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 scenario
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.
Investment opportunity vs. current economic scenario
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;
Investment opportunity vs. current economic scenario
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
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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
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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
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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.
Investment opportunity vs. current economic scenario
Euphoria gives way to planning
Greater chance of success
Investment opportunity vs. current economic scenario
Slower growth makes for more favorable negotiations with shopping centers
Investment opportunity vs. current economic scenario
• 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
Investment opportunity vs. current economic scenario
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
Investment opportunity vs. current economic scenario
“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”;
Investment opportunity vs. current economic scenario
“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;
Investment opportunity vs. current economic scenario
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
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$billions)
Valor (em Bilhões)
What is the size of the Retail Apparel Industry in Brazil?
What is the size of the Retail Apparel Industry in Brazil?
Spending potential by region
The South Region is the one with the highest expected spending per capita, R$ 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)
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
What is the size of the Retail Apparel Industry in Brazil?
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.
What is the size of the Retail Apparel Industry in 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
What is the size of the Retail Apparel Industry in Brazil?
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.
What is the size of the Retail Apparel Industry in Brazil?
Source: ABF
The Fashion Franchise Market in Numbers12.14% Growth (2013/2012); 15.52% CAGR (2013/2001)
Source: ABF
The Fashion Franchise Market in Numbers
13.91% Growth (2013/2012); 11.15% CAGR (2013/2001): Number of Chains
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.
Source: Alshop
Franchise Market Growth vs. Shopping Center Growth
Growth in the Number of Franchises vs. Shopping Centers
Brazil closed out 2013 with 459 in operationSource : 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 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
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
Franchise movement away from capital cities- “Shopping Centers are the driving force of this growth”
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
Franchise movement away from capital cities- “Shopping Centers are the driving force of this growth”
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%.
The new fashion consumer – What is changing in this 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
The new fashion consumer – What is changing in this 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
The new fashion consumer – What is changing in this 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.
The new fashion consumer – What is changing in this 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.
The new fashion consumer – What is changing in this 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
The new fashion consumer – What is changing in this market?
www.fashionbubbles.com
The new fashion consumer – What is changing in this market?
TADAO - Men’s HandbagLouis Vuitton
The new fashion consumer – What is changing in this market?
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.
The new fashion consumer – What is changing in this 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 arrived7Camice – 12 Franchises 2013
Foreigners also want to franchise fashion in Brazil!!!!!!
Some who have already arrived - 2013DESIGUAL – Proposal to open 50 stores (own stores and franchises)
Foreigners also want to franchise fashion in Brazil!!!!!!
Some who are arrivingScotch & Soda – 60 countries – 8,000 points of sale
Foreigners also want to franchise fashion in Brazil!!!!!!
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;
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.
The challenges in operating a fashion franchise
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.
The challenges in operating a fashion franchise
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.
The challenges in operating a fashion franchise
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
The challenges in operating a fashion franchise
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.
The challenges in operating a fashion franchise
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!
The challenges in operating a fashion franchiseSuccess 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.
ResultsRelations with customers become stronger with the familiarity created with the product and ease of purchase.
The challenges in operating a fashion franchiseSuccess 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
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.