Bloomberg News

‘Gossip Girl’ Sparks Arezzo Expansion With Saks Orders

June 14, 2013

'Gossip Girl' Favorite Arezzo Expanding Abroad

High heeled shoes are displayed next to a "Sale" sign in the window of a store in Rio de Janeiro. Photographer: Dado Galdieri/Bloomberg

Arezzo Industria & Comercio SA, whose shoes are sold in Bloomingdale’s Inc. and Bergdorf Goodman Inc. stores, is looking outside Brazil to help sustain revenue growth that’s five times the global industry’s average.

Arezzo, Latin America’s fastest-growing shoemaker by revenue, has been approached by six groups to open franchises in the Middle East and Asia, including PT Mitra Adiperkasa, which operates Starbucks and Adidas stores in Indonesia, Arezzo Chief Executive Officer Alexandre Birman said in an interview. The Belo Horizonte, Brazil-based company will study its international expansion options through 2014 and may open more stores abroad as soon as 2015, he said.

“There are a lot of people looking for international franchises,” Birman said yesterday at Bloomberg’s Sao Paulo office. The company would initially focus on the U.S. and Europe. “To make the brand well-known, we first need to conquer mature markets.”

Birman, whose namesake shoe line was picked up by Saks Inc. (SKS:US) after being mentioned in an episode of “Gossip Girl,” is counting on demand abroad to offset a pullback in spending at home as Brazil’s economy grows at a slower-than-forecast pace. A government report yesterday showed retail-sales growth slowed to 1.6 percent in April from a year earlier, trailing the median 3.4 percent estimate in a Bloomberg survey of 26 economists.

Shares Outperform

Arezzo, founded by Birman’s father and uncle in 1972, has rallied 25 percent in the past year, compared with a 9.4 percent drop for Brazil’s benchmark Ibovespa index. The company’s revenue last year rose 27 percent, more than five times the 4.7 percent average of 139 shoemakers worldwide.

The stock trades at 24 times estimated 2013 earnings, compared with an average of 12 for Ibovespa companies, according to data compiled by Bloomberg. Arezzo fell 3.2 percent to 34.46 reais at 2:18 p.m. in Sao Paulo trading.

Even with disappointing growth in Brazil, the world’s second-largest emerging market still offers good growth opportunities, said David Riedel, president of Riedel Research Group Inc., who rates the company a buy. Brazil’s economy is forecast to expand 2.5 percent this year, down from an estimate of 3.2 percent in January, according to a weekly survey of economists published by the central bank this week.

‘Distraction’

“From an investor point of view, they would prefer expansion in Brazil rather than opening in New York,” Riedel said in a telephone interview from Marin County, California. “It can be a distraction from the higher growth opportunity that can be had in their backyard.”

In addition to eight franchise stores abroad, Arezzo opened its first Schutz store on Madison Avenue in New York City in September.

As part of possible plans to expand abroad, Arezzo may transfer some of its production to China to better compete on price, Birman said. Currently, all of its shoes -- from peep-toes with multicolored heels to lace-up boots and strappy sandals -- are made in Brazil, where labor and transportation costs are higher. In Brazil, Arezzo sells its shoes for an average of about 180 reais ($85) a pair, while Alexandre Birman shoes listed on the Saks website are going for as much as $895.

“The Schutz store on Madison Avenue is a lab for us to understand the timing of the Northern Hemisphere, which is different, to understand which type of shoes work, and determine the right price,” Birman said. “It’s been very positive.”

‘Driving’ Growth

Schutz “is really driving the growth at the moment,” said Nick Robinson, who helps manage $322 billion at Aberdeen Asset Management, including being the largest outside investor in Arezzo. “It is the most important brand in terms of growth for the younger, more fashionable type crowds.”

Of 12 analysts who follow the stock, eight rate it a buy, three say hold and one recommends selling.

“If they have tough days and the stock gets cheaper, that means we’ll buy more,” Robinson said.

To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editors responsible for this story: Jessica Brice at jbrice1@bloomberg.net; Ed Dufner at edufner@bloomberg.net


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