canvas8 - IS THIS THE END OF BRAZIL’S LUXURY BONANZA Brasil's LuxuryMarket 2015

1. Highlights & Data
Shopping abroad for designer goods is a privilege reserved for the
middle class
As millions have recently risen from shoe shine boy to billionaire,
nouveau riche tastes favour extravagance
High import markups are managed strategically by companies
offering instalment payment plans and special customer service
Brazil’s size and spread of cities promises a decentralisation of
luxury consumption and broader evolution across the country’s
market
A lurch in growth has resulted in more rational consumption of
luxury lifestyle
The youth and tastes of the current population makes Brazil an
attractive market to international brands
The number of luxury brands has doubled over the last five years
Prices for imports are usually between 30% and 100% higher than
those in the US or Europe
The ranks of the super rich have grown to 172,000, with a rise of
7,000 in the last year
Analysts expect the number of millionaires to continue to grow to
332,000 by 2019
Luxury estate could generate R$4.6 billion in the next four years,
with 54% of millionaires intending to buy residential property
Foreign investment in Brazil reached $66.5 billion in 2014
By 2018 the luxury market should grow another 30%, with
additional value sales of $1.4 billion
Is the outlook bright for Brazil’s luxury market?
Gustavo Gomes, Creative Commons (2010) ©
REPORT 27 Mar 15
IS THIS THE END OF BRAZIL’S
LUXURY BONANZA?
New shopping malls and a young population with
sophisticated shopping tastes are helping make Brazil one of
the world's most profitable luxury markets. But the recent
economic downturn means optimism is ebbing. Does a
gloomy economic outlook spell the end of Brazil’s luxury
bonanza?
Location Brazil
Scope
The luxury market in Brazil has been through a transformation spurred by the boom in the economy. The number of foreign luxury brands has
doubled over the past five years, and by 2018 the country is expected to be amongst the top 15 luxury goods markets in the world. [1] The
proliferation of luxury coincides with the swelling ranks of the super rich. The figure has risen by more than 7,000 in a year, and in 2014, the country
reached a record of 65 billionaires. [2][3]
Brazilians can now find designer brands wherever they go. Stroll down the ‘eighth most elegant street in the world’ – Rua Oscar Freire in São
Paulo – and you’ll find the likes of Montblanc, Dior, Louis Vuitton, Emporio Armani, Versace, and Tiffany. [4][5] This has changed the way people
shop. Djalma Rezende, a lawyer from Goiás, used to go to Miami to buy his clothes, jewellery and wine. But in the past two years, he’s been able to
pick up his favourite brands closer to home. “I like to have the very best,” he says. “I can now find almost everything here, even a box of Château
Pétrus.” [6]
But the luxury market faces a tough reality in Brazil. Optimism has been ebbing in light of the recent economic downturn and rising political
uncertainty. Brazil’s GDP growth for 2015 should contract to 0.3% and inflation is expected to reach 7.93% by the end of the year. [7][8] Does this
gloomy outlook spell the end of Brazil’s luxury bonanza?
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A new market for new money
The luxury market in Brazil has only been around for 20 years. Before that, the country had a closed economy and most Brazilians didn’t have
access to these kind of products, says Marcus Matta, president of Prime Fraction Club, which manages the shared use of luxury assets such as
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2. helicopters, jets, yachts and cars. [13] “For years, people had access to luxury brands through friends who would bring them in their suitcases from
travels abroad,” adds Luz Vaalor, president of luxury business consultancy, the Valor Luxury Lab. [14]
The economic turmoil has not affected the entire luxury market, though. In 2014, while Brazil’s automotive industry as a whole saw a drop in sales,
those who focused on high-end vehicles – like Audi, Toyota, Lexus and Mercedes Benz – managed to conquer new markets. Audi reported an
increase of 118% in sales in the first half of 2014. [9]
For years, people had access to luxury brands through friends who would bring them in their suitcases from travels
abroad
Luz Vaalor, president of Valor Luxury Lab
Sales of luxury cars is less dependent on macroeconomic conditions, explains Letícia Costa, a car industry expert. “Those who buy these cars tend
to be a lot less price sensitive, and less susceptible to credit conditions, so they keep replacing these cars,” she says. “And there’s a sizable
proportion of the population with a significant income or wealth.” [10]
The luxury real estate market is also blissfully unaware of most signs of recession – expensive areas in São Paulo saw a surge of 10% in properties
prices last year. [11] The market for the rich is always surprising, says Amir Makansi, partner and chief executive officer at estate agency Anglo
Americana. “Wealthy individuals don’t follow the same logic as the general market,” he says. “These people can pay for properties that meet their
specific needs, like being close to work.” Luxury real estate in Brazil has the potential to generate R$4.6 billion (that’s £950 million) in the next four
years, with 54% of the millionaires intending to buy a new residential property during this period. [12] So for the car and home markets, business is
still booming.
