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Venezuelan Zara binge gives new meaning to fast fashion

Venezuelan Zara binge gives new meaning to fast fashion

Posted by Dubraswka Aguilar on June 27, 2014

On the rare day that Zara had clothing to sell in Venezuela, the fast fashion was disappearing even more quickly than usual.

About 300 people lined up at midday outside a Zara store in the Sambil shopping mall in Caracas last week, seeking clothing as the country’s currency controls have emptied stores of imports. Shoppers waited their turn after picking a number under the eye of security guards, who controlled access to the shop.

The chain was able to dress up mannequins and restart business after the government granted access to cash at a preferential rate to the franchise operator for Inditex SA (ITX) in the Latin American country. That translates into discounts of as much as 85 percent for consumers. As nobody knows how long the shelves will remain stocked, shoppers flocked to the shops, including Celestina Aponte, a 23-year-old lawyer who called in sick to get a chance to spruce up her wardrobe at prices a fraction of those offered by street vendors.

“I haven’t bought clothes yet this year as everything is too expensive,” Aponte said, having spent 10,000 bolivars, the equivalent of about $137 at the black market rate, on blouses and pants, which translates into $943 at the preferential exchange rate obtained from the government. “You need to spend hours in line to buy milk, corn flour and now pants.”

Consumer Shortages

The situation showcases the hardships of doing business inVenezuela, where a shambolic economy has led to shortages in everything from dollars to toilet paper and medicines as the country grapples with 61 percent annual inflation, the highest in the world.

Phoenix World Trade, the Panama-based company that runs the franchise for Zara-owner Inditex SA in Venezuela, had been unable to import clothing in the past year because it couldn’t acquire foreign currency from the government to pay its suppliers.

Inditex declined to comment for this story, directing all questions to closely held Phoenix World Trade, which got the franchise in 2007. Inditex shares traded 0.5 percent higher at 112.95 euros at 9:01 a.m. in Madrid, bringing their gain over the past year to 17 percent.

The franchise operator recently gained access to the country’s Sicad I currency market, which offers dollars at a preferential rate, after months of talks with the government, Phoenix World President Camilo Ibrahim said by e-mail. That rate was last 10.6 bolivars per dollar compared with the black market rate of about 73 bolivars. After the company agreed to limit its profit margins by allowing a government agency review its pricing and costs, Phoenix has gradually started reopening some stores.

Empty Stores

“The problem started because there wasn’t a legal and efficient foreign exchange system that allowed us to pay our suppliers,” Ibrahim said by e-mail. “Because of this, in mid-2012 we stopped being able to bring products to the country and this led to stores being empty in late 2013 and most of 2014.”

Venezuela has maintained strict currency controls since 2003 and uses an official rate of 6.3 bolivars per dollar for importing essential items such as staple food products and medicine. The Sicad I rate is for “priority” imports such as car parts, chemicals, school supplies -- and now fashion clothing.

In March, the government introduced a second alternative market known as Sicad II that sells dollars for authorized imports of non-essential goods at about 50 bolivars per dollar.

Faltering Economy

Payments to food importers and drug companies started to slow last year after the government devalued and reduced the supply of dollars to the private sector, with some Venezuelans crossing the border to Colombia in search of medicine. In the past year, the bolivar has lost 56 percent of its value on the black market that is used as a reference by many stores to set prices.

Venezuela’s finance ministry did not immediately respond to telephone messages and e-mails sent yesterday seeking comment on the government’s currency allocation priorities.

The clothing and footwear sectors received $370 million during the first four months of the year at the Sicad I rate, according to Henkel Garcia, director of Caracas-based consultancy Econometrica.

Disappearing Clothes

“Venezuela’s government is giving the same priority to clothing and footwear as the health-care sector,” Garcia said. “People are waiting in lines because it’s cheap, and they all know that the clothes are going to disappear.”

Phoenix runs 25 stores in Venezuela under Inditex brands including Zara, Pull & Bear and Bershka. Only three Latin American countries have more stores under the Spanish company’s formats.

“Merchandise at those good prices will probably be sold out in two or three weeks,” said Alfredo Cohen, president of the national mall association.

He said he expects stores will be switched to the Sicad II exchange rate, which is less preferential, and then “mall activity will return to a normal situation.”

The Bershka store in Caracas had better prices than in local street markets, according to Carolina Perez, 21, who was shopping with her two-year-old daughter.

“It was good to buy here today as I could buy three blouses for 1,000 bolivars when it’s only possible with that money to buy one from street vendors in downtown Caracas,” she said. “It was a pity I could not find any jeans.”

Shoppers, meanwhile, are taking advantage of the offerings while they last. Gimi Lata, a 31-year-old washing machine repairman, showed up at 6 a.m. outside a Caracas Zara store with two of his brothers, his wife and their nine-month-old baby. They all showed up together because the store limits sales to six items per person, Lata said.

Zoila Gutierrez, a 42-year-old homemaker, was one of the shoppers in line behind about 300 people outside the Zara store in the same Sambil mall last week. She said if only they’d hand out 200 more numbers, maybe she’d get in.

“We are ready to spend all day to take advantage of this opportunity,” Gutierrez said.

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