Low-priced fashion retailer Forever 21 Inc. opened its first store in Brazil this past weekend, causing a stir among the country’s price-sensitive shoppers who lined up for seven hours to buy $4 tank tops

In Brazil, the Long Wait for Fast Fashion

LORETTA CHAO

Updated March 17, 2014 7:52 p.m. ET

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Hundreds of shoppers waited to enter Brazil’s first Forever 21 store. Loretta Choa/The Wall Street Journal

SÃO PAULO, Brazil—Low-priced fashion retailer Forever 21 Inc. opened its first store in Brazil this past weekend, causing a stir among the country’s price-sensitive shoppers who lined up for seven hours to buy $4 tank tops and other trendy items priced far below competitors.

Shoppers flocked to Morumbi, one of São Paulo’s largest shopping malls, where the store opened to lines reaching more than 5,000 people on Saturday. Many were attracted by the prices, because fashion items often cost upward of 50% over the retail prices of comparable items in the U.S.

Prices for most of the clothing in the store were marked up from those offered in the U.S., but still below comparable items from other retailers in Brazil. Nathalia Rezende, a 19-year-old dentistry student, bought a black party dress for 89 reais ($38) that costs $25 at Forever 21 in the U.S. “A dress like this would have cost at least 150 reais ($64) at any other store,” she said.

Price Check

Comparing prices in the U.S. versus Brazil for select items. These are website prices as of March 17.

Items U.S. price Brazil price
Mizuno New Prophecy 3 $210 $426
Mac lipstick $16 $28
Unlocked iPhone 5S (16 GB) $650 $1,190

“The value we give our consumers in the United States is reflected in all of our markets. Our consumer knows us for our great value and we want to stay true to the brand,” said Forever 21 spokeswoman Kristen Strickler. The company, which operates 615 stores world-wide, plans to open seven stores in Brazil this year, including in Rio de Janeiro, Brasília and Porto Alegre.

Analysts say pricing will be key to whether Forever 21 thrives in Brazil’s $54 billion apparel market. Consumption has been a main driver for Brazil’s economy over the past decade as millions of people moved out of poverty and into the middle class.

But while more than half the country is now considered to be “middle class,” by local standards that means a minimum annual household income of just $8,900. As a result, it is customary in Brazil for consumers to make purchases of everything from clothing to appliances in installments.

Keeping prices low has been a challenge for most retailers because operating costs in Brazil are high. Apparel vendors in Brazil pay an estimated 35% in taxes on their products, compared with about 8% in the U.S., according to Alexis Frick, a São Paulo-based analyst for market researcher Euromonitor International. Retailers that ship their products in from abroad pay as much as a 35% in addition to those taxes in import taxes.

On Saturday, the price for a basic tank top at the Forever 21 in São Paulo was the same as the product’s listed price in the U.S., before sales tax. A spokeswoman said Forever 21 currently buys its merchandise from suppliers around the world and is looking into sourcing locally in Brazil as well, but doesn’t do so yet.

“It’s going to be hard to maintain these prices in Brazil. I would be very surprised if they are able to maintain them,” Mr. Frick said, adding that other fashion brands that have entered Brazil struggled to follow a similar model. “It could be something they are trying to do to bring more attention to the brand now, to win some market share.”

Brands including Sephora and Gap GPS +0.29% previously opened to long lines in São Paulo, Brazil’s largest city and commercial center, but security officers at Morumbi said they’d never seen anything like the queues for Forever 21 this past weekend, which started forming at 6 a.m. on Saturday and snaked around the lower level of the mall, where one of the two-level store’s entrances is located. Long lines formed again on Sunday.

“I think this store’s arrival is going to change other shops’ behavior. It’s going to correct the prices in Brazil, not just for Brazilian brands but for Zara and Top Shop,” said Mara Modesto, a 26-year-old English teacher who traveled one hour to São Paulo from neighboring city Santo André to shop at the store on Sunday. “They have to do something to change.” She said she has traveled to the U.S. before and knows that Brazilian consumers are charged a steep premium.

The retailer’s entry into Brazil comes as growth in Latin America’s largest economy has wavered, slowing to 2.3% last year after reaching 7.5% growth in 2010. Economists expect just 1.7% growth in 2014. Forever 21 also is far behind companies such as Dutch retailer C&A, which is a subsidiary of Switzerland-based Cofra Holding AG, and Inditex SAITX.MC +1.67% ‘s Zara, which entered Brazil more than 15 years ago.

Euromonitor expects Brazil’s apparel market to grow 21% over the next five years to $64 billion, making Brazil an important market for multinational retailers even if days of fast-paced growth are gone.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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