Wealth comes from two camps; old money and the nouveau riche
Gustavo Gomes, Creative Commons (2010) ©
Fascinated by all things foreign
Brazilian luxury consumers have come a long way since the ‘90s. Today, they’re familiar with international brands and are influenced by European
and American lifestyles. Since going abroad or buying imported products is not something for the masses, it gives those who can afford it some
status. Brazilians have a fascination with foreign things. “The middle class and wealthy women in Brazil are completely fashion orientated, and
follow international trends closely through magazines like American and European Vogue,” says Vaalor. [14]
“Distances feel shorter now,” says Matta, in reference to travel facilities and internet access. “So behavioural trends are simultaneous across
countries.” [13] According to Vaalor, upscale Brazilian consumers are sophisticated, demanding and open to new experiences. They also care
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3. about the quality, exclusivity and distinction that these labels can give them. The major luxury market players in Brazil include many of the obvious
brands – from Montblanc to Mercedes Benz, BMW to Burberry. [14]
French philosopher Gilles Lipovetsky still points to differences in the way people consume luxury across developing economies and more mature
markets. In places like Brazil, these kind of products have been traditionally used for ostentation, while in Europe they have a more emotional
appeal. “In the emerging economies, it’s a way of gaining social status,” he says. [15] Louis Vuitton bags, Rolex watches and Audi cars are some
of the icons. They’re among the most desired and sported items by Brazilians.
Payment plans make luxury purchases affordable to more people
Gustavo Gomes, Creative Commons (2010) ©
Old money meets the nouveau riche
Millions of people rising from poverty in the last decade has altered the landscape of inequality in Brazil. At the same time, the ‘nouveau riche’ have
made a place for themselves besides the aristocratic families. One example is José Janguiê Bezerra Diniz, who began as a shoeshine boy at eight
years old, and has since become the billionaire founder and principal shareholder of education company Ser Educacional. [16]
When it comes to consumption habits, some see differences between new and old money. New riches, in general, tend to be distinguished by their
extravagant taste and for a tendency to emphasise their privileged status, says Vaalor. [14] The more traditional ones don’t like to show much – it’s
less about displaying brands and more to do with exclusivity and limited editions. Some are more discreet for simple security reasons. In fact, for
Nielsen Cohn of the Nielsen jewellery store in São Paulo, consumption of high luxury products is capped in Brazil due to the high crime rates. [17]
Brazilians have seen significant improvements in recent years, but security remains a serious issue across the country. Business jets and
helicopters are used not only to avoid traffic, says Matta, they also work as a means of getting around safely. High criminality has lead to the
integration of the shopping mall into Brazilian culture. The air conditioned malls moreover, provide escapes from the hot and damp weather
conditions and offer a great choice of brands under one roof.
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4. Brazil’s nouveau riche have a taste for extravagance
Gustavo Gomes, Creative Commons (2010) ©
All abroad
These facilities are not enough to curb Brazilians’ overseas shopping habits. According to Maxime Tarneaud, country manager for Cartier in Brazil,
prices for imports are usually between 30% to 100% higher than those in the US or Europe. “Our strategy is to adopt an aggressive pricing
approach, and aim for just a 20% markup on the US or Europe,” he says, adding that despite high prices, the upper classes are predominantly
eager to spend. [18]
Companies channel domestic consumption by recruiting local ambassadors or promoting exclusive events. Offering customers the option of paying
in instalments – a common practice amongst Brazilians – is seen as a bonus even by the wealthiest individuals, says Fernando Marchesini,
coordinator of MBA in trade and sales management. [19]
Customer service can also be a key differentiator. “Brazilians like to be recognised and treated as if they’re special,” says Vaalor. “They tend to
develop a long-term relationship with their favourite salesperson from their preferred brand, which means customer service is a determining factor
for loyalty.” [14] Louis Vuitton often takes its most loyal Brazilian customers to Paris Fashion Week, while Audi takes potential customers in Brazil to
the Le Mans endurance race in France. [20]
Brazilians like to be recognised and treated like they're special. They tend to develop a long-term relationship with
their favourite salesperson from their preferred brand, which means that customer service is a determining factor for
loyalty
Luz Vaalor, president of Valor Luxury Lab
Most luxury brands are looking at Brazil in the long-term, says Carlos Ferreirinha, former president of Louis Vuitton in Brazil, and owner of luxury
brand consultancy MFC Consultoria. [21] “The market here will be successful in the next 20 years because half the population will still be under 35,
” he says. While in China and Japan, consumption is concentrated in large centres, in Brazil it’s scattered across a vast number of cities, which
shows strong potential that will sustain today’s investments.
