The fashion franchising market in brazil

The Fashion Franchising Market in BRAZIL

Speaker:

Haroldo MonteiroPlanning & 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 GrowthFat. 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= ComparativeEvolution 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.


Investment opportunity vs. current economic scenario1993 – 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?

Investment opportunity vs. current economic scenarioA half-full or half-empty glass?

Half-empty glass

Whoa! Half Empty. Definitely Half empty!Listen to what youare saying! Alwaysa 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

Feb/09 Aug/09 Feb/10 Aug/10 Feb/11 Aug/11 Feb/12 Aug/12 Feb/13 Aug/13 Feb/14 Aug/1495

100

105

110

115

120

125

Índice Nacional de Expectativa do Consumidor (INEC)

By Felipe Rangel

National Consumer Expectations Index (INEC)

Source: Serasa Experian

Economic Indicators

Feb/09 Aug/09 Feb/10 Aug/10 Feb/11 Aug/11 Feb/12 Aug/12 Feb/13 Aug/13 Feb/14 Aug/140.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0Tendência - Tomada de Crédito Pessoa Física

By Felipe Rangel

Trend- New Personal Loan Volume

Source: Serasa Experian

Economic Indicators

Feb/09 Aug/09 Feb/10 Aug/10 Feb/11 Aug/11 Feb/12 Aug/12 Feb/13 Aug/13 Feb/14 Aug/140.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Tendência - Inadimplência do Consumidor

By Felipe RangelBy Felipe Rangel

Trend- Consumer Delinquency

Investment opportunity vs. current economic scenarioBut….

½ Air½ WaterTechnically,The glass isalways 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:

A B C D e E0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Gasto com vestuário - Por classe

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 :

A B C D e E

15.1

54.9 56.2

11.8

Expenditures on clothing – By social class (R$billions)

Valor (em Bilhões)


Valor (em bilhões)= Amount (in billions)


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)

SudestesB 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


Região= RegionClasse= ClassR$ (bilhões)= R$ billionsSudestes= SoutheastNordeste= NortheastCentro-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.


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


Índice de Varejo de Vestuário= Apparel Retailing IndexTurquia= TurkeyMéxico= MexicoMalásia= MalaysiaRússia= RussiaArábia Saudita= Saudi ArabiaBrasil= BrazilEmirados 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.



Source: ABF

The Fashion Franchise Market in Numbers12.14% 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 CentersNo. de Franquias= No. of Franchises

Brazil closed out 2013 with 459 in operationSource : IBOPE


Number of shopping centers in operation by year

Source: Cadastro de Shopping 2014:


Shoppings em operação= Shopping Centers in operationCrescimento % 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= RegionNo. de Shoppings (2014 a 2017)= No. of Shopping Centers (2014-2017)Norte= NorthNordeste= NortheastCentro-Oeste= Central WestSudeste= SoutheastSul= SouthBrasil= Brazil

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

Source: Alshop

Região= RegionNo. dos shoppings= No. of shopping centers% por região= % by regionCapitais= Capital citiesInterior= Other citiesTotal Geral= Grand TotalNo. de shoppings novos em construção= No. of new shopping centers under construction;

Source: Alshop


Shoppings em construção por região= Shopping centers underconstruction by regionQt de shopping= Quantity of shopping centersSUL= SouthSUDESTE= SoutheastCENTRO-OESTE= Central WestNORDESTE= NortheastNORTE= 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%.


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


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


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.


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.


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


http://www.fashionbubbles.com/

www.fashionbubbles.com


http://www.fashionbubbles.com/

TADAO - Men’s HandbagLouis Vuitton


Who said men don’t like handbags?

Young Urban Males - YUMMIESAccording 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.


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 arrived7Camice – 12 Franchises 2013


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


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


Some who are arrivingScotch & 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

The challenges in operating a fashion franchiseTraffic 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

The challenges in operating a fashion franchiseTraffic Stores vs. Delivery Stores

Common points

Team: Constant training!• Manager Captivating the customer Having a customer portfolio Managing the team

• Saleswoman: Knowing the product to be sold


Traffic Stores vs. Delivery Stores

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 StoriesInstagram 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.

The challenges in operating a fashion franchiseSuccess 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!


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.

ResultsRelations with customers become stronger with the familiarity created with the product and ease of purchase.


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

The challenges in operating a fashion franchiseFashion 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”

The challenges in operating a fashion franchiseFashion 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 [email protected]

Phone:+55-21-997344863

mailto:[email protected]