Custo Brasil takes it toll on textiles

Outside the mansion that houses the headquarters of the Brazilian Textile Industry Association (Abit) in the upscale Higienópolis neighbourhood of São Paulo, there is an electronic sign with a large set of rapidly spinning numbers. The “Importameter”, as they call it, is registering the growing number of dollars and jobs lost to Brazil as more clothing companies move their operations offshore and more foreign clothing is brought in.

Now home to one of one of the world’s most appetising, and fastest-growing, consumer markets, Brazil has become a difficult place to produce in. The economic boom of the last decade has made staying in the country more expensive for textile groups compared with places like China, leading Abit to turn on all of its pressure points to get the government to step in and slow the bleed.

“We’re going for an international offensive, international defensive tactics, local defence and local improvements in things such as infrastructure and the tax code,” says Fernando Pimentel, Abit director.

Brazil has a long tradition of textile and clothing production, and is still the world’s fifth-largest textile producer. But over the past few years the Brazilian currency has appreciated sharply, making the country even more expensive than it already was due to the so-called custo Brasil, the cost one must pay to deal with woefully lacking infrastructure, Byzantine bureaucracy and high taxes. Industry representatives also say countries such as China cut corners on the currency, environmental and labour standards that Brazil can’t compete with. And there is the fact that the high-quality workmanship upscale fashion houses demand is tough to come by in Brazil, even at high prices.

“There are plenty of countries, mostly in Europe and Asia, with expertise in specific products that are cheaper than Brazil,” says Mariana Gatti, brand manager for Pedro Lourenço, one of Brazil’s most internationally respected designers, who shows in São Paulo and New York.

Lourenço’s clothing is produced at an atelier in São Paulo, or through local partners. Though they have thought about going abroad, because as Gatti says – “producing here is expensive,” – but two things keep them here: the ability to conduct strict quality control oversight, and the fact that the big Asian factories tend to require a large minimum order.

Havaianas, the iconic flip-flop brand, still makes all its products in Brazil. But for many of Brazil’s larger outfits, the decision has been made. For big stores such as Renner or C&A, as well as Inbrands, the retail group that controls some of the biggest names at São Paulo Fashion Week and many others, much of their production is now done abroad. That’s been the direction the big-money players have been moving in, though a relative weakening in Brazil’s currency, the real, recently and a flurry of government activity may stop the outward flow.

The goal for Abit is to make production conditions favourable for a wider set of less specialised and demanding fashion houses, and allow local brands’ prices to come down enough to compete on the international market. Plans announced by the government to improve infrastructure are a start, Pimentel says. They are also leaning on the government to create a more favourable tariff regime, a weapon Brazil has long relied on to protect local industries.

“There is a lot of tax reform which needs to be reviewed, we need to be more competitive, and the brands need to become more expressive,” says fashion business consultant Haslauer da Costa. “The reality around the world is that we have a formidable player in China we have to compete with.”

The most high-profile display abroad of Brazilian brands recently was the installation this year at Macy’s in New York, which put funky brand Neon (pronounced Ney-owng) on sale. But to make the prices palatable to Americans, says Antonio Haslauer da Costa, who brokered the deal, production had to be moved to China. However, he believes that for the high-end brands which are used to strutting their stuff on Brazil’s catwalks, there won’t be any major movement to China in the near future – the fashion houses simply don’t have the scale required.

For foreign brands, one incentive of producing in Brazil, despite the costs, is that it allows them to evade high import duties, but they too must operate on a big scale to make it worthwhile. Zara has succeeded in lowering its prices by moving about 35-40 per cent of production onshore. However, for Topshop, which hopes to emulate Zara’s success and is finalising plans to open another store in Brazil, 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.

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