Brazil: Glamorous growth, at a price

Brazil and glamour fit naturally together – think Gisele Bundchen, Adriana Lima and the girl from Ipanema. So it’s no surprise that Brazil’s São Paulo has become the luxury mecca of Latin America and is witnessing a boom in luxury shopping as Brazilians shrug off the global recession and hit the shops. True, only a small industry has grown up to cater to the rich, but those firms that do so can make money hand-over-fist and introduce new brands to a large market.

The shopping experience, long seen as only average in Brazil, has also been going upmarket with the opening of new malls such as Shopping Cidade Jardim, in the posh São Paulo suburb of Morumbi. It mixes well-known brands such as Tiffany (one of four branches in the city) and Montblanc with home grown and more avant garde names.

These new malls are catering to the pent up demand in the country. Between the end of 2006 and June this year, the overall retail market grew 45% whereas the US market shrunk some 5% over the same period, according to Altair Rossato, head of the consumer business industry at Deloitte in São Paulo. The luxury sector was growing at 17% in 2008, or some five times faster than GDP in 2008, according to a survey carried out by consultant MCF and a German firm.

Still, the luxury sector did get clobbered by the recession. Between November and March there was a dizzying drop where consumer confidence wilted, notes Marcel Visconde, president for the importer of Porsche to Brail.

But that downturn has proved short-lived and Visconde predicts that sales of Porsche in the second half of the year will be some 50% above the first half. Moreover, in 2008, the firm nearly doubled its car sales from 459 to 723, he notes.

The Brazilian market has some idiosyncrasies that newcomers would be well advised to heed. First and foremost, Brazilians insist on being as up-to-date as possible, says Carlos Ferreirinha, consultant at São Paulo-based luxury brand consultant MCF Consultoria & Conhecimento.

Most Latin luxury consumers are behind their counterparts in the northern hemisphere by six months because of the reversed pattern of the seasons. Brazilian luxury consumers, however, demand collections at the same time as the States and Europe even if that means having winter clothes in their summer, Ferreirinha explains. Not only that but Brazilian women generally won’t wear the same outfit twice, he says.

São Paulo, which has come to dominate fashion and luxury in Latin America, remains the lynchpin of the fashion world with its mega population of close to 20 million. Indeed, some 80% of Brazil’s luxury purchases are made there. But the next stage in growing the luxury market will be spreading the wealth to new markets, including Rio de Janeiro, which might grow at a clip of over 40% per year, especially with the advent of the Olympics and fresh investments, and the capital Brasilia. Cities in the Northeast such as Salvador, Recife and Fortaleza will also see growth in luxury good selling from a very small base.

Despite all the hoop-la, there are plenty of headaches for luxury goods manufacturers enticed by the tropical model. For a start the market remains very small at some $5 billion in 2008.

And customs are a nightmare while working your way through what can generously be described as Brazil’s Baroque tax code is not for the faint hearted. Taxes add up to close to 100% for imported luxury goods and require the patience of a saint. High ticket prices have kept the market small and much more domestic than Paris or Milan and even Brazilians often reserve luxury shopping for trips to the US and Europe, sneaking goods back past customs.

Finally, the media is sparse in the sector partly because Brazil is Portuguese speaking and so lacks the market size of the rest of the Spanish-speaking Americas. That means responsibility for consumer education lies firmly with the luxury brands themselves. “We must orient clients to seek out quality and durability over price,” says H. Stern’s brand ambassador Christian Hallot. “Education is our number one challenge.”