SAO PAULO — The pin has dropped.
Brazil’s textile and apparel industry is expected to shrink by another 10 percent this year to roughly $49.5 billion, representing a 15 percent decline since 2013 as a stinging recession strangles clothing sales, which are set to fall 5.5 percent in 2015.
“We are losing production and retailers are selling less than last year,” Fernando Pimentel, president of main textiles lobby Abit, said. “It’s going to get worse before it gets better.”
Exports are down 3 percent in 2015, despite the dollar’s recent doubling in value against the real, technically making Brazilian goods more competitive, Pimentel added. That said, he forecast foreign sales will gradually recover to gain 5 percent in 2016 from $1.3 billion last year.
“Exports are starting to grow, especially for yarns and fabrics yet not for clothes because these are taking more time to introduce in the global markets,” Pimentel said on the sidelines of Sao Paulo Fashion Week’s 40th edition, which closed Friday. “Sectors like denim, knits and home textiles are also looking for international expansion.”
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Pimentel hopes the sector will stabilize in 2016 when Brazilian Gross Domestic Product is expected to fall 1 percent versus an almost 3 percent decline this year. Those forecasts could be lowered, however, if the economic and corruption crisis engulfing President Dilma Rousseff worsens amid growing calls for her impeachment.
“Anything can happen or nothing could happen at all,” Pimentel said, referring to the embattled president, who has failed to shore up Latin America’s largest economy and tame inflation, up 10 percent this year alone in the country’s largest city, Sao Paulo. “Next year, the best we can hope for is stabilization, no growth but no decline.”
Jobs should also stabilize after 100,000 workers were laid off throughout the apparel industry this year, leaving the count at 1.6 million, said Abit officials.
Abit is putting the final touches on a 2015 to 2030 industry growth strategy to be ready early in the New Year, according to Pimentel. Under the scheme, it hopes to lift exports to gradually reach $7 billion and trim the commercial deficit in textiles, which now stands at $6 billion, by reducing imports.
Investment should also increase to $5 billion a year from $3 billion to $4 billion currently, notably to help modernize the manufacturing industry to make more innovative apparel. Pimentel hopes Brazil will soon emerge from its doldrums, drawing enough foreign investment that, coupled with growing profits and development bank BNDES loans, should provide the financing needed to streamline the sector.
Growing exports to the U.S. is another goal, especially via Colombia and Haiti, by negotiating new accumulation rules to enable Brazilians to sell fabrics for those two nations to use to make apparel that is then exported to the U.S., Pimentel said. Brazil will play a bigger role in helping the Mercosur trading block that also includes Argentina, Uruguay and Paraguay reach a free trade accord with the European Union, while it works to broaden trade with Peru and Mexico. Brazil is working to come up with a strategy to participate in the Trans-Pacific Partnership as well, Pimentel said.
Meanwhile, Brazilian clothing retailers, scrambling to boost discounts as consumer confidence dips to its lowest level in 10 years, will suffer this year as profit margins fall by more than 50 percent, said Flavio Rocha, president of leading clothing department-store chain Riachuelo. With rising taxes and energy prices, partly driven by a Sao Paulo state water crisis, retailers’ bottom lines will likely decline sharply.
“This will be our first sales contraction in 13 years,” Rocha said at a show marking the launch of Lethicia for Riachualo to make the high-end designer’s clothes accessible to the masses.
To survive the crisis, which has put many banks and businesses on strike, retailers are boosting marketing spending and promotions, with Riachuelo planning to earmark 500 million reals, or $127.6 million at current exchange, for its business this year, up from 400 million reals last year, Rocha said.
Grupo Nohda, which runs the Patricia Bonaldi, PatBo, Apartamento 03 and Lucas Magalhaes designer brands, is raising local sourcing to account for 50 percent of production, compared with 30 percent before, said Luis Morais, who owns the fledgling group with wife and Brazilian designer Patricia Bonaldi. There are also plans to cut its 250 person workforce by 10 percent and launch some discounts.
Nohda plans to open a showroom for PatBo, an edgier and more affordable offshoot of the Patricia Bonaldi line of highly embroidered and bejeweled dresses, in Sao Paulo’s ritzy Jardins quarter next month, another shop to house the Nohda brands in the founders’ mining hometown of Belo Horizonte and eventually flagships for all the brands.
Farther down the road, Nohda intends to roll out PatBo in New York, Dubai, the U.K., Italy (where prospects are particularly promising) and Spain where it already sells Patricia Bonaldi in department stores.
Morais conceded the recession will hit Nohda, saying same-store turnover will likely be flat this year and possibly next though on an aggregated basis (counting the new stores), they will likely rise 5 percent to 10 percent.
“Everything is contracting,” he said, agreeing that local apparel sales, estimated at around 180 billion reals, or $46.2 billion annually, could fall 5 percent in 2015. “The economy is not doing very well and people are afraid to buy. I don’t see the sadness about the economy getting better any time soon,” he said.
Sao Paulo Fashion Week, which celebrated 20 years in its latest winter edition, is also feeling the pinch, with sponsorship investment for the edition that closed Oct. 23 coming in flat at 30 million reals, or $7.7 million.
“We were expecting a 30 percent increase [matching similar gains in recent years] through new sponsors but that didn’t happen,” SPFW’s director Graca Cabral said, though she noted the event was still expected to draw 80,000 to 100,000 visitors to Sao Paulo’s Ibirapuera Park’s Bienal convention center. “Companies are afraid of spending in the crisis. We have to face that.”
Cabral said SPFW has helped nurture Brazilian designers, including 40 to 50 up-and-coming labels. That said – and despite years of government efforts to promote designers in global fashion weeks — Brazil is still far from building a fashion group along the lines of LVMH Moet Hennessy Louis Vuitton.
“How long has France been doing this for?” asked SPFW’s creative director Paulo Borges during a journalists’ lunch at Iguatemi mall, just as Cartier was set to open its largest, 3,100-square foot store in Brazil in a new luxury wing. “Brazil is a young country and our industry is only 20 years old.”
Borges said the state must build a stronger and credible fashion development policy, adding that many former presidents, including Rousseff, have failed to meet repeated pledges to do this. Taxes, ranging 40 percent above Latin American countries, must also fall sharply, both for local production and imports, he said, adding that high imported fabric costs prevent local fashion brands from selling at competitive prices.
SPFW hosted more than 30 runway shows, with Apartamento 03, Osklen, Vitorino Campos and Lolita topping the list of buyers’ favorites.
“I wanted to do something to celebrate transgender fashion, something that both men and women could wear,” the 40-year-old designer of Apartamento 03, Luiz Claudio, said of his brightly colored dresses festooned with Swarovski and Brazilian crystals. Caitlin Jenner’s recent Vanity Fair cover and Victoria Woolf’s “Orlando” were inspirations for the line that drew praise at the Bienal.
Then there was Osklen, whose winter collection, called “Classic Golden Spirits” paid homage to Greek athletes and gods and was timed for Brazil’s 2016 Olympics. The collection was inspired by “everything that was there before the Olympics, like the Greeks and then the 1920s when sports fashion and styles began,” said Osklen’s founding designer Oskar Metsavaht.