Cuba’s Ambitious Fashion ‘Cuentapropistas’

Cuba's Ambitious Fashion 'Cuentapropistas'
Economic reforms, improved relations with the US and even Chanel's
upcoming Cruise show are all encouraging signs, but the future of the
Cuban fashion market still remains uncertain.
Havana, Cuba | Source: Shutterstock
BY ENRIQUE MENENDEZ
APRIL 29, 2016 18:40

MIAMI, United States — Prowling around the boutique at Havana's Hotel
Nacional de Cuba, well-heeled tourists would probably never suspect that
the lustrous jewellery on display by Cuban brand Rox 950 is churned out
from a makeshift factory in a charming but chaotic Havana apartment
overflowing with 35 employees.

Rosana Vargas, the ambitious designer behind the brand, produces upwards
of 500 artisanal pieces a month from her space in Cuba's capital city,
bringing in monthly revenue of about 20,000 Cuban convertible pesos
(CUC). Given that the currency is pegged at a 1:1 exchange rate to the
US dollar, the scale of Vargas's silver jewellery business is an
impressive feat in a country where capitalism was until recently a dirty
word.

Vargas explains that regulations on property operated by private
businesses in Cuba means that, for now, she is confined to her
three-bedroom apartment-turned-factory. After five years on the market,
Vargas is sold in over 10 locations across Cuba, including resort hotels
and the state-run Artex chain. Now, she is in talks with a US-based
distributor.

"We're currently only selling about 50 percent of what we're producing,
and production is not yet where I need it to be. The main objective is
to keep scaling production in order to have sufficient inventory to
export. I can't show up to a meeting with a potential distributor with
empty hands," explains Vargas.

A New Era for Business

The US trade embargo — known locally as "el bloqueo" — has blighted Cuba
for over half a century and, despite the recent thaw in relations
between the two countries, is still active. However, after President
Obama began amending certain economic sanctions last year, some goods
produced by independent Cuban cuentapropistas (entrepreneurs) are now
authorised for export.

Nevertheless, the flow of consumer goods leaving the country is still
minimal and cuentapropistas must abide by certain constraints, says
Marguerite Fitzgerald, a partner at The Boston Consulting Group (BCG)
and author of the firm's most recent report on Cuba.

"They must be able to prove that they are, in fact, independent
businesses — they can't have any connection with the Cuban government
[and] there are restrictions on the type of goods that they can export,"
she says. Artisanal products like clothing, shoes and accessories are
permitted, she explains, while prohibited items include food products,
vehicles and machinery.

Vargas is representative of a growing entrepreneurial spirit in Cuba,
which until a few years ago, presented a much more challenging business
environment. A series of market-based reforms kicking off in 2010 meant
that cuentapropistas could hire up to 25 more employees across an
expanded range of businesses and that some government regulations have
been relaxed.

According to BCG's report, the number of cuentapropistas has more than
tripled since the new regulations. The firm estimates that Cuba's
economy will grow by 2 to 4 percent over the next five years. If
meaningful reforms continue and US restrictions are further eased, there
is potential for faster growth over the long term.

Cuba's economy is small — about the size of Sri Lanka or the US state of
Hawaii — and although it is still dominated by state-run enterprise, the
reforms represent a major shift for a country that ran a planned, closed
economy and whose communist government had a hostile relationship with
the US for decades.

According to some market analysts, Cuba's growing engagement with the
outside world is not only a new era for local entrepreneurs but also for
multinational brands hoping to one day enter the market. Behind the
scenes many big firms are carefully exploring their options or making
quiet overtures. One of the most open and symbolic gestures from the
fashion sector so far is by the luxury brand Chanel, which is set to
show its cruise collection in Havana on May 3.

"I think it's great that Chanel is coming to show in Cuba [and] I'm
looking forward to seeing what [Karl Lagerfeld's] vision of the island
is, [but] if you stop someone on the street, there's a high chance they
wouldn't be able to tell you who Chanel is, and they probably wouldn't
know that Chanel is coming here to do a runway show," says Cuban fashion
designer Rolando Rius.

Rius, who owns a womenswear brand called Ryo, won't be among the band of
international celebrities, fashion editors and supermodels attending the
much-anticipated spectacle. Indeed, the vast majority of the 11 million
Cubans on the tropical island would never dream of purchasing from a
brand with Chanel's stratospheric prices. Most industry experts agree
that the show will treat Cuba as a backdrop rather than as a market to
enter any time soon.

Yet, Cuba isn't exactly a stranger to luxury fashion. Before Fidel
Castro took power in 1959, the Caribbean island attracted couturiers
like Christian Dior to open one of his first boutiques in the Americas
at the El Encanto department store in Havana. But following half a
century under communist rule, the opulence that once characterised Cuba
is no more. In its place is an island of faded grandeur, marketed as a
country somehow frozen in time, attracting the global fashion industry
as a location for glamorous and charming photo shoots.

While Vanity Fair, W Magazine, Marie Claire, and now, Chanel all flock
to Cuba to take delight in its picturesque settings, enterprising Cuban
designers such as Vargas and Rius have been hustling for decades to keep
Cuba's fashion industry alive and incubating a fashion ecosystem that
industry leaders abroad would find both foreign and familiar.

Unique Challenges and Obstacles

One of the biggest obstacles facing Cuban entrepreneurs like José Luis
González is the high price of materials. González started his own
womenswear brand, Modarte, following 25 years working for Cuba's state
textile industry sector specialising in the embellishment and painting
of fabrics.

