JULY 14, 2015 Countdown to Rio 2016: Three Weeks Left to Go to Rio... · 20% US Argenjna Germany UK...

1 DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

JULY14,2015

D E B O R A H W E I N S W I G

M a n a g i n g D i r e c t o r , F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m

U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9

C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

• TravelerdataintelligencefirmForwardKeys.comforecaststhatarrivalstoRiofromJuly27–August21willincreaseby148%yearoveryear,duetotheOlympics,andthatarrivalsfromSeptember1–18willbeup23%,duetotheParalympics(whichrunSeptember7–18inRio).

• Brazil’sMinistryofTourismsaidthatspendingbyinternationalvisitorsgrewby11.5%inthefirstquarterof2016,comparedtothesameperiodlastyear,andthattouristsinjectedUS$2.3billionintotheeconomyduringtheperiod,upfromUS$2.0billioninthefirstquarterof2015.

• AccordingtotheBrazilBusinessBureau,foreignbrandsthatincludeDunkin’Donuts,JohnnyRockets,Sears,Apple,Gap,Topshop,Forever21,Desigual,Uniqlo,Clarks,SephoraandTheBodyShophavealleitheropenednewstoresinBrazilsince2013orplantoopennewstoresinthecountrybytheendof2020.

• Rio2016expectssalesofofficialOlympicsmerchandiseinBraziltototalapproximatelyR$1billion(US$288.8million).

Countdown to Rio 2016:

Three Weeks Left to Go


JULY14,2015

Countdown to Rio 2016: Three Weeks Left to Go Fung Global Retail & Technology is countingdown the weeks until the 2016 SummerOlympicGames inRio de Janeiro, Brazil,whichbegin on August 5. The Olympic Games haveevolved into one of the best-managed globalbrand-marketingoutlets in theworldduetotheirglobal reach, and theyareoneof the largest andmost profitable of all media events. We will betracking developments and news related tobusiness, the economy, politics, retail andtechnologyintherun-uptotheGames.

Source:WilkinsonEyre

COUNTDOWN:THREEWEEKS

RIOOLYMPICSEXPECTEDTOBOOSTDUTY-FREEANDTRAVELRETAILERS

VisitorsfromallovertheworldwillattendtheRio2016OlympicsinBrazil,but themajority of tourists are expected to be arriving from the US andneighboring Argentina. ForwardKeys.com, a traveler data intelligencecompany,forecaststhatarrivalstoRiofromJuly27–August21willincreaseby 148% year over year, due to the Olympics, and that arrivals fromSeptember 1–18 will be up 23%, due to the Paralympics (which runSeptember7–18inRio).


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Figure1.TotalExpectedShareofInternationalArrivalstoBrazil:Jul.27–Aug.21

Source:ForwardKeys.com

An agreement between Rio’s Antonio Carlos Jobim International Airport(popularly known as Galeão) and American-owned travel retailer DufryallowedDufrytoexpanditsduty-freespaceintheairportfrom4,000squaremetersto11,000squaremeters.ItalsoallowedDufrytoexpanditsgeneraltravelretailshops inthedepartureandarrivalareas intheairport’snewlyremodeled Terminal 2. The extension agreement will last until 2023 forDufry’s duty-free business and until 2021 for its duty-paid business atGaleão.

TOURISTSARECOMINGTOSPEND

In June and July 2014, Brazil hosted the FIFA World Cup soccerchampionship,andspendingintourism-relatedindustriessoaredduetotheinfluxofforeignerswhocametowatchandparticipateinthetournament.During those two months, tourists spent a total of $1.6 billion in thecountry,accordingtotheBraziliancentralbank.

Figure2.ChangeinTouristSpendinginBrazil,byCategory:Jun.8–Jul.2,2014vs.SamePeriodin2013

Source:MasterCard

18%

13%

7%6%

4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

US Argenjna Germany UK France

273%

211%

137%

0%

50%

100%

150%

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250%

300%

Restaurants/bars Airlines Hospitality


JULY14,2015

Foreign spending in Brazil grew during the first quarter of 2016. Thecountry’s Ministry of Tourism said that spending by international visitorsgrewby11.5% in the firstquarter, yearoveryear,and that those touristsinjectedUS$2.3billionintotheeconomy,comparedtoUS$2.0billioninthefirst quarter of 2015. Continued growth is expected, as Australian,Canadian, American and Japanese tourists can now enter the countrywithout a visa,making it easier and cheaper to travel toBrazil during theGames.

Someretailersaresettotakeadvantageoftheinfluxoftourists,andmanyhaveopenednewstoresinthemonthsleadinguptotheOlympics.

INTERNATIONALBRANDSTURNTHEIRATTENTIONTORIO

While the Brazilian economy has been struggling for the past couple ofyears, the outlook in the country still remains favorable for internationalbrands. Brazil’s government announced in early July that it expects itsbudget deficit to shrink in 2017 and the economy to return to growth, of1.2%,afteratwo-yearcontraction.

