Market Analysis for Textile and Apparel in Brazil

Over the last three years, there was a new outbreak of growth of the imports and stagnation of

the Brazilian exports of textile products and apparel. In 2012, imports of textile and apparel were

estimated to be $6.4 billion and major sourcing countries are India, Indonesia, Argentina, the

United States, and China. Imports of textiles and apparels by Brazil grew by 25.4 % year-on-

year in value and 17.3 % year-on-year in volume, amounting to 104,800 tons in April 2013. In

the clothing sub-sector, the imports increased by 51.1 % year-on-year in value and 45.5 % year-

on-year in volume during the month. From January to April 2013, Brazil’s textile and clothing

imports totaled US$ 2.4 billion, showing an increase of 9% year-on-year.

Clothing sector imports grew at a faster pace of 12.7 % year-on-year to US$ 957 million. The

Brazilian textile and apparel industry, which is among the top five in the world is reeling under

the impact of two challenges, large-scale of imports and high costs of production (labour &

energy). These have created a cascading effect in the form of closures or factories relocating to

low cost countries. The cost of textile and apparel production is particularly high. It is important

to note that the industry’s output is exported and export numbers have decreased from $74

million in 2006 to $39 million in 2011.

With a fast developing market, Brazil holds a prominent position, in the retail apparel index.

Country Region RankChina Asia 1UAE Mena 2

Kuwait Mena 3Russia Eastern Europe 4

Saudi Arabia Mena 5

India Asia 6Brazil Latin Amerca 7

Turkey Mena 8Vietnam Asia 9

Chile Latin America 10Source: Euromonitor, A.T. Kearney Research

The Brazilian clothing industry is growing by 7% annually. The estimated expenditure of

Brazilian families on textiles and clothing in 2012 was approximately US $102 billion, which

represents 3.7 % of total consumption expenditure on households.

Source: Euromonitor, A.T. Kearney Research

Furthermore, the market benefited from the growing disposable income, which enabled

consumers to seek sophisticated value-added products. As a result, large apparel specialist

retailers have invested in partnerships with renowned fashion designers and marketing

campaigns endorsed by celebrities in order to associate their products with the latest fashion

trends and good quality. This strategy was also adopted to distinguish from low- and mid-end

brands, mainly imported from China. According to key players met, premium and luxury

apparel players have also been luring the market, targeting upper middle-class and wealthier

consumers in the high end malls.

Cities strong on Fashion Consumption in Brazil

Approximately 42.2 million people of the Brazilian population are classified in segments A and

B, (an income of above USD 2.800 a month). Most of these people live in the major cities,

mainly São Paulo, Rio de Janeiro, Brasília and Curitiba.

These areas should therefore be the target market of companies wishing to enter the Brazilian

market, with core focus on São Paulo and Rio de Janeiro. In addition, upper-price and luxury

goods are primarily sold in upscale shopping centres in Brazil.

The best known upscale shopping centres in São Paulo are Cidade Jardim, Daslu Mall and

Shopping Iguatemi. Furthermore, a survey has shown that when it comes to the buying patterns

of the Brazilian high-end consumer, customers spend on average USD 1,700 on every visit to

shopping mall Cidade Jardim; an amount equivalent to more than three times the minimum wage

in Brazil.

Consumer Trends

Several trends across Brazil are driving the growth of apparel retail:

Trends in the Brazil apparel retail market

Growing Middle Class-Brazil middle class went from 38% of the the population in 2003 to be 51% in 2009 . It is projected to be over 60% by 2014.-Around 57% of apparel consumers fall under the social category of A and B while 31% belongs to the group C-Consumers between 30-40 years old spend most on apparel

Rising Fashion Awareness-Growing sales of sophisticated value added products

-Brazilians are extremely fashion-conscious, displaying a typical shopping trait swayed by clothing lines endorsed by local celebrities-Brazilians, especially women, like to pay attention to fashion trends by reading fashion magazines and watching trendy television programmes.

Rapid modern retail increase -The prevalence of Shopping centers everywhere in Brazil accentuates demand

Increasing access to credit -A key growth driver has been easier access to consumer credit -In Brazil , retailer offer payments in installments with "no interests" as a means of making purchases more affordable

Consumer Behaviour

Due to the fact that the A and B population segments are increasing in Brazil, the market for

luxury goods is also expanding rapidly and is becoming a strong source of profits. As Brazilians

are experiencing more stability, prosperity and general changes in social classes, they are now

capable of buying products that were previously too expensive, which is partly why the demand

for trendy and sophisticated high-end fashion is increasing.

A. Where are they Shopping?

According to the Global Lifestyle Monitor, consumers prefer to shop for apparel at different

retail channels, particularly with respect to department, specialty, and chain stores. In Brazil,

53% consumers prefer to buy most of their clothes at chain stores.