"Buying fabric from state-owned stores is extremely expensive. I often
work with chiffon because I like the way it drapes, and it will cost
about five CUC per metre for a solid colour. When I have the chance to
go to Italy, which is the last importation I did, it costs a fraction of
the price, maybe a few cents per meter," González explains.

Complicated import tax regulations, duty increases and a lack of
distinction between retail and wholesale operations by some Cuban
authorities are a few challenges cuentapropistas face, he says.

González, Rius and Vargas sell to a small, exclusive group of high
spending customers in Cuba. González's collections can be purchased at
state-owned stores Artex and El Fondo Cubano De Vienes Culturales.
Working with a small staff of sewers, González produces roughly 100
pieces every two or three months which he claims sell out fast due to
presales and high demand.

Rius' collection also includes accessories, ranging in price anywhere
from 40 or 50 CUC for jewellery and up to 80 or 90 CUC for a handbag.
Such prices may seem reasonable or even a bargain to shoppers in the US
or Europe, but in a country where the World Bank estimates GDP per
capita to be around $6,000, they are out of reach for the majority of
Cubans. Fashion cuentapropistas serve a small market niche who recognise
or at least follow international luxury brands but are limited by
access, information and price.

"[Watching] the latest runway show [online] for example, can be
difficult. To be informed 100 percent is difficult, but there are a lot
of people who do and try their best [though] it's a minority," Rius
explains. While up to 30 percent of Cubans have access to
government-regulated intranet, only a small fraction of these can access
the global internet, according to a 2015 report by US watchdog
organisation Freedom House.

The cultural gap left by decades of relative isolation makes life harder
for some fashion cuentapropistas but, for others, it is a business
opportunity in Cuba's close-knit and underdeveloped fashion industry.

Juan Carlos Urquiola, a former model himself, trains aspiring models in
his school, La Academia de Modelaje de Actuar. Besides coaching his
students on walking, posing and how to wear a dress or a suit, "a big
part of it is teaching them how to act properly and telling them that
the world of fashion is different. Once they enter it, things will
change and they won't think the same way as some of their friends from
their neighbourhoods," says Urquiola, who is in charge of castings for
major cultural events like the state-sponsored FIMAE, a convention for
the fashion, furniture and interior industries, which will take place in
Havana in June.

The Seeds of Brand Awareness

"With all the recent changes, people sometimes look at Cuba and sort of
think that we were completely shut off from the world before, which
isn't true," says González, who believes that affordable multinational
brands do have a future in the market. Fast fashion brands such as
Mango, Benetton and Zara have brand recognition because their
merchandise can be found at state owned stores — apparently via
intermediaries. Meanwhile, branded clothing has long been available from
vendors in Havana's famous black markets, like La Cuevita.

A young population is also readily influenced by Cuban rappers and
baseball players who may be seen sporting designer brands. "The regetón
singers who make a lot of money and travel [abroad] are kind of like the
role models for a lot of young people. They go out and buy Gucci and D&G
and Armani, and those young people see them and regard them as the best
dressed people. So some recognise these brands," says Rius.

A more recent phenomenon called El Paquete ("the package") is rapidly
increasing Western brand awareness in Cuba through entertainment. A
weekly compilation of US and other foreign television shows, series,
movies and fashion magazines are delivered to Cubans' homes on a hard
drive or USB disk for the equivalent of US $2 to $5. Although illegal,
it has been largely tolerated by the government and, according to some
estimates, reaches around 70 percent of the population.

Hugo Cancio is the Cuban-American entrepreneur who founded Fuego
Enterprises and OnCuba, two widely distributed Cuban media outlets. He
sees El Paquete as an important indicator of changing tides in Cuba.
"Cubans…are now starting to know how people dress abroad [and] worry
about their personal image and [how] they improve it. So when you have
family members bringing a gift [from abroad] they might say…bring me
some Calvin Klein Jeans or some Gucci," Cancio explains.

Cancio describes a "completely new Cuba" of private businesses,
restaurants and bars, the majority of which procure investment from the
Cuban diaspora abroad, returnees or relatives and friends in places like
Miami whose families fled Cuba in earlier years. This new commercial
atmosphere is one where ambitious local cuentapropistas like Vargas,
Rius and González are now able to build small but substantial businesses
despite the many barriers they face.

Continued progress is dependent on foreign investment, market
liberalisation, rising wages, retail and infrastructure development and
economic growth — none of which is a foregone conclusion in this new
Cuba. With Cuban leader Raúl Castro expected to step down in 2018, it
creates further uncertainty not only for the pace of domestic reforms
but also for Cuba's complex, evolving relationship with the United
States and the halo effect of its international partners.

"I have no idea what all of these changes with the US will lead to,"
says Rius. "We can hope for some sort of exchange of information and
ideas, but I really don't know."

As the authors of the BCG report concluded, Cuba's market evolution is
"intriguing" although there has not been enough progress yet to present
"a momentous opportunity." But this hasn't dented optimistic
cuentapropistas like Rius, González, and Vargas, who are for the first
time in decades witnessing the world get excited about doing business
with their country.

Source: Cuba's Ambitious Fashion 'Cuentapropistas' | Global Currents |
BoF -
http://www.businessoffashion.com/articles/global-currents/cuba-havana-fashion-cuentapropistas-entrepeneurs-emerging-markets