Group 5: Melissa Soto, Zhang Yaou, Edward Kamdem, Li Xzangwen, Guru B Krishnan, Manuel Sanabria EXECUTIVE SUMMARY The company chosen is Forever 21, which is an American chain of clothing retailers with branches in major cities in the world that offers trendy clothing and accessories for young women, men, and teen girls at low prices. Since its creation these company has been constantly growing. It began with just one store and now it has more than 500 stores in several countries. However, there is still a lot of countries where the brand is unknown so there is still a great potential for expansion of the brand.
One of those countries is Brazil, which is one of the top economies in the world in terms of GDP and it has a growing economical rate higher than Europe. Furthermore, in the recent years the Brazilians are more informed and want to be part of the recent trends of the world. So, Brazil is a very attractive market where Forever 21 can invest and open a high number of stores as part of its process of growing. Brazil’s business culture relies heavily on the development of strong personal relationships and they heavily support their own products, design and industry.
Greenfield investment is the best entry strategy in order to establish a WOS (Wholly Owned Subsidiary) that can allow with time and patience to establish a strong bond with Brazilians by hiring local people and also local designers that can create cloth attractive to Brazilians. Thanking into account the good position of Brazilian economy in comparison with the other Latin American countries, the prices in Forever 21 Brazil can be a little higher than the other countries nearby. FOREVER 21 AND THE BRAZILIAN MARKET Political and Legal Environment 1 Structure The Brazilian Federation is the “indissoluble union” of three distinct olitical entities: the States, the Municipalities and the Federal District. The Union, the states and the Federal District, and the municipalities, are the “spheres of government. “
The Federation is set on five fundamental principles: sovereignty, citizenship, dignity of human beings, the social values of labor and freedom of enterprise, and political pluralism. Brazilian law is based on Roman-Germanic traditions and civil law concepts prevail over common law practice. Most of Brazilian law is codified, although non-codified statutes also represent a substantial part, playing a complementary role. Import Control It was virtually impossible to find imported products in Brazil before 1990. The Brazilian government made use of protectionist measures and extremely high taxes to discourage importing of goods. 3 How to start importing First of all, registered at Foreign Trade Secretariat (SECEX) through a system named Sistema integrado de comércio exterior (Siscomex). This system registers, monitors and controls international trades with Brazil. Then we will be able access to Siscomex from banks, broker agencies or terminals on foreign trading related governmental agencies.
It is also possible to access the system from our office if we obtain a password at Federal Revenue Secretariat. We will be registered at Siscomex as importer or exporter at Registro de Exportadores e Importadores (REI) the first time we are importing goods. The next step is to obtain an importing license if our product requires one. There are two types of license: • Automatic license: Automatic Licenses are granted to most imports into Brazil. • Non-automatic license: These are necessary for products that require approval from other ministries or agencies, such as: o National Petroleum Agency (ANP) Brazilian Institute of Environment (IBAMA) o Ministry of Science and Technology (MCT) The clothes import belong to Non-automatic license, so we should apply a license. Courier will calculate and pay the necessary taxes directly to the Federal Revenue Secretariat, and the addressee will be charged later. 4 Legal Environment and Forever 21 Since the Brazil joined the WTO in 2001, the import and export must obey the regulation of WTO, which means estabilish business in Brazil would be have more legal security. Moreover, the law system is improved much nowadays, so the legal environment can be more reliable.
Economic environment in Brazil 1 Overview Brazil is the eighth world’s largest economy in terms of GDP (Gross Domestic Product), in 2012 its GDP growth rate was of only 1,3% but in 2010 was of 7,5% (The World Fact book). The inflation rate is 5. 5% in 2012. However, it is predicted that the inflation for 2013 rise to 6% and that the economic growth for the same year will be around 3%, which is bad news for the Brazilian economy taking into account that most others emerging economies, including Latin America are doing much better (Wrong numbers, 2013).