Source:Global Lifestyle Monitor Survey, 2012

B. What are they buying?

When the consumers were asked what apparel they had purchased in the past three months, the

top two responses were cotton-centric items — T-shirts (78%) and Jeans (75%). This preference

for casual dress reflects the young demographics of Brazil, where over 60% of the population are

under the age of 35, compared to 47% of the U.S. population. Beyond the popular pairing of

jeans with T-shirts, Brazilians consumers also view cotton as a comfortable and fashionable

wardrobe component — 80% identified cotton as the fiber best suited for today’s fashions and

84% preferred cotton for the clothing they wore the most.

C. Purchasing Patterns

According to the “Global Lifestyle Monitor Survey, 2012” 94% of the Brazilian consumers said

that price was one of the main characteristics which they took into consideration before

purchasing clothing. Brazilians want the best quality clothing for their money, as 70% said they

tend to shop for clothing on sale. Significantly, women are much more likely to be impulsive

buyers than men (40% versus 24%), and younger consumers (ages 15–34) are more impulsive

when buying clothes than older consumers (ages 35–55), 37% versus 27%.

Over the past several years, consumers checking labels for fibre content has increased to 73% in

2012, up from 56% in 2008. This change in purchasing behavior could suggest that having more

disposable income is encouraging consumers to seek out better-quality clothing. The majority of

consumers (61%) think better-quality clothes are made from 100% natural fibers, and cotton and

cotton-rich clothing is the preferred choice, with nearly 9 out of 10 consumers (88%) preferring

that their clothes be made of cotton and cotton blend.

Purchase Drivers – Top Factors that influence Brazilian consumers’ clothing purchases

Source: Global Lifestyle Monitor, 2012

Shifting Shoppers

Chain stores, such as C&A, Renner, Riachuelo, and Marisa, continue to rank at the top of the list

of places where consumers purchase most of their clothing (53% in 2012, up from 34% in 2001).

Additionally, more than one-fifth of Brazilians shop at independent stores, with older consumers

being more likely than their younger counterparts to shop at these retailers (25% versus 18%).

Brazilians say they prefer to shop at chain and independent retailers because of the selection of

clothing, bargains and low prices.

Import Duties

It is evident that there are numerous possibilities for Mauritian companies to enter the Brazilian

upscale fashion industry due to the above macroeconomic and demographic factors.

Barriers to entry:

The main barrier to entry for Mauritian companies to enter Brazil is the import duty of 35%

on all kind of textiles and apparels.

Brazil has a state tax (STT) which is levied at a rate of 18% of the duty paid value in most

of the states, e.g. in São Paulo. The rates, however, may vary for specific products and

usually amount between 7% and 25%.

In addition, Brazil has a national tax (NAT) which is levied at a rate of 5% of the duty paid

value. However, the tax varies from product to product and ranges from 0% to 20%.

Furthermore, the tax of contribution to funding of social security (COF) is levied at a rate of

7.6% of the duty paid value; and

The tax of contribution to social integration programmes is levied at a rate of 1.65% of the

duty paid value.

Landing Costs of Selected Mauritian Textile and Apparel Products

The following tax structure applies for the textile and apparel sector. For the sake of analysis we

can estimate that CIF will be around 30% of the FoB price.

The table below gives the various tax structure applied to textile products.

Price CIF Customs Duties PIS (Contribution to the Social Integration

Program Tax)

COFINS (Contribution to the Financing of Social

Security Tax)

ICMS (Merchandise

Tax)30% 35% 2% 9% 18%

Based on the various interviews carried out with potential importers about the various costs

involved in importing textile and apparels, we have been able to calculate the landing costs and

the retail selling price of selected products as given in the table below:

Product HS Code Fob Price

Price CIF

(+20%)

Customs Duties

PIS (Contribution to the Social Integration

Program Tax)

COFINS (Contribution to the Financing of Social Security

Tax)

ICMS (Merchandise Tax)

Profit and

Operating costs 50%

Selling Price

30% 35% 2% 9% 18% 50% R$

USD USD USD USD USD USD R$

Shirts 620520 15 20 26 27 29 34 51 113

T-Shirts 610910 4.74 6 8 8 9 11 16 36

Denim Trousers 15

20 26 27 29 34 51 113

Shorts 610462 5.8 8 10 10 11 13 20 44

Ladies top 620630 7.52 10 13 13 15 17 26 57

Polo Shirt 610910 6.58 9 12 12 13 15 23 50

Suits (Men/Women)

620,319,620,312,620,

000,000,000 150

195 263 268 291 343 514 1,131

Lingerie 610,821,621,210,610,

000 9.27

12 16 17 18 21 32 70

Swimwear

62111210

13 18 18 19 23 34 75

Cardigans 611,030,611,019

15 20 26 27 29 34 51 113

Kidswear 620920 4 5 7 7 8 9 14 30

Tapping the kidswear market

The Brazilian Institute of Geography and Statistics (IBGE) reports that around five babies are

born per minute in Brazil. Taking into consideration this Brazilian market research, a middle-

class family spends approximately US$3,000 for baby clothing alone for the first year of the

child's life. In Brazil, the market for maternity, babies and children's products and services is

developing rapidly. Hence, Brazilian suppliers are aware of this opportunity and they want to

grasp and take hold of this niche market. They are now increasingly focused on launching

specialized stores, offering innovative products and brands to sell exclusively in Brazil.

