The manufacturing department is highly sensitive to economic variations, since its main cost comes from the acquisition of cotton, whose prices are established by the global market and are in dollars.
Recently, as consequence to Brazilian Real appreciation in comparison to North American currency, the production cost is remaining stable at low levels; however, any economic instability which may cause foreign exchange volatility should pressure the production costs.
The retail textile segment, however, is highly correlated with GDP variations and the availability (or not) of credit. Economic growth allied to the credit expansion, resulted in growth in the retail sector as well in the apparel industry. Price stability over the past few years also contributed to a real income gain for most of the Brazilian population, generating a retail sector recovery and purchase power expansion.
The sector’s high degree of informality has major impacts, especially on retail and department store chains that comply with tax, labor and environmental regulations. Even with all the illegal competition, however, the leading chains have recorded strong growth in the last few years due to the following factors:
(iv) technology and control development;
(v) scale gains.