Brazil’s textile and apparel industry could grow 5 percent annually to $75 billion by 2016 if the government introduces a string of measures to slash production costs and tackle soaring Chinese imports, said Fernando Pimentel, superintendent director of Brazil’s leading textiles lobby ABIT.
“We are already seeing some action and we hope the government will implement these policies in the short to medium term,” Pimentel said. “Our industry employs 8 million people and has $50 billion in assets. We are very competitive and have very strong brands, but we can’t grow against China’s low prices much longer.”
Pimentel said the state is working “hard” to push through a series of policies to sharply cut labor and energy costs that are denting the industry’s fortunes at a time when Chinese garments are flooding into the country. In the first quarter, Chinese imports leapt 35 percent and are poised to rise much higher in coming months, Pimentel noted. China accounts for more than 70 percent of all clothing imports to Brazil, Latin America’s largest economy.
A strong real, Brazil’s currency, has ushered in a big import industry, with deep-pocketed Brazilian companies courting Chinese sellers. The ballooning imports have caused alarm, as the industry braces for slower growth in 2011. According to Pimentel, revenues are forecast to rise 3 percent to $60 billion, down from a 5.5 percent hike in 2010. Falling consumption underpinned by a slowing economy is to blame, he said, adding that domestic sales are expected to rise 6 percent from 11 percent last year, when gross domestic product increased 7.5 percent. This year, GDP is set to expand 3 to 4 percent.
As the economy slows and a high real makes Asian goods more appealing, the local industry is scrambling to find ways to bolster its competitiveness. A two-prong scheme has been launched, Pimentel said, adding he hopes “extremely high” production costs will fall sharply as a result.
Churning out more than $50 billion worth of fabrics and garments a year, Brazil’s textile and apparel industry survives mainly from local sales, as just 5 percent of production goes to export. For this reason, ABIT has asked the government to cut energy and labor taxes 35 percent and 20 percent, respectively, to enable local apparel producers to spend more in restructuring initiatives to gain scale against foreign rivals.
Investment in garment innovation and fashion has never been more crucial, as Brazilian players struggle to gain market share against a plethora of European, American and Asian brands courting the country’s booming middle-class consumers. Pimentel said logistic and infrastructure costs account for 12 percent of Brazilian GDP compared to 8 percent for the U.S. Apart from its lower-tax plea, ABIT is also asking the government and private sector to crank up investment in technical and trade schools to strengthen the labor force and spur new fashion designers.
Regarding China, Pimentel said Brazil has already introduced several antidumping measures to protect the domestic industry, but that further action is needed to curb the country’s growing imports.
Exports, meanwhile, are forecast to rise modestly to $1.5 billion in 2011. However, Pimentel said the industry plans to elevate them to $7 billion in five years. To do this, it is working to raise sales to Latin America and enter new markets in the Middle East and Asia. It also hopes U.S. exports will rise 15 percent in five years, up from $238 million last year. Brazil sells mostly home textiles to the U.S., but Pimentel hopes these will be diversified in coming years.
To increase regional sales, Brazil is negotiating more favorable trade agreements with its South American neighbors, including top importer Argentina, as well as Paraguay and Uruguay, which are members of the Mercosur trade bloc. There are also initiatives to boost exports to Mexico and the European Union, with which Brazil is negotiating a free trade agreement.
According to Pimentel, the industry’s investment will also rise 10 to 15 percent to $7.5 billion in five years as local producers move to cut costs, bolster innovation and broaden their product mix to include more fashionable garments. There is also a growing trend to develop sustainable and eco-friendly garments, for which companies are devoting 10 percent of their investment budget, putting Brazil at the head of Latin America in this regard.
Marcelo Prado, general manager of the Institute of Industrial Studies and Marketing, expects the industry will grow at a healthy rate in coming years, but said Pimentel’s predictions are too optimistic.
“It’s going to be very difficult to stop China’s imports, as we don’t have enough tools to do this and our exchange rate will probably stay strong for some time,” he said. “I also don’t think the government is going to lower taxes that easily, at least not in the medium term.”
Brazilian apparel producers must streamline their franchises to survive China’s competitive might, Prado said. Crucially, they must expand their retail operations to gain market share against Chinese and other international brands flooding the Brazilian market. Several well-known labels, such as Hering, Marisol and Valisere, are already doing this, creating their own fast-fashion chains, and smaller firms could benefit from this strategy, he added.
However, Prado noted that these firms “must improve customer service and marketing strategies” to battle strong European chains such as Spain’s Inditex, which has rolled out its flagship Zara chain to great success, as well as C&A and H&M, which is expected to arrive imminently in Brazil.
Winning the fast-fashion game is key to seducing middle class consumers seeking more aspirational and fashionable apparel. This demographic, comprising some 130 million Brazilians, represents a huge opportunity for clothiers, as they account for 70 percent of apparel purchases in Brazil.
“These people are making more money and they are looking for fast fashion and more exciting ranges in T-shirts, jeans, trousers and sportswear to be recognized and fit in with the higher-end classes,” said Prado, adding that these shoppers spend 600 to 700 reals in apparel a year, twice as much as in the Nineties.
He said this thriving consumer segment has helped the sportswear, denim and underwear sectors deliver stellar sales in recent years, spawning a handful of large and successful brands, including Ellus, Clock House and Sawary in jeans, and Demillus and Duloren in lingerie. Olympikus, Mormaii and Fatal have also made a name in sportswear.