Brazil

Brazilian media had a field day in April when the new luxury shopping mall Cidade Jardim opened in São Paulo using Sarah Jessica Parker of Sex and the City as its spokesperson rather than a homegrown talent. It turned out that it was substantially cheaper to hire the American mega-star and pay her expenses than Brazilian singer Ivete Sangalo, in what was crowingly seen as a Brazil-has-arrived moment.

That optimism is waning. While the strength of the Brazilian currency, the real, and perky economic growth of 5% was the norm in the first half of the year, the last few months have gnawed at predictions for growth this year, which may be as low as 2% while the real has come down some 20% against the dollar.

Experts are wondering just how much this will affect the luxury market. Brazilians are used to crises, points out Christian Hallot, brand ambassador at Brazil’s best known luxury brand, jewellers H. Stern. After all, hyperinflation surpassing 1,000% at times was the norm for much of the ‘80s, and Brazilians are more sanguine in crises than consumers in developed markets plus there is still plenty of pent-up demand. “There will be a little more parsimony and Brazilian consumers are going to think twice before buying, but the reaction won’t be anything like as severe as in the developed world,” thinks Mr Hallot.

Spending on luxury will be affected, but is protected as Brazilians insist on being as up-to-date as possible, adds Carlos Ferreirinha, consultant at São Paulo-based luxury brand consultant MCF Consultoria & Conhecimento. While the norm for most Latin markets is the pattern of alternate seasons to reflect the climate– receiving northern hemisphere collections six months late – Brazilian luxury consumers demand collections at the same time as the States and Europe. A further impetus for spending is that Brazilian women will not countenance wearing the same outfit twice as is often the case in the northern hemisphere, says Mr Ferreirinha.

The focus of spending continues to be São Paulo, which has come to dominate fashion and luxury in Latin America. The Brazilian city of 17 million accounts for some 80% of Brazil’s luxury purchases, estimated to be $5 billion in 2008 and growing at 17%, or some five times faster than GDP, according to a survey carried out by MCF and a German firm. The next stage will be spreading the wealth to new markets, including Rio de Janeiro, which is expected to grow at a clip of over 40% per year, and the capital Brasilia at some 28%. Cities in the Northeast such as Salvador, Recife and Fortaleza will also see growth in luxury good selling, adds Mr Hallot.

Amid all the good news, Brazil remains irritatingly unchanged in other areas and is hamstrung by the crushing weight of tax and bureaucracy. Taxes add up to close to 100% for imported luxury goods and are cited as the most significant drag by 66% of the MCF survey’s respondents. Ponderous bureaucracy and slow customs are also painful and translate into high prices, giving Brazil’s luxury market a much more domestic feel than say Paris or Milan.

Another challenge for newcomers is shaping taste in a market in its infancy. There is still a relative paucity of media in the sector – partly thanks to Brazil’s Portuguese-language isolation -- although very niche luxury magazines are starting to fill the space. That passes the baton of consumer education to the luxury brands. “We must orient clients to seek out quality and durability over price,” says Mr Hallot. “Education is our number one challenge.”

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