In 2012 Brazil’s economy in terms of GDP was considered larger than UK’s. Nevertheless, accordingly to the Economic Intelligence Unit (EIU) during this year the UK will overpass again Brazil in the GDP ranking, and it won’t be due to UK well performance but due to Brazil’s fall. (Costas, R. , 2012). Despite this bad scenario for the Brazilian economy, the EIU forecast that the Brazilian economy would surpass UK’s economy again in 2016 when Brazil hosts the Olympic Games (Costas, R. , 2012). 2 Economic situation and Forever 21
In spite of the temporarily slowdown in the Brazilian economy (which has had an astonishing growth over the last 10 years), the wages are continuing to rise and the unemployment rate in the six biggest cities is 4,9% (Boyle, C. 2013). For Forever 21, Brazil is a great market to go because it is one of the top largest economies and although its growth rate is not as big as 2 years ago, it is still bigger than the European growth. This is good taking into account that many countries because of the crises had a recession instead of growing.
Now, it seems that the global economy is recovering form the crisis, and so it is Brazil since the growth rate for 2013 is estimated to be bigger than the one for 2012. Knowing that the wages are still raising and that despite the crisis the unemployment is still very low, there is a great opportunity for Forever 21 since the middle class has more money to spend. With the coming of the Olympic Games in 2016, Brazil will be again the centre of attention and there will be a great amount of tourist and investment in the country in the following years.
So, Brazil as one of the top leading economies, one of the fast growing nations and the location one of the world’s biggest events is definitively a country where Forever 21 should be present and it probably will become in a great success for the company. Finally, in Brazil exist more than 1000 radio stations and more tan 100 TV channels, and for 2009 it had more than 75 million Internet users (The World Factbook), which constitute a really good communication infrastructure that allow Forever 21 to reach the costumer by several means.
Cultural and Social Environment Brazil is a country with a population of 193. 946. 886 people, the largest country of Latin America, the fifth country most populated in the world, and the most biodiversity all over the world. These country has the most racially diverse nations on Earth, denominates “Land of Contrasts”. Is divided into 5 main regions, Northeast has the greatest proportion of African descent, South and Southeast are related to the European and Japanese ancestry, and in the Central West lives the indigenous ones.
However in this country there are two main contrasts, the undeveloped and poor North and the industrialized and wealthier South, that’s why this country is known as “Belindia” comparing the wealthy South to Belgium and poor North to India. (Brazil Now, 2005) The main language in this country is Portuguese. In 2012 the majority of the population was below the 54 years, with almost 25% of the total population between 0 and 14 years, 16,8% between 15-24 and 43,4% between 25-54 years.
However, in the long future this distribution is likely to change due to a heavy investment in pension programs and lack of investment in children (The World Fact book). The actual average age is 29,6 years, but as mentioned before this is likely to increase in the future since the total growth rate is 0,86% (The World Fact book). There is a high degree of urbanization (87% in 2010), with 4 major cities above 4 million inhabitants: Sao Paulo (almost 20 million), Rio de Janerio (almost 12 million), Belo Horizonte and Porto Alegre. The rate of obesity is about 11% (2003).
The society is very traditionalistic and with deeply held values, especially with familiar and cultural things. Also has a high stratified class structure from its colonial period with deep inequality. Despite this from the last years to now a day’s there’s an emerge of a large middle class that has contributed to increase social mobility and alleviate income disparity. 1 Gini Index in Brazil 2002-2010 [pic] (GINI INDEX, World Bank, 2012) Gini Index measures the income distribution among individuals and inequality. Brazil is one of the countries with higher inequality all around the world.
This indicates that the wealthiest is concentrated in a low percentage of the population. In Brazil in the last years this index has decrease but not in a considerable way because the inequality Is over 50%. In Brazilian culture there are a lot of carnivals such as Rio de Janeiro Carnival, Oktoberfest in Blumenau, Amazonia Folk Festival, between others. Also the football is a fever in all the streets, they are very nationalist with this issue. People are very proud of the famous football players like Ronaldo, Ronaldinho, Kaka, Robinho and Roberto Carlos.
