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Brazilian Retail NewsYear 11 - Issue # 412 - So Paulo, November, 7th, 2011

Phone: (5511) 3405-6666

Brazilian retail news 111/07/2011

French retailer Leroy Merlin, Brazils leading DIYchain, has opened its 23rd store in Brazil, the 5th

in Rio de Janeiro state. Located in Jacarepagu

district, the 16,000 sq.m. shop is the fourth with

environmental certication AQUA in the country.

Leroy Merlin opens green store in Rio de Janeiro

Pague Menos to do IPO in 2012

Herbalife Q3 sales soars in Brazil

Luxury brands invade Brazils capital city

Car sales go all-time high

Northeastern drugstore chain Pague Menos,

until recently Brazils largest in its segment, expects

to do its IPO after April next year, as today the

nancial environment is not positive enough to

allow the company to open its capital. Pague Menos

has been preparing its IPO for ve years and led

recently its request in Brazils CVM, the stock

market ruler. Today, the chain runs 465 stores in

Brazil, planning to end the year with 480.

US direct sales Herbalife reported its net sales soared 50.3%, considering constant exchange rates,

in Q3 over the same period last year, leading year-to-date sales to rise by 51.9%. Worldwide sales rose

30% in net terms, while net prots jumped 42.7%, to US$ 108 million. Expansion in Brazil was due to the

high level of engagement of distributors and to the promotion of a healthy nutrition and active lifestyle.

After So Paulo, global luxury brands now bet on capital city of Brasilia to grow. The city, second

highest GDP per capita of all Brazilian capital cities, is the center of expansion of companies as Tiffany

& Co, who opened there its 3rd store in Brazil (the other two are in So Paulo). Burberry and Emporio

Armani are also in the city with their only private owned shops in Brazil. Gucci and Christian Louboutin

are also heading to the city, in a move driven by the opening, last year, of luxury mall Iguatemi, an easy

entry route for brands already installed in Iguatemi So Paulo shopping center.

Brazilian car market has reached 2.96 millionunits sold from January to October this year, 5.64%more than last year. In October alone, 280,608

were sold, a 7.44% year-on-year drop, according todata released by National Car Dealers Federation

(Fenabrave). The October fall was due to the fall ofimported car sales, as IPI tax rate was risen.

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Brazilian Retail NewsYear 11 - Issue # 412 - So Paulo, November, 7th, 2011

Phone: (5511) 3405-6666

Brazilian retail news 211/07/2011

The textile enigma

Marcos Gouva de Souza (mgsouza@gsmd.com.br), CEO, GS&MD Gouva de Souza

Momentum

Recently, the closing of textile, apparel and fashion industries in So Paulo was announced, in a moment the segmenthas been expanding fast and is likely to grow above the Brazilian retail segment this year.

The segment has been facing in the last years an enigma that has not been solved yet, due to the inability to reach astrategically-oriented and more mature dialog.

The common enemy is the already high, but still growing, volume of imports, specially from China, but also from otherAsian countries, whose exports to Brazil have risen since barriers to Chinese goods were raised. The global reality, drivenby lower economic and retail sales growth, specially in the most developed countries, has been an ongoing search foralternatives to offer more for less to consumers, directing global retailers toward a higher volume of purchases from Asianmarkets, specially China and India, who developed competences and abilities to serve this demand.

Both countries offer increasingly good products, at lower and lower prices, but have not yet developed brand and distribution,what will be the next most structural threat to the segment in a global scale. And it is only a matter of time for it to happen.

In Brazil, there is a convergence of many trends that reshape a new and irreversible reality, with the largest playersconsolidating market share, anchored in credit to emerging consumers and with the clear strategy of developing privatelabels. In the top apparel retailers (Riachuelo, Renner, Marisa, Pernambucanas and C&A), exclusive or private labels alreadyaccount for almost 100% of garment sales.

And the midsize retailers looking to grow shall use, sooner or later, the private label alternative, specially for imported goods.And one must also watch what Riachuelo has made, becoming a global benchmark in vertical integration, producing wire,textile, apparel, operating stores and running nancial services, all coordinated and under a single control.

A relevant factor in this changing process the segment lives in Brazil is the increasing consolidation and the lowering

informality, that seem to walk side by side reshaping the market. He top ve apparel retailers account for only 20% of themarket, one of the lowest consolidation levels in the Brazilian retail. Midsize companies account for 30% and small, independentones are 50%. And is simple to forecast in the next years the share of the top ve retailers and the midsize players will goup. And who will pay the bill will be the group that accounts for half the market share, largely due to its inability to developitself in a more formal and more competitive market.

For Brazilian retailers is pivotal to maintain a living and active industry, as the fashion cycle does not allow one to rely ona long distance supply chain, as the market mood changes fast and retailers need local supply alternatives.

But from the perception of the strategic importance of a feasible domestic textile industry and a structured program is along way, acknowledged in the speeches, but not practiced daily. In the Brazilian reality there are a few, and underprepared,industries able to compete with prices and quality of products offered by Asian suppliers, except for some groups who havebeen investing constantly in productivity, efciency, brand and, more recently, have surrended to the importance of creatingprivate-owned or exclusive channels to vertically and virtuously integrate the value chain.

Relevant examples of this new scenario are groups as Hering, Marisol, Malwee, Coteminas, Brandili, Dudalina and others,who noticed there is no other option for survival, but this virtuous integration.

The basic model starts with a few corporation-owned shops, working as laboratories to test the concept; and a fastexpansion, usually by franchising, much more structured and in much different basis when compared to the past, when thisstrategy was used in an amateur way and damaged many brands and businesses, in the process generating signicantproblems to nave franchisees who believed in miracles.

There is no magic option to solve the enigma of the Brazilian textile sector, considering textile producers, industries andretailers: or they get together searching for a structured, mature, long-term oriented way, leaving behind small issues, oreveryone will lose.

As simple as this.

Brazilian Retail News (BRN) is a weekly newsletter published by GS&MD - Gouva de Souza with the most important news

on the Brazilian retailing. The content can be freely used, once the source is quoted. If you want any information on BRN or ourservices, please send an email to publicacoes@gsmd.com.br or access GS&MD - Gouva de Souza at www.gsmd.com.br.

Gouva de Souza & MD Desenvolvimento Empresarial Ltda.

Av. Paulista, 171 - 10 oorParaso So Paulo Brazil Zip Code: 01311-904Phone: (5511) 3405-6666 Fax: (5511) 3263-0066