Sunday, September 30, 2012
Friday, September 28, 2012
Thursday, September 27, 2012
Wednesday, September 26, 2012
Tuesday, September 25, 2012
Friday, September 21, 2012
On the banks of the Paraná river next to the Brazilian border sits the Monalisa, one of Paraguay’s most-loved tourist attractions. The six-storey, air-conditioned shopping mall in Ciudad del Este attracts thousands of Brazilians every year, desperate to buy everything from Lacoste polo shirts to Chanel perfume and vintage Taittinger champagne.
“You’ve got three hours guys – no more,” shouts a Brazilian tour guide as his passengers push their way off the bus and head for the entrance, looking furtively at some nearby policemen who have just tried to extract a bribe from the driver.
It is not difficult to understand why the free-trade zone in the relatively lawless border region has become a mecca for Brazilian shoppers. In spite of boasting one of the world’s fastest-growing consumer markets, Latin America’s biggest economy still lacks many of the popular US and European brands available in other emerging markets. And those that are in Brazil are often prohibitively expensive.
About 12 hours’ drive from the Monalisa is São Paulo’s Oscar Freire Street, Brazil’s answer to Fifth Avenue, where even coffee shops have security guards. Here, a pair of jeans that costs $100 in New York goes for as much as R$1,000 ($495). Even a small polyester handbag from Accessorize, for which you would be charged only £8 in London, is priced at R$78 (£24).
For high street or “fast fashion” brands, this means being forced to compete in an alien luxury market, and for high-end labels it can mean being so expensive that they risk losing their customers altogether.
It is a conundrum that has turned what promises to be a retailer’s paradise into one of the industry’s most challenging markets, troubling the likes of Sweden’s Hennes & Mauritz and other high street retailers that are still looking to enter Brazil.
Topshop is a case in point. More than two years ago Sir Philip Green, the British billionaire behind the Arcadia group that owns Topshop, promised to open stores in Brazil to help offset slowing growth in the UK. And despite Brazil’s falling rate of gross domestic product growth – it has slumped from 7.5 per cent in 2010 to below 2 per cent this year – retail sales are still rising at more than 10 per cent year-on-year thanks largely to record-low unemployment.
Yet when Topshop, together with Topman, finally opened its first Brazilian store in June, it was in the country’s most upmarket shopping centre, JK Iguatemi in São Paulo. The giant marble and glass building, which is full of orchids and even has sensors to direct drivers to vacant parking spaces, is also home to Prada and Dolce & Gabbana. “Location is everything in retail,” says Alexandre Dominguez, Topshop’s country manager, who insists the Brazilian store is identical to those in the UK.
Inside, however, well-dressed customers peruse the rails as a cleaner meticulously polishes the sunglasses on sale – a world away from the frenzy of shoppers in Topshop’s flagship Oxford Street store in London.
The shop’s personal shopping service, where customers are offered fashion advice and sometimes a glass of champagne in a special room, is also particularly popular. “It’s because of the nature of the shopping centre we’re in, but Brazilians on a whole also love to be spoiled and to be attended personally,” says Mr Dominguez.
The store’s elevated prices, although not as high as some other imported brands, also explain why Topshop attracts a wealthier customer in Brazil than it does in other markets.
The reason often given for this divergence is simple: huge import taxes. In an attempt to protect struggling domestic manufacturers, Brazil’s government has imposed levies of up to 35 per cent on everything from potatoes to cars.
“It’s not just import taxes either – you have four other taxes on top of that: a tax on industrial products, on the circulation of goods, Cofins [a social security tax], and Pis [workers’ benefits tax],” says Otto Nogami, professor of economics at the Insper business school. “I did the calculation for make-up and beauty products, for example, and the total tax burden works out at 133.47 per cent of the customs value.”
Economists also put foreign retailers’ high prices down to poor economies of scale, given the relatively small size of the Brazilian market, and higher operational costs as a result of the country’s byzantine bureaucracy and poor infrastructure. Brazil’s high interest rates offer yet another explanation.
Brazilians typically buy everything from underwear to televisions on credit, using in-store financing to pay in as many as 60 monthly instalments. The result, though, is that retailers often embed expensive interest rates of up to 6 per cent a month in the final price of their products, says Nelson Beltrame, a professor at the Fipecafi institute.
But this is not the whole story, he explains. A principal reason why foreign companies charge so much is because consumers expect them to. “Price equals quality here, so if you come in with a very low price consumers will just think your product is of poor quality,” says Mr Beltrame.
This view is particularly ingrained in Brazil, where the economy remains relatively closed and cut off to foreign trade, says Walter Molano, head of research at BCP Securities.
However, brands such as Spain’s Zara, which has lowered its prices by moving about 35-40 per cent of production onshore, have remained popular by combining high-profile locations with relatively low prices. After 13 years in the country, Zara has stores in most of São Paulo’s leading shopping malls.
Topshop, which is finalising plans to open another store in Brazil, hopes for similar success. But moving production onshore will only be worth it once the company has established a much larger customer base – a vicious circle few retailers have been able to crack.
The other option for retailers is to give customers the luxuriously high prices they expect. However, if a product is overly expensive Brazilians will simply wait to buy it abroad – be it in Paraguay or, as is increasingly the case, Miami. Travel agents across the country offer six-day shopping trips to Florida, promising activities such as “discovering the marvels of the air-conditioned stores”, as one puts it.
“As soon as the consumer sees the prices outside the country, he’ll realise how expensive it is in Brazil,” says Mr Beltrame. “The company gains a customer and an