In the main cities like Brasilia, Rio de Janeiro and Sao Paulo there’s a high life quality, good infrastructure, organized city and very dynamic. And are the most fashionable cities in Brazil, this is a huge opportunity for the brand Forever 21 to arrive to this new market and be an attractive option for the women. Also considering the increasing middle class (between 2003 and 2008 more than 30 million people improve their social class) and the high class results an affordable market four our new store. 2 Competitive Analysis of Forever 21 in Brazil
Since Brazil has been a country that had presents in the last 20 years an amazing development and an important economic growth (7. 5%), it is an attractive country to invest for many reasons. The first reason is that there’s a huge market to exploit that like to spend money in fashion, also it is an attractive country for tourist, and the market is not saturated. Forever 21 is a clothing company that sells the latest styles of clothes and accessories at an affordable price, focused mostly in middle aged women, that like to wear fashionable things.
This company had a similar strategy as Zara, have a very high inventory rotation which makes the business interesting and dynamic. Forever 21 stores are big sized and this is also a good reason to choose Brazil, because it is a country with a big population. Forever 21 is just entering into the Latin American market; the first store in South America was opened in Bogota, Colombia. And the strategy for now on is growing in these emerging economies such as Brazil, Argentina, Peru, Mexico among others. Marketing strategy for FOREVER 21 in Brazil . Concept Forever 21® is an American chain of clothing retailers with branches in major cities in the Americas, Europe, Asia, and the Middle East that offers trendy clothing and accessories for young women, men, and teen girls at low prices. Then, we promote variety of products through brands such as: Forever 21, 21 Men, Forever 21+, Love 21 Contemporary, Forever 21 Girls, and Love & Beauty. Forever 21® concept is all about “Satisfying your craving for fashion’s latest trends, at prices you can’t pass up. ” 2. Strategies
In order to achieve our objectives, we have to highlight some strategic outlines. a. Market Selection We are going to penetrate the Brazilian market. Indeed, the momentum has nothing to do with cultural clichés like football or samba anymore. Brazil is claiming its place on the global stage and fashion is playing a major role in the country’s ascendance. But the signs of growth are equally impressive on the domestic front: amongst the so-called BRIC countries, Brazil is the only one with a major fashion industry of its own.
There are countless Brazilian ready-to-wear and accessory brands which have been highly successful with domestic consumers and are now setting their sights outside Brazil. • Booming Economy As much of the world slid into severe recession in late 2008, Brazil continued to expand. Indeed, according to Brazil’s national statistics agency, GDP grew a record 9% in the first quarter of 2010. Amongst Brazil’s more than 190 million inhabitants, there have also been important demographic shifts. The distribution of wealth is changing: large swaths of the population have joined the middle and upper-middle classes.
There has also been significant migration into urban areas. And despite reports in Women’s Wear Daily and elsewhere that growth may slow in coming years, the numbers are expected to remain promising enough to continue to fuel domestic demand and attract international brands. • National Optimism The robust economy has, in turn, fed the country’s self-confidence. Whether at São Paulo Fashion Week, in the streets, or in the nation’s shopping malls, there is a palpable optimism in the air: Brazil believes in itself. This hasn’t always been the case.
When queried on the main factor behind her country’s current optimism, Erika Palomino, arguably the best-known fashion journalist in Brazil, pointed out that a new-found “self-esteem” is as important as the positive numbers: “Because we are a former colony, for a long time we didn’t believe in ourselves and always looked abroad, thinking other countries did things better. That has changed. ” Indeed, winning bids to host both the 2014 World Cup and the 2016 Olympics have had a major impact in boosting the country’s sense of confidence. The Advantages of Insularity: A Strong Domestic Market Brazil’s growing national pride, combined with the country’s relative geographic isolation, has had a positive effect on the country’s domestic fashion market. Sara Andrade, the influential fashion editor of Vogue Portugal, thinks Brazil’s self-reliance is one of the country’s greatest assets. “One of the things Brazil has working for it is that it’s a country that really supports their own — their own production, their own artists, and even their own trade.
