Low-priced fashion retailer Forever 21 Inc. opened its first store in Brazil this past weekend, causing a stir among the country’s price-sensitive shoppers who lined up for seven hours to buy $4 tank tops and other trendy items priced far below competitors.
Pricing will be key to whether Forever 21 thrives in Brazil’s $54 billion apparel market. Consumption has been a main driver for Brazil’s economy over the past decade as millions of people moved out of poverty and into the middle class. But while more than half the country is now considered to be “middle class,” by local standards that means a minimum annual household income of just $8,900.
Keeping prices low has been a challenge for most retailers because operating costs in Brazil are high. Apparel vendors in Brazil pay an estimated 35% in taxes on their products, compared with about 8% in the U.S., according to Alexis Frick, a São Paulo-based analyst for market researcher Euromonitor International. Retailers that ship their products in from abroad pay as much as a 35% in addition to those taxes in import taxes.
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