AccordingtotheBrazilBusinessBureau,foreignbrandsthatincludeDunkin’Donuts,JohnnyRockets,Sears,Apple,Gap,Topshop,Forever21,Desigual,Uniqlo, Clarks, Sephora and The Body Shop have all either opened newstoresinBrazilsince2013orplantoopennewstoresinthecountrybytheendof2020.

Some companies, however, have scaledback their initial plansdue to therecession.H&M,which in2013hadplanned toopen40 stores inBrazil inthemedium term, canceled its plans due to higher-than-anticipated costsrelated to bureaucracy and steep competition. Despite these challenges,other brands, such as Forever 21, have moved forward and reaped thebenefits of doing so:when the companyopened its first store in Brazil in2014,thelineswereuptofivehourslonginitsfirstweeksofoperation.

Source:Amanhã.com.br

RIO2016OPENS132RETAILSTORESCOUNTRYWIDEFOROLYMPICSTOURISTSANDFANS

Fanswill have theopportunity tobuyT-shirts,hats,pins, toysandevenalineofwines from the132official Rio 2016 stores set toopenacross thecountry by the time theGames start.Many storeswill be in airports andothertransportationhubstoattracttouristpurchases.


JULY14,2015

By the startof theGames, approximately8,000officialRio2016productswill be available. Rio 2016 expects the merchandise to generate sales ofaroundR$1billion(US$288.8million).

Source:Rio2016.com

The largest Rio 2016 store will be a 4,200-square-meter Olympic Parkmegastore,andthesecondlargestwillbea1,800-square-meterstorenearCopacabana beach. Additional superstoreswill be opened in the AthletesVillage,MaracanãStadiumandtheOlympicStadium.

Rio 2016 also has an e-commerce store, where all of the officialmerchandise,includingtheRio2016Nikecollection,isforsalewithinBrazil.DuetoVisa’slong-termpartnershipwiththeOlympicsanditspositionasanofficialsponsor,Visaistheonlyformofpayment(otherthancash)thatwillbeacceptedinRio2016storesandontheRio2016websitethroughouttheOlympicGames.

TheopeningoftheCopacabanamegastoremarkedthefirstpurchasesevermade using Visa’s new wearable technology, which includes the VisaPayment Ring and the Pulseira Bradesco Visa Bracelet. Visa has alsopartneredwithSwatchtocreatetheSwatchBellamy,acontactlesspaymentdevicethatmaintainsthecompany’sSwiss-moderndesignsandcolors.

Source:Swatch.com


JULY14,2015

CONTEXT

Brazil isthefirstSouthAmericancountryevertohosttheOlympics,andithas faced both challenges and triumphs as it has undertaken rapid andexpansivedevelopmentinordertosucceedinitsroleashost.

TheSummerOlympicGames,takingplaceAugust5–21inRio,constituteoneof the most highly anticipated global sporting events and are expected togenerate record-breaking viewership numbers. According to Nielsen, theBeijingOlympics attracted4.7billion viewersover 17days in 2008. In 2012,NBC’sLondonSummerOlympicsbroadcastswerethemost-watchedtelevisioneventinUSTVhistory.Thus,alleyesareonBrazilasitpreparestohostmorethan10,000athletesandhundredsofthousandsoftourists.

MACROECONOMICCONDITIONSINBRAZIL

AccordingtotheInstitutoBrasileirodeGeografíaeEstatística,Braziliscurrentlyfacing:

• Unemploymentof11.2%

• Inflationof9.3%(April2016versusApril2015)

• AnexchangerateofR$1=US$0.30

• A6.7%declineinretailsalesvolumein2016

Figure3.BrazilianGDP:YoY%Change

Source:Bloomberg

Figure4.PriceoftheBrazilianRealinUSD:Jun.2011–May2016

Source:Bloomberg

4.62.5

4.1 3.2

-0.8-3.0

-5.4-8-6-4-20246

Jun11

Sep11

Dec11

Mar12

Jun12

Sep12

Dec12

Mar13

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0.250.29

0.30

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0.15

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0.25

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0.35

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16


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RIOOLYMPICSBUDGETFIGURES

AccordingtotheInternationalOlympicCommittee(IOC):

• The 2007 proposed balanced Olympic budget from the OrganisingCommitteesfortheOlympicGames(OCOG)wasUS$2.82billion.

• The2007proposednon-OCOG capital investmentbudgetwasUS$11.1billion.

• ThecurrentoperatingOlympicbudgetisR$7.4billion(US$1.85billion).

• Total private and public Olympic-associated expenditures have totaledUS$10billion.


JULY14,2015

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comRachaelDimitResearchAssociateHONGKONG:10thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223002470LONDON:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FBICGROUP.COM

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