Italy has dominated luxury shoe manufacturing for decades. But in recent years, Brazil has started to show signs of establishing its own foothold in this market.
In 2015, Beyoncé favourite Alexandre Birman, the country’s most famous luxury shoe brand, opened a factory in Vale dos Sinos to address demand for its high-end heels after revenue almost doubled to 9 million reais ($1.7 million) the previous year. A year later, New York-based NVH Studios started manufacturing in Brazil under three labels, including Twins for Peace luxury sneakers sold exclusively in France. More recently, several foreign companies, including Marc Jacobs, have enquired about producing shoes in Brazil.
These companies have been encouraged by the country’s success to create a more business-friendly environment through reforms of its fiscal and labour practices and a favourable currency exchange that makes it cheaper for them to manufacture and export shoes.
“We’re starting to see international interest in production in Brazil,” said Brazilian luxe brand Alexandre Birman’s global head Milena Penteado. “I see the business environment improving, there’s a ton of potential.”
In 2019, Brazil’s government approved pension reform, including upping the retirement age by nine years, and took concrete steps toward privatisation, including the postal service and electric company, set to go to action in 2021. The state also granted dozens of airport and electricity distribution concessions to private companies and divested of units within giant companies like Petrobras, which led to an increase in foreign investment. Brazil’s weak infrastructure makes logistics a nightmare, and its meddling in public companies, such as artificially keeping the price of oil below market, has cost the country greatly.
Imagery from Alexandre Birman’s Spring/Summer 2021 collection.
© Alexandre Birman
Meanwhile, the volatile Brazilian currency, the real, has fallen sharply against the dollar over the past 16 months, making it cheaper to manufacture and export goods. The real is now trading about 5.75 to a US dollar compared to less than 4 reais last July.
“The currency at the rate it is now makes our products competitive,” said Haroldo Ferreira, president of the Brazilian Footwear Industries Association, known as Abicalçados. Ferreira adds: “Thanks to the currency being weaker, exports could increase a bit, but it’s more than that.”
Pandemic-related problems
To be sure, the coronavirus was a setback for Brazil’s economy as it was elsewhere. Foreigners have pulled more than $18 billion out of the country so far this year. Exports of footwear have fallen 35 per cent through August.
In its second quarter, Alexandre Birman, a unit of publicly traded Arezzo & Co., posted revenue of 4.7 million reais ($876,000), a 51 per cent decrease from a year earlier and a stark contrast to its 2019 fourth quarter, the last purely pre-pandemic period, when revenues grew 19 per cent. The unit posted revenue of 57 million reais ($10.6 million) in 2019. Over the last 10 months, NVH Studios’s revenue has fallen 70 per cent in its Brazilian market as the privately held company closed its factories and stores for four months.
Manufacturers face chronic, longer-term issues as well. Brazil ranked 124 among 190 economies in ease of doing business, according to the World Bank’s 2019 annual rankings. The rankings weigh the regulatory environment and ease of starting and operating a business. The country is ranked 184 out of 189 countries in ease of paying taxes, according to a 2020 PwC report.
Businesses require about 1,500 hours on average each year to comply with taxes in Brazil, the most of any tracked. That total includes hours of labour, the number of taxes to be filed and the complexity of the system. Bolivia ranked second, with an average total of 1,025 hours, and Venezuela third, with an average of 920 hours.
The real’s volatility can also create problems, Ferreira says. “When a company puts in an order, it’s not for today, but often as much as six months from now,” he says.
For example, a $100,000 order placed on 2 January of this year, when the real was at its weakest, would equate to 402,360 reais locally. Just five months later, when the currency hit its high for the year, that order had jumped to almost 589,000 reais ($110,000).
“Companies need margins of security. This is the big problem and this is where we lose international competitiveness,” Ferreira said.
The association cannot control the currency exchange rate, but it lobbies for better conditions for companies. “We’re doing a lot of internal work here among the associations to increase exports,” he says.
We’re starting to see international interest in production in Brazil. I see the business environment improving, there’s a ton of potential.
Brazil’s emergence as a shoe power is the latest episode in a more than century-old saga. Brazil has manufactured shoes since 1900, thanks to German and Italian immigrants who settled in Rio Grande do Sul, a state that borders Argentina and Uruguay and is known for its beautiful scenery. Within seven years, there were 699 factories operating in the region, according to Claudia Schemes, a researcher and professor at the Feevale University in the city of Novo Hamburgo.
At one point, during a lull in Italy’s luxury shoe dominance in the 1970s and 80s, Brazil would even briefly export shoes to Europe, although the industry struggled to remain competitive. The country started producing and exporting cheaper shoes for a time in the 1990s, but lost out to China’s emerging industry. Still, the culture and infrastructure of shoemaking became well established.
“Everyone there breathes shoes,” said Penteado, who co-founded Alexandre Birman, with the company’s namesake.
A shoe family
Alexandre Birman grew up on the factory floor of his father’s shoe manufacturing business, widely known as the brand Arezzo. He and Penteado started their Alexandre Birman brand in 2008 as an international name, not a Brazilian one. Bergdorf Goodman was its first customer, and remains among its best.
For its first six years, the company depended on Italian factories for production. But in 2015, it invested 3 million reais (about $900,000 then) to build a factory modelled after Italian facilities. It also sent local Brazilian artisans to Italy to learn from master craftsmen there.
The investment paid off quickly. With lower costs, margins jumped. And whereas in Italy, the lead time was some six months, it now takes two months for Alexandre Birman to produce a pair of shoes. The secret? The company controls the process from start to finish and can rely on local talent and raw materials. It also benefits from being part of Arezzo, which sells shoes of all kinds via different brands and provides back office support, leaving Penteado and others free to focus on the business’s creative end. Such accommodation has helped Alexandre Birman survive “custo Brasil”, or the Brazilian cost, which describes the difficulty of doing business in the country.
The Alexandre Birman store in Pátio Batel shopping mall in Curitiba, Brazil.
© Alexandre Birman
NVH Studios is the brainchild of Kisha Hunter and Nana Baffour, who in 2016 invested in three brands manufactured in Brazil. Zeferino, a favourite of Brazilian-born supermodel Gisele Bündchen, and Vinicius Dapper produce high-end shoes for women and men. Hunter and Baffour said in an email that they “believe in the power of high-quality craftsmanship, a hallmark of traditional Brazilian shoemaking”. They added that “their shoes target consumers with a differentiated sense of style and quality”, and that “with the current exchange rate… post-Covid, their company will be positioned for the export market”.
Both Birman and NVH have been encouraged by recent signs. Shoe sales in Brazil have been increasing, and are at about 80 per cent of where they were a year ago at Alexandre Birman. “We started already noticing that the market is step by step recovering,” says NVH managing director Nino Pereira.
Both companies have plans to grow their businesses overseas in 2021.
Alexandre Birman, which already has a store each in Miami and New York, will look to build its business there but Penteado says that the company also has plans “to conquer Europe and then go to Asia”. She adds: “We’re ambitious here.”
Pereira says NVH will also look to increase sales in the US and Europe, although “initially via wholesale markets”, before deciding “whether it makes sense to open stores”. He says the company’s “big goal will be internationalisation”.
Whether other foreigners decide to establish a factory and try to navigate the improved but still highly complex Brazilian business environment remains to be seen. Ferreira, head of the footwear association, said he has fielded calls from companies, including Marc Jacobs, interested in turning to Brazil. Marc Jacobs declined to comment for this story.
“We’re working on reducing the 'Brazil cost’,” Ferreira said. “There is opportunity here.”
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