideas
without fear, increasing their “communication vocabulary” through
fashion. www.fashionbubbles.com
market?

www.fashionbubbles.com
market?

TADAO - Men’s Handbag
Louis Vuitton
market?
Who said men don’t like handbags?

Young Urban Males - YUMMIES
According to the HSBC report, this is a new generational and social
trend. Men are getting married later, which means that money which
used to be spent on supporting a family, can now be invested in luxury
items.
Yummies are young people who have started to earn money earlier in
life and look for status before wanting to start a family. They follow
fashion trends and change style very quickly.
market?

In addition to the arrival of major chains with their own stores, some
brands have arrived or are arriving, to open their own franchises.
As we can see, foreigners also see opportunities in this segment in
Brazil
Foreigners also want to franchise fashion in Brazil!!!!!!

Some who have already arrived
7Camice – 12 Franchises 2013

Some who have already arrived - 2013
DESIGUAL – Proposal to open 50 stores (own stores and franchises)

Some who are arriving
Scotch & Soda – 60 countries – 8,000 points of sale

Some who are arriving
Scotch & Soda

What does the market expect with the arrival of large
international apparel chains to Brazil ?
• Reduced prices of apparel items;
• Purchasing experience;
• Sensation of wearing clothing which follows international trends;
• Opportunity to buy foreign-brand clothing more frequently;
• Creation of a culture of greater brand value perception – domestic
retailers need to create and innovate to add value to their products;

The challenges in operating a fashion franchise

For a fashion franchise, having capital is not the most critical item
Risks
Deception with the business the franchisee only perceives much
later that there was no identification with the franchise/product/brand.
Consequences
Sales force motivation is greatly affected
Customer service quality deteriorates
Almost always this franchisee’s performance will not be the best and thus
financial return will be affected.

Success Stories
• We have seen examples where a simple change of franchisee or
even franchisers assuming franchises on a temporary basis, led to a
significant increase in sales.
• All other conditions were maintained: the same teams of sales
personnel, the same locations, no store remodeling, and the same
mix of merchandise.
• After these changes we always made surveys with consumers and
store supervisors, to understand the reasons for success, and the
answers are always the same- service quality, sales force
motivation, leadership. In other words, this motivational
“contagion” was what caused each store’s success.

There are two types of stores:
Traffic Stores & Delivery Stores
Traffic Stores: In places where there is a great traffic of consumers
passing in front of the store.
• Shopping centers with a good traffic of people
• In areas of shopping centers where anchor brand stores are located.
Delivery Stores: These are located mostly in:
• New shopping centers or ones not having good traffic.
• In less favorable locations or expansions in more mature shopping
centers.

Highlights in a Traffic Store
Visual Merchandising
• Store Window: Consumer entry point {to enter or not to enter?}
Merchandise displayed well
Setup standardized by corporate organization
Models in good shape
• Illumination: Product ambiance and visualization
• Music
Standardized by corporate organization
Proper volume to allow for easy conversation
• Clothing items well pressed: an additional detail
•Store aroma: Standardized by corporate organization
Traffic Stores vs. Delivery Stores

Highlights in a Delivery Store
Transforming physical stores into distribution points
Looking for new markets:
•Hiring external sales personnel
• Partnerships with large companies
Social Media: Facebook and Instagram as tools of dynamic sales
• Publicizing new products
• Increase in the number of people who know the store
• Sales through social media channels

Common points
Team: Constant training!
• Manager
Captivating the customer
Having a customer portfolio
Managing the team
• Saleswoman: Knowing the product to be sold

A new franchise suffering from construction delays in the shopping center and who
had already bought merchandise, launched a collection using Instagram and began
sales and delivery through the social media.
Success Stories
Instagram leverages sales of a franchise which had not opened yet

Franchises in “Green Field” Shopping Centers
Franchise located in new shopping center far from the city’s major
traffic flow was looking for a source of revenue from external sales.
Action
Extra hiring of an external sales person with a personal customer
portfolio.
Currently the external sales person corresponds to 20% of the
stores sales, on average!
The store owner hired a second sales person to increase sales.
Success Stories
Instagram leverages sales of a franchise which had not opened yet

External sales is an excellent tool
Convenience for the customer:
• Service at home by appointment,
• Customer has the products available to choose, analyze and try out,
• Private atmosphere,
• Specialized attention from a private sales person.
• In these times of fast fashion, pampering and satisfying customer
whims are successful!
Success Stories

Franchise partners with large companies
Franchise in a large city chose to focus on its relationship with large
companies and win over their employees.
Through partnerships this franchise offers the following in companies:
• Special discounts,
• Collection introduction receptions with fashion shows,
• bazaars.
Results
Relations with customers become stronger with the familiarity created
with the product and ease of purchase.
Success Stories

The fashion franchisee’s dilemma: “The Tostines Dilemma”
“Tostines sells more because it’s fresh or it’s fresh because it sells more”?
A fashion franchise is a store which sells clothing and should be managed as such
Therefore:
• Every franchisee must analyze product sales data (by group)
• Purchases must follow this statistic and not the franchisee’s feeling
• Bet on the groups with the most sales
• Purchase deeper varieties in the highest-selling groups
• What sells best in Rio de Janeiro does not necessarily sell the most in São Paulo
Fashion franchise inventory management

Remember:
•Assortment planning is essential to the success of an apparel
store/franchise;
•If you don’t buy you don’t sell
• Sell off excess inventory – “Don’t love your inventory, prefer
liquidity”
Fashion franchise inventory management

Why is franchising in the Fashion Business market so
attractive?
• The fashion market, is a dream!
• It stuns because of its “glamour”;
• It gives status to owners of this type of franchise;
• Mainly among women it arouses the desire to be a part of
the world of fashion business.
• For men, it creates the opportunity to give dream presents
to the women of their lives;
• All these factors give fashion franchises a special sales
appeal for franchisers.

Contact Information
THANK YOU!
Haroldo Monteiro
haroldomonteiro@planningconsultoria.com.br
Phone:+55-21-997344863

The fashion franchising market in brazil

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