Strategy and Competitive Advantages

The macroeconomic scenario of the 2016 fiscal year brought along higher challenge levels for the expansion of sales and margins of our retail operations in the country. Throughout the year, the Company faced a very aggressive competitive environment in terms of prices and discounts. The difficulty to resume gross margin expansion became clear starting from the first half of the year. The Company began to show its first signs of improvement in gross margin from products during the third quarter, due to quality improvements in collections, in-store displays and logistics. This improvement was intensified throughout the fourth quarter, when gross margin from products began to positively react to all of these factors more intensely.

The search for productivity gains continued throughout 2016, but with initial efforts more directed towards the administrative and support areas. The evolution of the management methods implemented in stores during 2015 continued to generate value by improving the quality of our operations and consequently increasing productivity. In this sense, the sales area (m²)/employee improved 42.1% over the last three years and 12.2% in 2016 alone.

The macroeconomic challenges, however, did not diminish the company‘s conviction of the existing opportunities in the development of its business model based on the fast-fashion concept. This was proven with the conclusion, at the end of September, of the new distribution center located in Guarulhos, taking the Company to the highest technological standards that are currently available in the world. Additionally, Riachuelo maintained its expansion process by opening 6 stores in 2016, ending the year with 291 stores in operation. Thus, from 2005 to the end of 2016, the Company increased its sales area by 256%, adding 443,000 m² during the period.

Estratégia

Riachuelo maintained its proposal to democratize fashion, offering customers across the country access to design pieces at affordable prices. In April, the Company launched an exclusive collection with Karl Lagerfeld, one of the most renowned designers in the world and recognized globally for his ambitious and avant-garde approach to his designs. This brand name reflects its own style through creative clothing and accessories. A total of 75 pieces were developed, under the artistic leadership of the stylist himself, and included ready-to-wear items such as accessories for women, including handbags, wallets, iPhone cases and collectibles. The collection was launched with great effect through a national media campaign, including TV and printed ads, a launching event during the São Paulo Fashion Week and a special setting inside Riachuelo stores.

In May 2016, Riachuelo launched its second collection in partnership with Sandro Dias. The collection had 34 pieces and was available in selected stores in Brazil, with items such as bermudas, tank tops, t-shirts, pants, shirts and sweatshirts in shades of white, black, lead, camel and navy blue. The skateboarder had a special participation in the whole creation process: from design to orientation in the modeling and construction of the pieces - always aiming to adapt the clothes to the skateboarding practice, with reinforcement of seams, strategic rises in bermudas, pocket positioning, among other details.

On Father‘s Day, Riachuelo launched a collection made exclusively for the date’s celebration. Inspired by the color navy, the collection brought pieces with different shades of blue and details in red. Among the novelties was a new casual men’s line, introducing less formal pieces to work outfits.

Riachuelo selected Cuba as a setting and inspiration for the Spring/Summer 2017 collection. Named "Colors of Cuba," the campaign was starred by Daniela Braga (Bahia), Maria Borges (Angola), Larissa Canela (Rio de Janeiro) and Yana Trufanova (Russia). The Campaign brought illustrations that ranged from the historic area of Old Havana to the vintage convertible cars that circulate in the country’s capital of Havana.

Finally, the Company also entered into a partnership with Isolda, a brand that conquered the global fashion industry with its unmistakable Brazilian DNA. With a collection developed especially for Riachuelo, Isolda and Riachuelo launched together a "Ode to Brazil" with cotton and viscose pieces for the celebration of the country‘s natural culture and riches. True to its identity, the brand explored fauna and flora elements in stylish prints, which exalted its origins and brought a poetic look to the collection. The Riachuelo Theater, in Rio de Janeiro, was chosen as the setting for this partnership campaign. Protected as a Historical Heritage, the old Cine Palácio is now known as the Riachuelo Theater, and reinforces the Company‘s intention to broaden access to art and culture since it opened its Riachuelo Theater in Natal.

It is worth mentioning that the performance of these commercial partnerships goes beyond their enormous sales success. The gain of a fashionable image with an increasingly attentive and conscious young public in terms of ecological and social aspects is the greatest asset generated by such strategies.

In terms of our financial operations, we maintained a more conservative scenario giving more emphasis on the quality of our operations rather than on larger volumes since we are still facing a very challenging economic scenario.

During 2016, Riachuelo received unprecedented recognition, being chosen as one of the Best Companies in People Management, by the Valor Carreira magazine. This award, along with being ranked, once again, as one of the Best Companies to Work For, from the Época magazine, and its ranking among the Best Retail Workplaces, from the No Varejo magazine, show that our efforts have been bringing us good results.

In recognition to the Company’s transparent disclosure of financial information to the market, the Guararapes Group received, for the third consecutive year, the Prêmio Troféu Transparência 2016 being awarded as the best company in its category. The Prêmio Troféu Transparência, now in its 20th edition, recognizes the best accounting practices and the most objective information released to the market and is given by the National Association of Finance, Administration and Accounting Executives (Anefac), in partnership with the Foundation for Accounting, Actuarial and Financial Research (FIPECAFI) and Serasa Experian.

The year of 2017 has brought several positive economic perspectives that still need to be materialized for the income, consumer confidence and employment scenarios to reach more encouraging levels. Based on the current scenario, the Company decided to be cautious in its investment decisions and in its internal projections. In this way, an acceleration in our expansion pace will only occur when a greater level of comfort in relation to sales performance is reached.

The intensification of the fast-fashion concept that was developed and implemented during the last periods is an important differential to overcome the current economic momentum. The new Logistics center that was recently inaugurated, a more efficient distribution strategy and more attractive collections are elements that should contribute to the Company’s performance regardless of the country’s economic recovery.

In terms of productivity, the Company will continue to seek even better levels in its stores and administrative areas without jeopardizing the quality of its operations. The combination of management methodology and process redesign has been a strong ally in our pursuit for creating value on these fronts.

  • Mission: to provide people with an opportunity to express themselves through Fashion.
  • Vision: to be the leader in Brazil’s apparel market, in a predominately formal industry.
  • Values: Ethics and Respect; Financial Solidity; Administrative Austerity; Meritocracy; Continuous Improvement; Social Responsibility; Customer Service; Corporate Governance; Selling Attitude.

Last Update on July 31, 2017

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