That makes it less dependent on other countries. ” This plays out in the shopping malls, as well. Indeed, Brazilian consumers seem to bet on their own designers, as much as they do on foreign brands. Even those who can afford to buy from big European houses like Prada or Valentino, deliberately seek out Brazilian designers. Because of strong and sustained internal demand, domestic fashion businesses that have been around for 5-10 years are now reaching a certain maturation point, expanding their reach with diffusion lines and new stores. The Price Gap Effect Andrade pointed out another interesting feature of Brazil’s domestic market:
“Unlike [in] Europe or the US, where there are many high-street options like Zara and Mango, in Brazil most brands fall into two extremes: they have very low-profile brands like C&A, where you can get things of rather low quality at a really cheap price and, on the other end: designer brands, like Maria Bonita and smaller independent labels that offer good quality and design at a high price point. What this means is that the consumer who wants good design — and that is the majority of middle and upper class Brazilians — has little choice but to buy from designers brands. In a way, the lack of affordable fashion options has forced consumers to spend on, and thereby support, serious domestic fashion labels. • The Cultural Advantage Fashion also has a special place in Brazilian culture. It’s something of a national pastime and a topic of everyday household conversation, not just a luxury of the urban, privileged classes.
Brazilians have also long had an appreciation for aesthetics and quality. In order to compare Brazil to other emerging countries. “In terms of potential, China maybe the champion because it is experiencing such tremendous growth and has such a huge population, but culturally Brazil may have an advantage because the consumer here is highly sophisticated and informed. People here appreciate not just the value of something expensive, but the value and pleasure of good design and materials. ” b. Market entry strategies
Brazil’s business culture relies heavily on the development of strong personal relationships. We need a local presence and must invest time in developing strong relationships in Brazil. Greenfield investment is the best entry strategy for us in order to establish a WOS (Wholly Owned Subsidiary). It means to start from the scratch with investments in the construction of the necessary buildings, offices and other type of facilities. Indeed, the Brazilian’s fashion industry is a promising sector of development. Benefits |Drawback | |We will build our subsidiary where we want (Rio de Janeiro, Sao|We are going to face some competitors already establish in | |Paulo, …) |Brazil | |It will be very easy for us to establish operating routines |It’s might take a lot of time for us to establish our | |We will create new jobs for Brazilian’s market |subsidiary | |We will have the full equity and management control |We are going to face some transportation issue (legal | |We will have a better protection of our property and know how |procedure …) | |The novelty will play in our favor |The probably long payback period |
Green field investments will give Forever 21 ® full control over all activities and operations, thereby avoiding the challenges often experienced in Joint Ventures and mergers. This enables the company to make quicker decision since it does not have to be discussed with a different partner. Furthermore, the company is protected against other companies copying the knowhow.
In several JV for instance the partner, after gaining the necessary know how has left the JV On the other hand, this type of entry mode is expensive (low sales compared to overhead costs in the early stages), risky and makes the company less flexible in case of a situation where it needs to pull out from the market due to, for instance, political changes in the society. In particular when dealing with emerging markets like Brazil, issues like political and economic instability need to be considered carefully, and might be the reason for not choosing WOS as an entry mode.
Furthermore, it is a slow entry mode, since it can take several years before the facilities are ready for operation. Thereby, some of the potential opportunities might be lost and first mover advantages might be gone. Until now, Forever21 has own more than 500 shops all over the world, which becomes one of the most popular fashionable brands and also symbolizes the “America fast fashion”. Firstly, Foever21 devotes itself to develop new markets and focuses on the perfect combination of fashionable elements from different places.
Secondly, with the competitive price compared with other clothing shops, Foever21 provides the most fashionable clothes and accessory to the people who are in the age group from 10 to 30, especially for women. Thirdly, Forever21 is pleased to provide un unique style of environment so that customers will enjoy their shopping journey. Products to be launched by Forever 21 in Brazil As far as the clothing style is to be concerned, Forever21 prefers “sweet girl route design”, which is differ from other fashion brands such as H&M and ZARA.
This kind of design gives people a simple and handy feeling, and also a feeling of energy and optimistic. Brazil is a multinational country with its special cultural background and people there are very good at singing and dancing. In terms of social etiquette, Brazilians like to talk in a very direct way and have a strong sense of humor. In terms of dress etiquette, Brazilians wear very elegant in a formal setting. They not only pay attention to the neatly dressed, and advocate on different occasions, people dress should be differentiated.
