THE BLOG

Retail Chatter #9

05/12/2015 01:36 pm ET | Updated May 12, 2016

Luxury Acceleration in South and Latin America

It has been months since my last article. The absence was due in part to my preparation of a speaking engagement at the Luxury Lab conference last month in São Paulo, Brazil.

Needless to say I had to dig deep and buckle down in studies as though I was preparing for my MBA. While doing some extensive research on luxury in South America, I decided it was time to get back to writing and share some of my findings of this space; not only about Brazil but on Latin America as well, with the focus on Mexico and the emerging luxury territory Columbia.

I was really surprised to hear the news of Brazil's slow growing economy in the last few years of just 1.2 percent per year on an average, this according to the Economist, especially as most of the International brands continue to target this country or has set up shop in malls like JKIguatemi, Cidade Jardim or on Oscar Freire, near the uber luxury multi-brand store Natalie Klein. As it turns out, some of the privilege Brazilians would rather jet off to Europe or Miami for a shopping spree, which still ends up cheaper than buying right in their own backyards. These South Americans are sexy, fun, cool and are totally on the forefront of fashion and beauty.

While I had the opportunity to visit these beautiful shopping malls in person, I noticed they were filled with equally beautiful people and very friendly staff.

The questions I had while I was there was, who is the customer, what are they buying and how are the shops managing to keep their doors open in this impedible economy?

So naturally as I live in this luxury retail space myself, the first stop was engaging the gatekeepers who breathe it day in and day out, "the managers and sales associates." What most have confirm is that accessories, mainly shoes and handbags dominate this space, it's no wonder why it is projected to top 40 percent by 2019, driven mainly by the upper middle and high net worth consumer.

What was also telling was that some of the consumer mimics the fashion trends of celebrities, and love to be viewed as trendsetters.

What I found most fascinating in this research, is that luxury brands have set up an installment payment plan for customers, for instance if a Dolce & Gabbana dress cost 15,000 reals, this can be paid in 6 monthly installments of 2500 reals, which in perception is not expensive as a report by McKinsey and Co previously mentioned, but even though most of these consumers have the cash to pay upfront, they would rather divvy up their payments in order to keep their cash invested. This method of credit card installment accounts for more than 70 percent of luxury product sales.

Digging deeper into my research I discovered that the number one growth spurt in luxury in Brazil has nothing to do with clothing, but rather alcohol consumption specifically fine wine, champagne and other spirits which is predicted to hit well over 45 percent by 2019.. Now that's a luxury revelation in itself.

Another country that is growing at a rapid speed is Mexico. A Bloomberg article said that the economy grew at its fastest pace in two years, so hats off to Prada for opening two stores all in one week, one in Cancun and another in Mexico City, which is now carrying the torch to Dolce Gabbana, who rolled out three stores in one year.

With Saint Laurent pushing for a flagship opening there in 2016, you never know what other Luxury player is planting the seed in Mexico; especially as this Latin country is the second most populated country with the second highest market of millionaires and billionaires.

It's no wonder why in 2014 stores like Louis Vuitton,Tiffany & Co, Carolina Herrara and Ermenegildo Zegna, just to name a few have decided to open shop. This activity has triggered real estate companies and developers to expand and improve existing shopping malls throughout Mexico.

It is estimated that the luxury market will grow to $15.6 billion by the end of this year as consumers continue to crave designer labels.

Much like Brazil, shoes and bags are the front-runner at a whopping 51% of consumption.
Yet, according to Euromonitor the biggest challenge for a luxury brand is to convince consumers to spend more at home than abroad by finding ways to make the shopping experience feel more luxurious.

The sleeping beauty known as Colombia, with a population of 46 million people, according to Central Intelligence Agency is slowly waking up to the luxury market.

This country finds itself where Brazil was ten years ago, when European luxury brands ploughed through the marketplace.

Up until recently the wealthy coast under the radar for their luxury goods fix and as a business of fashion article mentioned, most of the 47,000 or more millionaires in this country now feels the comfort to flash their cash in public.

The luxury market is still quite young with just a sprinkling of mono brands, shop in shop and concession for global brand like Salvatore Ferragamo and Ermenegildo Zegna.

New arrivals of free standing stores in Bogota like Dolce Gabbana, Tiffany & Co and Burberry have joined the pioneers like Louis Vuitton and Max Mara to plow down some roots, especially as the decade long oil and mining boom is coming to a slippery end. This country envision more and more foreign investors will hone in on just about every category of luxury now that they are slowly beginning to see a ray of light at the end of the tunnel.