In 2012, imports of kidswear amounted to USD 17.6 million, predominately from China, India,

Bangladesh and Paraguay. China is the leading market for kidswear with a share of 77.2% in Brazil

Babies imports. Brazil’s import of kidswear from China has increased over the 2008-2012 period by 33%.

With around 9.7% share of Brazil’s total imports, India is the second most important market for Brazil’s

imports of kidswear after China.

Table showing the landing costs and selling price of Mauritian Kidswear.

Product HS Code Fob Price

Price CIF

(+20%)

Customs Duties

PIS (Contribution to the Social Integration

Program Tax)

COFINS (Contribution to the Financing of Social Security

Tax)

ICMS (Merchandise Tax)

Profit and

Operating costs 50%

Selling Price

30% 35% 2% 9% 18% 50% R$

USD USD USD USD USD USD

Kidswear 620920 4 5 7 7 8 9 14 30

Mauritian kidswear selling at R$ 30 will definitely be competitive among the middle to up

market stores.

Knitwear

The South concentrates the largest number of companies that manufacture knitwear in the country. The

region’s states are responsible for 50.2% of total knitwear production in Brazil and there is huge

investment in automation and technology, subsequently Brazilian knitwear is very competitive. Apart

from normal retail channels there are a very large number of people in the informal economy selling

knitted garments into smaller retail stores at very low prices In addition major local designers brands such

as Doiselles sells though high end Boutiques throughout Brazil at prices around R$400. Renner woollen

garments retail for R$19-R$100+ We have identified 3 importers of woollen garments: Kraus, Malise

Malhas and St Clare.

Table showing the landing costs and selling price of Mauritian Cardigan.

Product HS Code Fob Price

Price CIF

(+20%)

Customs Duties

PIS (Contribution to the Social Integration

Program Tax)

COFINS (Contribution to the Financing of Social Security

Tax)

ICMS (Merchandise Tax)

Profit and

Operating costs 50%

Selling Price

30% 35% 2% 9% 18% 50% R$

USD USD USD USD USD USD R$

Cardigans 611,030,611,019

15 20 26 27 29 34 51 113

Mauritian cardigans selling at R$ 113 will be competitive among the mid and up-market retails stores.

Women’s Blouses

Marisa shows a huge selection of ladies tops (700) ranging from R$9 to R$60 spanning beachwear,

daywear and evening wear in dozens of styles and fabrics. The highest priced item is R$69 which defines

the C category to a large extent. The largest single categories are manga curta – shortsleeved and regatta

(beachwear) Apart from own label products C and A also sells specially commissioned designs from

outside designers such as Adrianna Barra with prices ranging from R$80-R$260. C and A utilises several

outside designers in this way. Renner Jackets and Tops in various materials range from R$80-R$260.

Women’s Skirts / Dresses

Marisa prices for Women’s skirts vary from R$13 the cheapest to R$80 the most expensive, in a huge

variety of styles, fabrics, colours and jeans from Sawaray in a variety of styles all around R$100 Renner

skirts in a variety of materials range from R$30-R$180 designs – mostly lightweight, By contrast C and A

prices range from R$40-$299. Marisa also commissions.

Menswear

The menswear market includes men’s activewear, casualwear, essentials, formalwear, suits and trousers,

formalwear-occasion and outerwear. The market is valued at retail prices. All currency conversions were

carried out using constant average 2010 exchange rates.

The Brazilian menswear market is expected to generate total revenues of $15.1 billion in 2011, representing a

compound annual growth rate (CAGR) of 7.3% between 2007 and 2011.

Sales through Clothing, Footwear, Sportswear and Accessories Retailers accounted for 66.1% of the market

while sales through Department Stores accounted for 21.7%.

The performance of the market is forecast to decelerate, with an anticipated CAGR of 6.9% for the five-year

period 2011 - 2016, which is expected to drive the market to a value of $21.1 billion by the end of 2016.

Jeans

Mauritian Jeans were found to be of good quality and the price is competitive. For example, a denim

trouser costing Fob USD 15 will easily be competitive among in Ellus stores since its retail selling price

of similar jeans is USD 100.