For very important circumstances, such as political and business activities, Brazilians must wear a suit. What kinds of products should be launched in Brazil? To begin with, depends on the specialty of their culture and also the characteristics of the peoples and dressing styles, Forever21 could hire experienced costume designers from Brazil and maybe also some other fashionable places such as France, focusing on the Brazilian style of wearing. The style of the design should be very colorful and exegetic to show Brazilians’ features.
For example, Forever21 could design clothes with butterflies on it, because the lucky item of Brazil is the butterfly, and at the same time avoids putting the 13 numbers on the clothes. What’s more, Foever21 should develop the categories of clothing not only for the women but also for the men at the same time. Future markets in Brazil Brand Forever21, focusing on youthful energetic routes and international fashion tide, now is popular all over the world. According to the data given by Forever21 and markets, it seems that the proportion of the men’s clothing is very low in both of the shopping mall and the online shops.
This should be the next opportunity for Forever21 to extend its kingdom and develop new markets, whose targets will be men. This should be a very good way to develop the new markets and occupy more market share as quickly as possible. At the same time, Forever21 should use a unique way to set up the shops. For example, maybe the shop could be located near to H&M and ZARA shops. Although H&M and ZARA are the biggest competitors for Forever21, but this kind of connection between these two or three shops will attract more people to buy their products.
Forever21 could find a good way to develop its own future markets in this competitive relationship. Thirdly, the most important and direct way to sell more products and gain more market share is to develop the e-commerce system. Thus Foever21 should improve this kind of services and this will be a plus for it. Pricing strategies to be launched in Brazil “Brazil is the largest national economy in Latin America, the world’s sixth largest economy at market exchange rates and the seventh largest in purchasing power parity (PPP), according to the International Monetary Fund and the world bank.
According to this situation, Forever21 maybe could decide the price a little bit higher than any other countries in Latin America because of its strong purchasing power. At the same time, Foever21 should orientate itself in medium and high-grade goods and set up shops in a medium and big size of sopping center. Last but not least, the competitors should be taken into consideration, such as H&M and ZARA. Maybe Forever21 should decide the price equaling to the price of H&M and ZARA. Promotion strategies: They expand their depth of product selection by offering a wider mix to their customers, *They have dedicated lines within different product categories.
*Target market of mostly young men and women. 66% of them are women aged between 18-34 years. *Value Proposition: Customers have options and are able to be creative within their retail doors *Forever 21 doesn’t launch high-profile advertising campaigns, preferring to invest in products and stores. It relies on customer buzz spread by word of mouth. *Excitement and experience of visiting a Forever 21 store is similar to being in a candy store where you can get anything you could ever want. Their Blogs are focused at educating the customers on their products *Setting up Inspiration Boards. *Twitter is used to attract customers for sales and limited time offers.
*Their Facebook page has many customers sharing and speaking to one another about the products *With its prices ranging from around £5 for basics to £100 for a jacket, Forever 21 allows shoppers to be “decadent but without feeling guilty about the price” Competitors: *H&M, ZARA, UNIQLO, TOPSHOP, CHARLOTTE RUSSE, DEB [pic] SWOT analysis: STRENGTHS: *Most recent fashion trends for fewer prices. *Have been able to expand into different formats One stop shopping. WEAKNESS: *Duplicate ideas (Copied from other top brands or stores). *Stores are messy. *Too much to choose from. OPPORTUNITIES: *Improve overall customer service.
THREATS: *Competitors like H&M, ZARA, UNIQLO, TOPSHOP, CHARLOTTERUSSE Conclusion: • FOREVER 21 has taken the fashion world by storm since its opening in 2006. Social media has become their most powerful tool, attributing the bulk of marketing to the consumers themselves. However, as the trends and competition are increasing, it is the task of the company management to change and adapt regularly, so as to keep up and take the brand to new heights. Brazil is a great market to enter because it is one of the top economies in terms of GDP and its growing rate is actually higher than in europe. In aditiion, it has a very high population which makes it a very huge market, but also make it possible to price a little higher thant other latin american countries. • Brazilian culture rely heavely on local products, so creating a strong bond with brazilians will be very important to success. So, Forever 21 will have to hire locals to manufacture and desing. In that sense, a greenflied investment will be the best entry strategy.
