372 arezzo&co investor_day_-_sourcing_presentation_vrev
- 1. Arezzo&Co Investor¡¯s Day Sourcing and industry features | Apresenta??o do Roadshow 1
- 2. .1 Arezzo&Co Sourcing: Competitive 1 Advantages Brazil and the Vale dos Sino offer strong competitive advantages, a combination of production capacity, skilled labor and production flexibility Brazil is the world¡¯s third largest footwear producer The world¡¯s largest livestock population: 13% of the market RS: 1 third (BRL 1 billion) of Brazilian revenue for leather industry Vale dos Sinos: one of the world¡¯s largest footwear manufacturing hubs Abundant skilled and specialized labor force Production flexibility: volume vs. variety vs. speed 1,700 manufacturers: components, footwear, machinery, tanneries and others trade entities and research and teaching institutions Source: Abical?ados, 2012 / ASSINTECAL / FAO / AICSUL. 2
- 3. .2 Arezzo&Co Sourcing: Competitive 1 Advantages Arezzo&Co is a leader in the Brazilian leather fashion footwear sector, but also has great growth potential through domestic sourcing Women¡¯s leather footwear production: nearly 70% of Brazil¡¯s leather footwear production Brazilian Production * Leather footwear * Women¡¯s leather * 819 237 160 * Milion of pairs Vale dos Sinos: 26% of Brazilian footwear production BRAZIL SOUTHERN REGION Vale dos Sinos Production (million pairs) 819 Production (million pairs) 270 Production (million pairs) 216 Jobs (thousands) 338 Jobs (thousands) 138 Jobs (thousands) 110 Source: Abical?ados, 2012 / ASSINTECAL / FAO / AICSUL./ Arezzo&Co 3
- 4. .3 Arezzo&Co Sourcing: Competitive 1 Advantages Arezzo&Co is a leader in the Brazilian leather fashion footwear sector, but also has great growth potential through domestic sourcing Brazilian leather industry: Distribution of components and tanneries: ?749 tanneries Components: - Micro: 4% - Small: 4% ?Leather production: Components: - Medium: 5% - Micro: 3% - Large: 7% ? Bovine: 43,0 - Small: 2% Tanneries: 12% ? Ovine: 5,0 - Medium: 4% Tanneries: 4% ? Goat: 2,5 Vale dos Sinos component manufacturing: ? 31% of Brazilian companies in the category Components: - Micro: 1% # of # of - Small: 3% Segment Segment companies companies - Small: 3% Components: Tanneries: 10% - Micro: 38% Outsole complements 27 Upper materials 78 - Small: 40% - Medium: 44% Upper complements 197 Insoles 33 - Large: 60% Tanneries: 34% Components: Footwear production Packaging 46 47 - Micro: 54% chemicals - Small: 51% Leather production - Medium: 41% Tools, dies/moulds 152 37 chemicals - Large: 33% Heels, outsoles and Tanneries: 41% Chemicals 83 134 high heels Source: Abical?ados, 2012 / ASSINTECAL / FAO / AICSUL. 4
- 5. .4 Arezzo&Co Sourcing: Competitive 1 Advantages Competitive lead time, costs and minimum production requirements to serve the Brazilian fashion market CHINA (different clusters) Lead time: 120 to 150 days Minimum/model: 5,000 pairs Minimum/construction: 20,000 pairs Production cap. (pairs): 10,000 million ITALY Cost (FOB): USD 16-18/pair Lead time: 70 days Cost (DDP): USD 42-45/pair Minimum/model: 800 pairs Minimum/construction: 4,000 pairs INDIA Production cap. (pairs): 202 million Lead time: 160 days Cost (FOB): USD 35/pair Minimum/model: 5,000 pairs Cost (DDP): USD 49/pair Minimum/construction: 20,000 pairs Production cap. (pairs): 2,000 million Cost (FOB): USD 15/pair Cost (DDP): USD 23/pair VIETNAM Lead time: 120 to 150 days Minimum/model: 2,000 pairs Minimum/construction: 8,000 pairs Production cap. (pairs): 682 million BRAZIL Cost (FOB): USD 18/pair Lead time: 40 days Cost (DDP): USD 26/pair Minimum/model: 800 pairs Minimum/construction: 4,000 pairs Production cap. (pairs) 894 million Cost (w/o tax): USD 21/pair Cost (w/tax): USD 27/pair Note: Cost estimates based on Arezzo brand product DDP (delivered duty paid): delivery in Brazil with all taxes paid FOB: free on board 5
- 6. .5 Arezzo&Co Sourcing: Bags and 1 Accessories Nowadays, unlike what takes place with footwear, Asia is a good alternative for bags and accessory supplies Profile of Arezzo&Co's imports from ? Bags: 30% China1: ? Wallets and other accessories: 50%+ Bag do not have forms or fitting Less variety of models Fashion content less perishable Simpler production techniques Lower costs: Brazil has little specialized production Inexistence of anti-dumping fees 6
- 7. .6 Arezzo&Co Sourcing Process 1 Sourcing process focused on ensuring flexibility, speed and cost control in the creation of new products Raw material price negotiations 1 2 3 4 5 6 7 Logistics Trends and Technical style Design Design Engineering Samples Showroom and Store distribution Scheduling + Manufacturer negotiation 7
- 8. .7 Supply chain management 1 Ensures agile, flexible outsourcing Coordinated production chain Investments in product Management: engineering: At home know how Cost data Manufacturers Arezzo Gross material Gross material &Co Finished materials Raw Materials Engineering folder ?Cost management efficiency ?Efficient lead time ?Quality standard guarantee ?Flexibility 8
- 9. .1 Understanding shoes 2 A non-complex shoe has 61 raw materials administered by the factory team. R&D optimization ensures management of costs and deadlines. Anklet (8 parts) Buckle (2 parts) Upper (11 parts) Spike rivet (2 parts) Assembly insole (11 parts) Toecap (2 parts) Heel (7 parts) Half sole (3 parts) Reused from collection to collection: High Heel (2 parts) SKU 10% Outsole (3 parts) MODEL 35% CONSTRUCTION 70% Packaging (10 parts) 9
- 10. .2 Sourcing grid ¨C in-house vs. outsourcing 2 Production is guided by the end client's demand and the variables deadline and quantities per model defined the sourcing format Own Factory Unitary cost curve ? Specialized in producing small volumes of special editions and customized products Volumes made in-house ? Agility and autonomy Efficient production frontier ? Capacity: 1,200 pairs/year Outsourcing BRL/pair (illustrative) Outsourcing ? Large quantities ? High level of specialization in certain categories # pairs/ 500 2000 5,000 100,000 model ? Light asset 10
- 11. | Apresenta??o do Roadshow 11