MEDELLIN, Colombia — This year is shaping up to be another tough one for Brazil’s textile and apparel industry.
Growth could be a mere 0.5 percent to a hair over $55 billion — mildly better than last year when the industry contracted 3 percent as the World Cup, presidential elections and a slowing economy sapped consumer spending.
“It’s going to be a tough year,” Fernando da Mata Pimentel, executive director of leading trade association Abit, told WWD during Colombian sourcing fair Colombiatex.
The industry, Latin America’s largest, is scrambling to boost local sourcing and exports to lift its fortunes as consumption sags on the back of sluggish gross domestic product growth and high inflation.
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According to Pimentel, exports are set to rise 3 percent to $1.6 billion, while imports will inch up 4 percent, sharply lower than past gains buoyed by a stronger real.
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The dollar’s appreciation is making Brazilian exports more attractive, prompting brands to bolster efforts to tap the international arena.
Apart from falling domestic sales, energy prices (driven by a stinging drought) have soared 30 to 35 percent, denting producers’ bottom lines, particularly in the water-intensive yarn sector. Some raw materials, notably cotton and polyester, have declined, offsetting those losses, Pimentel said, adding that wages are also falling.
Pimentel added retailers will be pressured as consumers up bargain-hunting in the weakening economy, where GDP is set to increase 0.5 to 1 percent this year.
In 2015, Brazil is looking to increase sales to the U.S., its second-largest market, and Latin America, notably Colombia, where 14 companies are present in Colombiatex, a fair catering to Colombian and Latin American textile manufacturers and fashion brands.
The country is also looking to tap new markets in Australia and Asia, notably China, Pimentel said.
He added the new Brazilian government of Dilma Rousseff plans to unveil a scheme to lift textile and apparel exports (along with other industries) in the next 30 days. The plan should help the country achieve its goal to double exports in four years.
Fabio Covolan, marketing director of Brazilian denim producer Canatiba, agreed trade will be difficult, but said denim producers may do better than last year, helped by rising exports, particularly to Latin America but also to Europe and the U.S.
“We want to double our exports this year,” Covolan said, adding that the firm — which supplies brands such as G-Star and True Religion — may sell 10,000 meters or as much as 10 percent of production in the international markets in 2015.
That said, Covolan noted consumer sentiment remains weak, rocked by corruption scandals and economic uncertainty. The fledgling Rousseff administration will need to be transparent about future economic policies this year to convince Brazilians the country is on the right course.
“The government is very untransparent in Brazil,” Covolan said. “We don’t know something is going to happen until it is actually happening.”
Government red tape may also derail Canatiba and two other firms’ plans to build a new water-treatment facility in Santa Barbara in São Paulo, where a severe drought is causing major water shortages.
Covolan said the plant will treat sewage water for industrial supply and could come onstream in 12 to 16 months, if the government issues the necessary permits to enable construction. The facility — and the future installment of several others — is crucial to help slash production costs in Southeast Brazil, home to São Paulo and Rio de Janeiro, where many manufacturers are based.
Covolan said Canatiba has stepped up production to hoard inventory in case water shortages worsen, adding large rivals are doing the same, though small manufacturers are facing more pressures.
With a lack of rain, water collection has become an impossible task, further unnerving the industry.
“I think profits will fall 5 percent across the entire industry this year and prices will increase,” Covolan concluded.