I designed and ran an experiment to test market uptake for wearable blankets in Southern Brazil. The experiment was a success and validated my initial hypothesis that there is strong demand for wearable blankets in Brazil. However, import tariffs on clothing and textile goods undermine the viability of the project for the time being.
After finishing my carwash membership stint, I was amazed by the success of the South Australian brand The Oodie and learned that Davie Group is selling $158 million and generating $23 million in EBITDA with a single product, a wearable blanket.
Kudos to SA entrepreneur David Fogarty and team — this is phenomenal 👏!
Given my background in private equity and retail investment and operations, I decided to focus on e-commerce and retail, and started searching for entrepreneurial opportunities in the sector.
Market Research
Inspired by The Oodie, I wanted to test the appetite for wearable blankets in other geographies. Unfortunately, my primary targets — US, Europe and Australia — are already taken by The Oodie and other brands.
I learned that my home country Brazil is still a virgin market for wearable blankets and I couldn’t find a digitally native seller of wearable blankets through Google, Mercado Livre, Amazon, or Instagram.
In fact, Brazil is continental in size and population and is, for the most part, a tropical country. However, Brazil’s southern region is home to 27 million inhabitants and is similar in climate conditions to coastal subtropical Australia. This region comprises the states of Rio Grande do Sul, Santa Catarina, and Paraná.
I designed and ran an experiment to test market uptake for wearable blankets in Southern Brazil. I intended to assess interest and demand for wearable blankets and collect supporting information about customer segments, pricing, and other business parameters.
The experiment was a success and validated my initial hypothesis that there is strong demand for wearable blankets in Brazil. However, import tariffs on clothing and textile goods undermine the viability of the project for the time being.
Experiment
To run this experiment, I bought a domain and created a Shopify Web Store named UseJama and populated the store with six products and pictures from Alibaba sellers. I also created appealing Portuguese language descriptions for the products offered on UseJama.
In parallel, I selected a few suppliers of wearable blankets on Alibaba, purchased 2 samples and shipped them to my address in Adelaide for inspection. Expectedly, the product is extra comfy 🤩
Pricing
The Jamas were priced between R$129 and R$189 per unit ($32–47), depending on the colour and patterns offered. I chose this price point based on market research for competing products in Brazil and decided to choose an affordable price point for this experiment.
Marketing
I then created an Instagram account and posted 7 pictures of the collection and promoted one of them for 3 days. I chose to promote a picture showing several models and styles to provide an overview of the concept. The target audience for the promotion was the following:
- All-female, 13–35
- Location: Porto Alegre, Caxias do Sul, Joinville, Blumenau and Curitiba
- Interests: fashion, shopping, thermal comfort, winter
Campaign
- Marketing spend: R$150 ($37)
- Ad impressions: 29,147
- Promotion taps: 638
- Website taps: 840
- Profile visits: 499
- Instagram followers: 110
- Ad likes: 132
Sales Summary
- Sales total sales: R$804
- Advertising spend: R$150 (18.7%)
- Orders: 5
- Units sold: 6 (4 Pink, 1 Grey, 1 Pizza)
- Average order: R$160.8
- Average unit price: R$134
- Campaign cost per order: R$30
- Campaign cost per unit: R$25
Website Access
Observations
Based on this early observation, demand for wearable blankets in Brazil seems strong at the selected price point. With only three days of promotion, the UseJama Instagram account gathered a following of 110. This number seems high for the short period during which the brand Usejama was promoted with a focus on conversion and sales, and limited investment amount.
I compared UseJama’s following with a few niche clothing brands I follow that have gathered a following of about 1,000 to 5,000 users after much work and investment.
Sales were another indicator of market uptake. The first order came in during the first day of the campaign. I freaked out a bit when the first order came in and projected that customers would feel frustrated and dissatisfied with cancelled orders. Fearing public criticism during the Instagram campaign and experiment, I added a note to the website saying that our pre-launch inventory was already over and we were taking pre-orders for a future launch. I added the following statement to the page:
Nosso estoque de pré-lançamento chegou ao final em apenas uma semana 😢. Faça seu pedido e enviaremos a você assim que o próximo Jama sair do forno… bem quentinho!
I also posted a picture on Instagram saying we were out of stock.
Despite the above, engagement continued to grow and more orders for Jamas came in.
Unit Economics
The following table summarizes the estimated costs to source and import wearable blankets from China to Brazil based on a 500-unit quote through Alibaba.com.
Initially, I checked the applicable import tariffs through Brazil’s Federal Government Taxation office webpage and estimated an additional 3% customs handling fee and FX rate USD/BRL=5.09.
The average cost seemed high but still reasonable, therefore I concluded that I would need to increase the price in order to generate a reasonable profit and a satisfactory return on invested capital. A nominal markup at 3x offered a comfortable margin for this product given its narrow assortment (mono-product, six colours, one-size-fits-all). In a previous article, I discussed how simple assortment strategies reduce risk.
After this, I hired an import advisory consultancy to provide me with a full-blown quote for importing a lot of 500 wearable blankets. The table below contains a summary of the adjusted parameters after review by the import consulting service provider.
Unfortunately, my advisors informed that Brazil imposes high taxes on the import of textile and clothing products. In addition to the taxes I had previously identified, this import would be subject to ICMS (GST) and the total import tax bill on supplies would add up to 88% of FOB costs. Furthermore, customs handling fees were significantly higher than I had initially estimated and would represent another 44% of the FOB unit cost. The average cost including all taxes and fees would add up to R$123 ($31) per unit.
I simulated a profit and loss statement for UseJama based on the experiment parameters and adjusting price to R$369 for an average markup of 3x. The result is the following.
The resulting net profit margins are -81% and 24% respectively for the experiment and for the price-adjusted scenario. The table above still needs to be adjusted to account for the storage and labour costs involved in storing imported inventory and subsequentially shipping it to clients.
In summary, I decided to not pursue this opportunity as I believe it is not economic to commercialise Jamas in Brazil under current economic conditions.
- Import taxes and customs fees turn the product very expensive and passing on this cost to consumers does not seem possible. For example, the theoretical pricing point necessary for the company to generate a reasonable profit is R$369, or 2.7x the price used in my experiment.
- The cash flow profile of this business is not favourable as UseJama pays significant suppliers, import taxes, customs fees long before selling the products and receiving payments from its customers.
The costs of this project were the following:
Market and regulatory conditions may change, creating a window of opportunity for wearable blankets in Brazil. But that would be another story…
Based in Adelaide, Rob Blum is an engineer and MBA with demonstrated leadership and work experience in technology, finance & retail. Get in touch