July 26, 2016 Fabricating Profits

Volume 10 | Issue 2

Many North Americans may be familiar with the expression “as American as a pair of blue jeans,” but in Brazil jeans are very fashionable.

Perhaps unsurprisingly for a country that is one of the world’s major cotton producers, Brazil has always had a jeans culture of its own. “In terms of the fabric, denim is just naturally adapted to Brazilian use and lifestyle,” explains Marcel Imaizumi, managing director for Vicunha Têxtil, one of the biggest producers of denim in Latin America’s largest nation. Apart from being a leading manufacturer of twills, natural and synthetic knitted fabrics, filaments, yarns, and fibers, Vicunha produces around 35 percent of the country’s denim; an impressive feat in a nation of 185 million with an enormous jeans market that stretches from high-end to low-end. However, regardless of the price range, Brazilians’ take on jeans tends to be different from that of North Americans.

“Brazilian jeans are beautiful. They’re objects of desire,” stresses Imaizumi. “In all segments of Brazilian society, jeans are worn in a more sensual way, especially by women, and are extremely fashionable. In fact, the ‘Brazilian look’ that’s made the rounds of fashion runways and magazines has been really important in strengthening our image.” Indeed, thanks to globalization, Brazilian jeans – with their high-tech fabrics, colors, textures and vanguard cuts and tailoring – have begun to take the world by storm.

It thus makes sense that denims, along with twills, currently constitute Vicunha’s trump cards – and as it plans for the future, the company is staking its bets on both fabric lines. “Setting up an efficient facility for the production of denims and twills requires an enormous amount of capital and expertise as well as proximity to primary materials (in this case cotton),” explains Imaizumi. “Vicunha has all these things, and this makes us extremely competitive in terms of these two lines.”

Vicunha’s denim factories are located in Brazil’s Northeast: three are in the state of Ceará, and another is in the state of Rio Grande do Norte. In 2005, the company completed the installation of innovative new equipment including machines capable of handling wider swaths of fabric. The results – a more efficient use of fabric with less waste – have allowed it to increase its production capacity by one million meters a month.

The products in Vicunha’s “Indigo Collection” boast a high aggregate value due to features ranging from special threads, distinctive dyes, and high-density structure to original treatments such as NHx System, R. Systems and Volcano. However, in terms of all of its lines, the company has invested in cutting-edge technology and cultivated key partnerships with suppliers capable of providing access to innovative materials. Such strategies have allowed Vicunha to seduce major clients in the fashion industry, both domestically (M. Officer, Forum, and Cavalera) and internationally (Diesel, Miss Sixty, Replay, Calvin Klein, DKNY, Zara, Gap and Levi’s). In Brazil, Vicunha has become a strong presence in the country’s booming fashion industry, forging partnerships with national designers and sponsoring the high-profile São Paulo Fashion Week as well as serving as a global spokesperson for Brazilian fashion on the international circuit, being a constantly highlighted exhibitor of the world’s most well-known textile trade show, World International Fair Première Vision.

Cutting-Edge History
Although Vicunha Têxtil has only existed in its present state since 2002, today’s fully verticalized enterprise traces its roots back 60 years. In the late 1940s, Sam Rabinovich, the owner of a small weaving plant in the state of São Paulo founded a textile manufacturer called Campo Belo. A pioneer in the national textile industry, Campo Belo was credited for introducing natural and synthetic fiber blends as well as many fabric-dyeing processes to Brazil. In 1949, two brothers, Mendel and Eliezer Steinbruch, took over the operation of a small weaving mill, which belonged to Samuel Rabinovich (brother of Sam) who had just died in a plane accident. Têxtil Elizabeth, which the brothers renamed in honor of their mother, prospered due to major innovations in spinning and weaving technology that the Steinbruchs imported to Brazil.

In 1966, the two family enterprises, Elizabeth and Campo Belo, joined forces. The following year, after acquiring Lanificio Varam, the largest wool and worsted mill in Latin America, they established themselves as the Vicunha Group, whose name was taken from the label of one of Varam’s elegant lines of cashmere (a relative of the llama, the Vicunha also inhabits the Andes and produces extremely soft wool). Throughout the 1970s and 1980s, the Vicunha Group flourished, expanding its product lines and establishing itself as a traditional brand whose fabrics were always on the cutting-edge of the industry.

To ensure its growth and independence, Vicunha continued with its strategy of acquisitions, purchasing numerous textile factories throughout Brazil. A major milestone occurred in 1993, when searching for a way to diversify its investments and maintain a steady source of capital, the group purchased a controlling share of stock in Companhia Siderúrgica Nacional (CSN), Brazil’s largest siderurgical company. Says Imaizumi: “This was the beginning of a process of business diversification for us, which went on to include investments in banking and agribusiness. At the time, the textile market was suffering a great deal. We wanted to protect our investors and have the scale that would permit us to survive in a hostile market.”

Another milestone event took place at the end of 2001 when the Vicunha Group decided to incorporate all of its textile companies into one single enterprise called Vicunha Têxtil S.A. After selling off extraneous firms, the newly verticalized Vicunha consolidated the diverse operating systems of its formerly autonomous companies (Vicunha Nordeste, Vine Têxtil, Fibrasil Têxtil, Fibra, and Fibra Nordeste), uniting them all under Datasul’s Enterprise Resource Planning system (ERP), which today regulates the administration of the company’s supply chain, finances, and human resources.

Going Global
Vicunha thus became the one of the largest textile conglomerates in Latin America. It currently operates a total of 11 facilities, spread strategically throughout Brazil’s Northeast and Southeast regions, and boasts a workforce of more than 10,400 people. The company’s ability to manufacture a wide range of products through every production stage – from spinning, weaving, and knitting to dyeing and printing – gives it enormous cost benefits and logistics efficiency while ensuring high standards.

Both production capacity and quality are essential for Vicunha’s current mission: consolidation of its presence on the global market. As part of its ongoing process of internationalization, in 2005, the company opened offices in China and Colombia with the goal of distributing its products throughout Asia and Latin America. So far, business with other South American nations – with which Brazil shares cultural traits and geographic proximity as well as commercial ties – has yielded the most benefits. Currently, Vicunha exports over 30 percent of its total production to Latin America and Europe.

However, two major challenges in its global ambitions are the United States and China – and it is precisely these two markets that Vicunha plans to tackle. Explains Marcel Imaizumi: “Due to protectionist policies and lobbies, the U.S. market has been very difficult to crack. Brazil has no pricing agreements or exchange rate policies, nor does it have any commercial agreements with North America, or Europe either for that matter. These are markets that interest us, but it’s very difficult for us because even though we have really good brand recognition in these countries, our clients want competitiveness; they want the lower prices.”

Like many Brazilian companies, the fall of the U.S. dollar – by close to 30 percent over the last year – has had terrible consequences for Vicunha. “We can’t stay competitive with such a low dollar,” confesses Imaizumi, “and so we’re going to start production overseas. In fact, we’re looking at installing an affiliate in a country that has a free trade accord with the U.S.”

Overseas production is also a necessity due to stiff competition from Chinese textile manufacturers. Marcel Imaizumi becomes fierce as he discusses Vicunha’s decision to open an office in the territory of its biggest rival: “Instead of letting them upset us, we’re going to upset them. We’re going to attack them on their own turf. Our differential is our technology and our vanguard collection.” Indeed, if Vicunha has its way, the Chinese will soon learn a lesson that is becoming increasingly international knowledge: Brazil has denim in its genes.

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