Tuesday, April 8, 2003

Sandal From Brazil Is New Fashion Flavor

Sandal From Brazil Is New Fashion Flavor
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Sandal From Brazil Is New Fashion Flavor

SAO PAULO, Brazil, March 24. Those nominees piqued at having to walk away from Sunday's Oscar ceremony without a statue can seek comfort in a curious consolation prize -- a pair of rubber sandals. In their native Brazil, 120 million pairs of these sandals are sold each year, at a less-than-princely $3 each.

That might sound downright unglamorous for Hollywood, but the Havaianas flip-flops, an everyman's classic here since 1962, are now fashion's flavor of the month in the United States, finding takers in high-end stores for prices as high as $160 for a customized, jewel-encrusted pair.

So far, distribution is being restricted to up-market chains like Marshall Field's and Nordstrom, and more prestigious surf stores on the West Coast.

In New York, Saks Fifth Avenue recently put the sandals in three of its windows and now wants a special, customized Havaianas line, the Brazilian manufacturers say.

"We're determined to position our brand well in the United States, not just win market share through cheap pricing," said Angela Hirato, export director at Sao Paulo Alpargatas, which makes the colorful thong that started out as a surf sandal but is now worn by Brazilians of all walks of life, from the country's president to domestic help.

"In Brazil, we sell in supermarkets, but abroad our main aim is to implant the brand at the top of the pyramid," Ms. Hirato said. "If you go in at the bottom end, you just become another commodity."

For years, Brazil mainly exported commodities like coffee and sugar, making the country's national accounts particularly susceptible to volatility in global markets.

Now the government is promoting efforts to sell more manufactured, value-added products abroad, aiming to turn a chronic current account deficit into a surplus and so reduce dependence on foreign capital.

So far, for Alpargatas at least, that strategy appears to be working.

Two years ago, the company, owned by the construction giant Camargo Correa, exported 1.5 percent of its production. Today, that share has risen to 5 percent, and next year's goal is 15 percent. Profits rose to $14 million last year, 46 percent higher than $9.5 million in 2001.

Since introducing Havaianas on the West Coast just six months ago, one importer, David Sengstaken, has sold 100,000 pairs and calmly predicts a potential United States market of "millions, or even millions and millions."

If growth rates in other markets are anything to go by, Mr. Sengstaken could be right. In 1999, Alpargatas introduced Havaianas in surf-crazy Australia and sold 1,000 pairs. Last year, sales there topped 350,000 pairs, and this year's projection is for 500,000.

In the United States, regular Havaianas retail around $10, while sandals decorated by local designers fetch anywhere from $80 to $160 in Beverly Hills.

"The secret of Havaianas is that they have become a style icon, a classic," said Paulo Macedo, fashion editor at Vogue's Portuguese edition, who was in Sao Paulo recently for a fashion shoot.

Asked to explain why the rubber thongs are all over style magazines like Vogue, Cosmopolitan, Elle and Wallpaper, and were recently used by the designer Jean-Paul Gaultier on Paris catwalks, Mr. Macedo said, "They're cheap, they're comfortable, they're the originals, but with a couple of Swarovski crystals sewn onto them, they are simply fantastic."

That transformation from Brazilian footwear staple to a symbol of international Bohemian chic -- Ms. Hirato says stars like Julia Roberts, Nicole Kidman, Sandra Bullock and Sting wear Havaianas -- is the thrust behind Alpargatas's marketing strategy for the United States.

Mr. Sengstaken's wife and partner, Kerri, presented A-list guests at the recent Grammy party with Havaianas and then got the special, bejeweled models into gift baskets presented to Oscar runners-up by the fashion industry the day after the ceremony.

"We have mostly built the brand through P.R. and have established a cult following," she said. "We have had to do it that way. We can't afford $100,000-a-page ads in In Style."

But some analysts say that is Alpargatas's Achilles' heel. As a small company, it cannot afford the huge advertising budgets needed to promote products in the United States.

"Alpargatas's gross margins are not too different from, say, Nike's," said Daniel Pasquali, a consumer goods analyst at Fator Doria Atherino, a Sao Paulo brokerage firm. "But without scale, a lot of profit is eaten away by costs such as advertising."

"If that's true for them in Brazil, imagine having to promote the product in the United States," he said.

Still, Alpargatas plans to tap this high-volume market.

Ms. Hirato's export team is preparing a second, cheaper brand for lower-end United States retail outlets. Carrying a tropical name like Samba or Aloha, the new brand should retail below $7 and will be available in three or four colors, she said. "If we want to sell millions to Wal-Mart right now, we're dead," she said. "But later, with a second, cheaper range, why not?"

Editor's Comments:

Every decade or so a mass-produced item of apparel undergoes a mysterious metamorphosis in which it is tranformed from an ordinary consumer commodity into a timeless design classic. The financial future of any company fortunate enough to be the manufacturer of such a product is probably assured for the next half-century. Examples which come to mind are Levis 501 jeans, Bausch & Lomb Ray-Ban sunglasses, and Sperry Top-Siders.

Now add to that list "Havaianas," a higher quality, more stylish version of the flip-flop sometimes found in supermarkets for under a dollar. Havaianas have been around since 1962 in their native Brazil, where they are routinely worn by everyone from ditch-diggers to supermodels.

Recently however, they have been reincarnated in the fashion capitals of Europe and North America as a must-have fashion article. The product's surprising new lease on life was no lucky accident. As the New York Times news article reveals, it was shrewdly and sytematically engineered by its Brazilian manufacturer -- Sao Paolo Alpargatas.

But why Brazil? Why not Taiwan? Taiwan-based manufacturers have been producing similar products since they first appeared in the early 60s. Why did Brazil hit the jackpot? After all, we are talking about the most basic, most primitive manufacturing technology imaginable. Does Taiwan's technological prowess really not measure up to Brazil's?

The answer can be found in the Chinese expression, "Off by a little is off by a lot." The reason why Brazil and not Taiwan has to do with Style. Havaianas have Style, while their counterparts on Taiwan do not. Two slabs of rubber. One sells for $9.99 at Nordstrom's, the other for 99 cents at Walmart. The difference is added value.

The Havaianas phenomenon contains an object lesson. That lesson is: Design matters. Ostensibly "tough-minded" businessmen who fail to appreciate the critical importance of design, who hold designers in contempt, can end up paying an unexpected price in the marketplace.

Havaianas "built their brand" by giving away free samples to the Beautiful People, first in Brazil, then in Europe, then in the US. The strategy worked. In order for such a strategy to work however, the Beautiful People must first be impressed. But these fabulously wealthy people already "have everything". They are not about to be impressed by slabs of rubber worth only pennies -- unless a designer has enhanced their value with that elusive something known as Style.

Design is not a luxury. In the post-industrial age, value added through Design is a necessity. Design can be the factor which determines whether a company lives or dies. As the Havaianas example shows, design is not just for bleeding-edge IT products, design may be even more critical for low-end consumer products.

-- Bevin Chu

Explanation: Sandal From Brazil Is New Fashion Flavor
Illustration: Havaianas are fashion's flavor of the month in high-end stores. If you go in at the bottom end, you just become another commodity
Author: Tony Smith
Affiliation: New York Times
Source: http://www.nytimes.com/2003/03/25/business/worldbusiness/25BRAZ.html
Publication Date: March 25, 2003
Original Language: English
Editor: Bevin Chu, Registered Architect

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