Some believe that the most exciting growth prospects lie in cities like Brasília, Curitiba, Recife, Ribeirão Preto and Belo Horizonte. The federal
district of Brazil leads the ranking of GDP per capita; R$63,020, which is almost three times the national average and almost double São Paulo’s. [
22] “The economic stability that Brazil has enjoyed in recent years – which has increased purchasing power of the population – is the main reason
for the decentralisation of luxury consumption,” explains Ricardo Teixeira, a professor of business strategy. [23]
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5. The big name luxury brands like Dior and Louis Vuitton are the most pop in Brazil
Gustavo Gomes, Creative Commons (2010) ©
Insights and opportunities
Up until now, the luxury market has passed relatively unscathed by the hardships of Brazil’s slower economy sectors, but some believe that it will
suffer a more significant impact in time. Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation, expects the sector in
Brazil to grow between 3.8% and 4% this year, below the world average of 5%. [24]
Luxury market specialist Renata Galhanone says that as the sector deals with high earners – who are not usually the first to be hit by economic
crises – it’s not affected as quickly by difficult times. [25] For Matta, Brazil’s economic slowdown, rapid inflation and the soaring dollar have been
affecting the luxury market, but in a less aggressive way than in other departments. The downturn has had an influence on how companies and
consumers behave, he says. “In our case, we have seen a greater demand for the sharing of aircrafts, boats and cars, thus ensuring a more
intelligent and rational use of these assets.” [13]
We’ve seen a greater demand for the sharing of aircrafts, boats and cars, thus ensuring a more intelligent and
rational use of these assets
Marcus Matta, president of Prime Fraction Club
Despite Brazil’s difficulties, foreign direct investment – FDI – in the country reached $66.5 billion in 2014. [26] “Sluggish growth is just part of the
story, and is not by any means the only criteria on which investors focus their investment decisions,” says Irene Mia, regional director for Latin
America and the Caribbean for the Economist Intelligence Unit. “Brazil’s attractiveness for FDI remains huge.” Moreover, analysts expect the
number of millionaires to continue to grow to 332,000 by 2019. [27]
There’s still a large, untapped luxury goods market in Brazil, says Flur Roberts, head of research for the luxury industry at Euromonitor. [28] “The
big brands are yet to extend their presence beyond the three major cities; Rio de Janeiro, Brasília and São Paulo,” he says. “Other cities remain
largely unexplored.” By 2018, the luxury market in Brazil should grow by 30%, with additional sales of $1.4 billion.
New shopping malls, a dynamic, consumer-based economy and – most importantly – a young population eager for novelties and with sophisticated
shopping tastes. All these factors make the Brazilian luxury market one that cannot be ignored.
Cecília Bergamaschi is a Brazilian journalist who has been living and working in London since 2003. She’s covered various sectors; most recently
finance and technology. Cecília holds an MA from City University London.
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6. Canvas8 Ltd © 2013
Related behaviours
New World Order:When America is no longer in charge.
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Sources
1. ‘Capturing the hearts of Brazil’s luxury consumers’ , McKinsey & Company (October 2014)
2. ‘Brasil ganha quase 7 mil super-ricos em 2013, diz relatório’ , G1 (July 2014)
3. ‘Brasil tem recorde de 65 bilionários; confira quem são’ , Terra (March 2014)
4. ‘A vitrine de São Paulo’ , Associação dos Lojistas dos Jardins (March 2015)
5. ‘Recife no mapa do luxo’ , Jornal do Commercio (August 2014)
6. ‘A indústria do luxo agora invade o interior do Brasil’ , Exame (September 2013)
7. ‘IMF cuts Brazil's GDP growth forecast down to 0.3%’ , Agência Brasil (October 2014)
8. ‘Mercado eleva para 7,93% previsão de inflação’ , Jornal do Brasil (March 2015)
9. ‘Carros de luxo ficam na contramão da queda das vendas’ , Brasil Econômico (July 2014)
10. ‘Brazil’s luxury car sales stay steady as overall auto market stalls’ , CCTV America (February 2015)
11. ‘Sao Paulo’s luxury neighborhoods ignore Brazil recession’ , Bloomberg (September 2014)
12. ‘Cresce o mercado imobiliário de luxo no Brasil’ , Terra Magazine (April 2014)
13. Interview with Marcus Matta conducted by author
14. Interview with Luz Vaalor conducted by author
15. ‘O luxo não conhece a crise e cresce no Brasil’ , Folha de São Paulo (September 2012)
16. ‘Ex-engraxate é o novo brasileiro na lista de bilionários da Forbes’ , UOL (June 2014)
17. ‘Milionários buscam exclusividade’ , O Estado de São Paulo (December 2012)
18. ‘Red tape and high costs make Brazil’s luxury market a tough sell’ , FT (May 2014)
19. ‘Clientela do mercado de luxo cresce e movimenta cerca de R$ 24 bilhões no Brasil’ , Hoje em Dia (March 2014)
20. ‘A indústria do luxo investe em experiências exclusivas’ , Exame (October 2013)
21. ‘Nenhuma marca de luxo ganha dinheiro no Brasil’ , Época Negócios (August 2014)
22. ’DF tem maior PIB per capita do Brasil’ , Agência Brasília (November 2013)
23. ‘Grifes de luxo "descobrem" o Brasil e abrem lojas fora do eixo Rio-SP’ , UOL Mulher (December 2013)
24. ‘No mercado de luxo, sapato vende mais’ , O Negócio do Varejo (December 2014)
25. ‘Crise começa a atingir mercado de luxo’ , Jornal do Brasil (March 2015)
26. ‘Brazil's downturn fails to put off foreign investors’ , BBC (November 2014)
27. ‘Número de milionários triplicou em 14 anos, diz estudo’ , Notícias Terra (October 2014)
28. ‘Expansão da camada de maior renda aquece mercado de luxo’ , Brasil Econômico (January 2014)
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