AREZZO&CO: Succeeding in fashion retail

How a well-designed operational model can deliver superior value in the fashion world

AREZZO&CO is Brazilian largest retailer of women shoes. The company has over R$1B in revenues and manages four brands:

  • Arezzo: Founded in 1972, Arezzo is still the largest brand of AREZZO&CO answering for just over 55% of net revenues. It offers a broad selection of shoes for 30-50 years old women. Arezzo collection is a mix of moderately fashion shoes with long-standing highly successful basic models.

ZZ

  • Schutz: Founded in 1995, Schutz is responsible for just over 35% of AREZZO&CO sales. It is fashionable brand catering to affluent 18-35 year women. Schutz collection presents high fashion content. Extremely high heels are its most famous products.

SCH

  • Anacapri: Founded in 2008, Anacapri is a casual brand representing just over 7% of AREZZO&CO sales. It sells only flat shoes at accessible prices catering for women from a large spectrum of age and socioeconomic levels.

Anacapri

  • Alexandre Birman: Very high fashion brand represents less than 1% of AREZZO&CO business.

 

AREZZO&CO creates value by anticipating international fashion trends, adapting them to Brazilian women taste and translating them into a shoe collection that fly from the shelves. AREZZO&CO outsources 90% of production and sells its shoes in 300+ franchised stores (covering all Brazilian medium and large cities) and 1,000+ third party reseller stores (covering small towns). Its asset-light business model delivers high return on investments.

There are 5 fundamental pieces to AREZZO&CO operational model that allows it to deliver superior value to its customers, employees and shareholders:

  • Master calendar: Product development cycle strictly follow a master calendar that takes into account international fashion events (e.g. Milan Fashion Week, New York Fashion Week), mock-up development, suppliers’ production process and important dates in Brazilian fashion retail. Everybody in the company religiously follows the master calendar.

Calendar

  • Research & Development: AREZZO&CO heavily invest in R&D by sending its stylists to the most important international events and to fashionable destinations (e.g. St. Tropez in the summer). The design team also buy several shoes from leading international fashion brands which they later use as inspiration for creating its own collection.
  • 90% outsourced production: AREZZO&CO is strategically located in the “Vale dos Sinos”, a highly specialized shoe production region hosting 200+ shoe manufacturers. AREZZO&CO has established trust-based long-term relationships with a vast network suppliers that allows for high flexibility and high customization ensuring consistent quality.

Asset

  • Franchised stores: Leveraging franchised stores allowed AREZZO&CO to grow rapidly and become the leading fashion brand of women shoes. It made sure that franchisee’s incentives were aligned with AREZZO&CO’s by jointly setting sales targets and weekly deliveries. It important to note that franchisee has autonomy in deciding which models they buy and also bear the stock risk in case they do not sell.

Stores

  • Fast Fashion: After launching a new collection, AREZZO&CO analytics team goes through sales data from the first weeks to identify best sellers. Additional production orders for those models are automatically sent to suppliers with a high priority sticker. Being able to quickly identify the shoes that are “hot” is key to avoid/reduce stock-outs since the vast majority of stores carry shallow inventory (few pairs of a large selection).

Overall, AREZZO&CO has been highly successful in developing an operating model that supports value creation under its current business model.

 

Sources

http://www.arezzoco.com.br/

http://exame.abril.com.br/negocios/noticias/arezzo-lucra-r-112-752-milhoes-em-2014

http://mundodasmarcas.blogspot.com/2009/02/agora-e-oficial_08.html

http://www.arezzoco.com.br/show.aspx?idCanal=bXyofIK6e8JK2dJsQ6/wzg

 

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3 thoughts on “AREZZO&CO: Succeeding in fashion retail

  1. Fascinating to hear about their model of outsourced production and franchised/third party stores, allowing them to scale up rapidly with minimal up-front capital expenditure.

  2. Impressive results. I wonder what is the trade-off between outsourcing the production of the shoes to Brazilian vs Chinese manufacturers (or other low cost suppliers). In terms of inventory management, perhaps it is more efficient to send the shoes to stores having local suppliers.

  3. Great read Alex! I wonder how do they maintain control over their outsourced producers and franchise stores to keep them aligned with their brand name? I think especially in retail, if the customer experience from one store to the other is even marginally different, this variability can lead to them churning. I would also want to understand a bit more how do they manage inventory for the multiple brands and all their SKUs? The calendar shows about 6 months to market.. how do they predict the fashion that much in advance? Do they use RFID to track the demand trends?

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