Lojas Riachuelo, the Brazilian apparel-focused department store chain, is putting a brave face on the country’s economic slump with plans to double its store count to 340 by 2017, according to chief executive officer Flavio Rocha.
The São Paulo-based firm, the retail arm of textile group Guararapes, also forecast group profits will grow 15 to 20 percent annually during the period and sales by 10 to 15 percent. Same-store revenues should increase roughly 20 percent a year as the firm reshuffles and opens new concept shops, Rocha told WWD.
To bankroll the plan, Riachuelo may borrow at least $800 million from Brazilian development bank BNDES, which has helped fund as much as 50 percent of an aggressive expansion that has enabled it to install 170 shops around Brazil.
Rocha said BNDES’ loan rates are 2 percent lower than retail banks’ — a differentiator that has helped Riachuelo make big investments to build a nimble supply chain that enables it to replenish its stores within 10 days, much faster than competitors.
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“Our weapon is speed,” said Rocha. “We are prepared to compete with any foreign brand that comes to Brazil.”
Because international brands have to cope with high import duties and red tape, re-stocking can often take them as long as six to eight months. Even for Inditex, owner of Zara, the process can take three to six months, Rocha noted.
According to Rocha, Riachuelo will open 40 to 50 units a year to spread its wings in highly coveted Southeast Brazil, home to Rio de Janerio and São Paulo, where same-store sales surged 15 percent in 2013 compared to a 7 to 8 percent average gain for the entire domestic market.
“We want to grow all over the country but especially in Rio and São Paulo where our competitors have many stores,” Rocha said. “Right now we have 1.5 percent of the Brazilian market and we are a leader but there is no reason why we can’t have 10 percent in the long-term.”
Underscoring its high interest in São Paulo, Riachuelo in November opened its first flagship on swanky Rua Oscar Freire. The 10,620-square-foot concept shop has a new and more fashion-forward logo and higher-end decor.
“This is a more fashionable and iconic store and it has been a great success,” Rocha said. “We want to replicate this concept in our future stores.”
The three-story building’s facade boasts a giant LED panel and TV screen. It stocks teenage girls’ fashion on the first floor, followed by men’s and women’s apparel on the second. The third floor has beachwear, activewear and lingerie. The shop features a bar and an events balcony. Unlike the bulk of Riachuelo’s outlets, which measure about 26,500 square feet, it is devoted to apparel and bereft of a homewear section.
In 2014, Riachuelo will open 45 doors, 30 of which will be new concept buildings emulating the Oscar Freire format.
Next up is a 26,500-square-foot, six-floor store set to open in São Paulo’s Avenida Paulista. In October, a 15,900-square-foot shop in Rio de Janeiro’s Visconde de Pirajå high street in Ipanema will also be inaugurated, Rocha said. In 2015 or 2016, Riachuelo will open its fourth flagship in Belo Horizonte.
Most of the remaining 15 stores will be of the larger category. But Riachuelo will also roll out eight shops for its fledgling Riachuelo Women label to take its count to 12. By 2015, Rocha envisaged the brand will take up 12 to 15 percent of the retailer’s floor space.
Rocha was unshaken by the recent arrival of Forever 21 in Brazil, which analysts say could dent Riachuelo’s sales. He said the retailer’s stocking speeds and broader range of clothing (including 15 private label brands) to fit all lifestyles will keep it ahead of Forever 21 and other global and local trademarks growing in Brazil. Rocha added Riachuelo will continue to launch capsule collections with top designers and celebrities. He would not detail future collaborations, however.
“We were first to do these partnerships 20 years ago, even before H&M,” Rocha said. “We have done them with many designers [most recently with high-end brand Osklen] and celebrities and will continue to do them. They work very well.”
Rocha said prices for Riachuelo’s merchandise —which mainly targets Brazil’s growing set of middle-class consumers — are below direct competitors’ because of its integrated supply chain, sourced through Guararapes’ factories, which churned out 35 million pieces for the division last year.
Rocha said the firm sells 35,000 styles a year, adding that “not even Zara can do that.” Operating margins hover around 12 percent.
Rocha was also unconcerned about Brazil’s slowing economy, which is expected to expand 2 percent in 2014, its slowest pace after a long boom.
“We are not afraid of the economic slump,” he said. “There is still huge space to grow in Brazil. Roughly half of the textiles and apparel market is informal, but this is changing fast as the market becomes more professionalized” and Brazilian brands up the ante on innovation.
Hence Riachuelo, listed on the Brazilian bourse, expects group profits to grow 15 to 20 percent a year by 2017 from 420 million reals, or $189 million at current exchange, in 2013 when they rose 15 percent. Sales should also increase 10 to 15 percent from a 16 percent hike to 5.3 billion reals, or $2.39 billion, last year. In 2013, earnings before interest, taxes, depreciation and amortization grew 14 percent to 746.5 million reals, or $336.3 million.
Starting in 2015, Riachuelo will focus more strongly on installing shops in midsize Brazilian cities with less than 200,000 people.
“Many of these cities are expected to get their first shopping mall soon,” Rocha said, adding that Riachuelo hopes to open on those locations as well as in a spate of future malls scheduled to launch in Southeast and Southern Brazil. Cariacica, Dourados, Cabo de San Agustin and Mossoro are some of the cities the firm is scouting.