Brazilian retail sector for high-quality clothing

Brazilian retail sector for high-quality clothing

Inbrands operate in the retail sector for high-quality clothing in Brazil, which we believe has great growth potential. According to data from the IBGE, in 2010, Brazil was the fifth largest country in the world and the largest Latin American country in terms of population, with approximately 185.7 million inhabitants. In addition, according to the IBGE, Brazil’s GDP grew by 7.5% in 2010, exceeding the R$3.7 trillion mark and becoming the largest economy in Latin America. Brazil accounted for 35% of the total GDP in Latin America in 2010, and was the seventh largest economy in the world.

Since 2003, Brazil has experienced a period of growth and relative economic stability, which has resulted in a significant reduction in interest rates and lowered indexes of inflation. In this period, the SELIC rate decreased from 26.5% as of February 2003 to 11.75% as of March 2011. In addition, inflation, as measured by the IPCA, published by the IBGE, was 5.9% in 2008, 4.3% in 2009 and 5.9% in 2010. Between January 2008 and December 2010, the real appreciated against the U.S. dollar by 6.3%. Brazil’s international reserves increased from US$187.5 billion to US$288.6 billion during the same period.

Moreover, Brazil’s unemployment rate has decreased in its main metropolitan areas (São Paulo, Rio de Janeiro, Belo Horizonte, Salvador, Recife and Porto Alegre), from 10.2% as of January 2005 to 6.1% as of January 2011, according to the IPEA. As a consequence, rates of informal work decreased from 45.9% as of January 2005 to 41.7% as of January 2009. Social inequality in the country decreased in all regions of Brazil between 2005 and 2009, according to the IPEA, and the real minimum wage of the population (already considering the effects of inflation, as measured by the INPC) increased from R$351.69 per month in January 2005 to R$542.92 per month in January 2011.

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Expansion of Shopping Centers and Retail in Brazil

The sophistication of the retail sector is attributable to the income expansion of consumers from upper, upper-middle and middle classes. This is evidenced by the increase in the number of shopping centers in Brazil. According to data from the Brazilian Council of Shopping Centers (Associação Brasileira de Shopping Centers), or ABRASCE, sales at shopping centers in Brazil grew 91.2% between 2005 and 2010, from R$45.5 billion to R$87.0 billion. During the same period, the number of shopping centers grew from 338 to 408, representing an increase of 20.7%.

Shopping centers are among the leading shopping destinations for urban consumers in Brazil, as shopping centers concentrate, in a convenient fashion and in a unique setting, a variety of products catering to diverse interests. In addition, shopping centers provide security, easy access, available parking and other related services that are highly valued by consumers in Brazil. Consequently, monthly visitors increased significantly. Between 2005 and 2010, the number of shopping center monthly visitors increased from 181 million to 329 million.

ABRASCE estimates that the number of shopping centers will continue to grow, with the opening of 25 new shopping centers in 2011 and 29 in 2012. In addition, shopping center sales have outperformed retail sales since 2005. ABRASCE and Raymond James Latin America estimated that by the end of 2010 shopping center sales will have grown at a CAGR of 11.8% since 2005, well above the 6.9% CAGR of retail sales. However, shopping center penetration also remains low (49 m2 of gross leasable area per 1,000 inhabitants in 2010) compared to other countries (1,290 m2 in Canada, and 2,180 m2 meters in the United States).

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