Latin America’s second-biggest economy is experiencing a luxury boom, at the hands of a young, affluent middle-class ready to spend.
In 2012, Mexico overtook Brazil to become Latin America’s biggest luxury goods market, according to Euromonitor. With a total GDP of $1.2 trillion in 2012, Mexico is the world’s fifth-largest emerging economy behind the BRIC countries (Brazil, Russia, India and China) and the second-largest in Latin America.
The region’s second-biggest economy saw a 4.7% jump to $685m in designer clothing and footwear, while the luxury accessories category saw sales increase 3.5% to $294.3m, according to Euromonitor. In 2012 Brazil’s luxury goods market was valued at $7bn, as Mexico’s stood at $1.5bn, after growing more than 15% in just one year.
“There is a rising economic confidence across Mexico’s luxury goods industry that will be hard to derail,” believes Fflur Roberts, Global Luxury Manager at Euromonitor International. “Luxury goods players are looking at Mexico from a completely different standpoint compared to five years ago, with many brands having opened new stores in the last year.”
“ Mexico’s luxury goods market was projected to expand 12% in 2013 ”
“We see a definite uptick in interest from brands that just a couple of years ago, we never imagined … would be calling us and saying, ’We’re interested in Latin America and what can you tell us about Mexico?’” explains Franco Calderon, president of Latin American Retail Connection, which helps consumer goods stores set up shop in the region.
Mexico’s luxury goods market was projected to expand 12% in 2013, on par with growth over the previous four years, according to Bain & Company. Spending in Mexico on designer apparel, luxury accessories and fine wines hit $3.88 billion in 2012, up from $2.16 billion in 2004, according to Euromonitor (Huffington Post).
In an assessment of 80 frontier markets by Ledbury Research, where the potential to develop is high for the luxury industry, Mexico ranked 10th, ahead of Chile, Argentina, Brazil, Colombia and Peru, all of which ranked in the Top 20.
El Palacio de Hierro Interlomas, Luxury Mall
Perhaps it is the burgeoning wealth that is attracting luxury brands. MINT nations – Mexico, Indonesia, Nigeria and Turkey – are set to lead world’s millionaire boom, according to research by Wealthmonitor. In a list of the countries set to create the most millionaires in 2014, MINT countries overall performed better than both the BRICs and the G8, with a 7% increase expected alone in Mexico, which ranked eight out of fifteen.
“There is a new class of wealthy emerging in the MINT countries, which is going to grow very rapidly,” explains Oliver Williams of WealthInsight. “This huge wealth surge happening in the MINT countries now mirrors the BRICs ten or fifteen years ago. The only difference is that the new Mexican, Indonesian, Nigerian and Turkish millionaire is likely to be much younger due to the demographics of these countries.”
At the top of the pyramid, Latin America was the weakest performing ultra high net worth (UHNW) region in 2012-2013, and the only one to suffer a decline in its population and wealth, according to Wealth-X and UBS. In contrast, Mexico performed more strongly and now commands the second largest UHNW population in Latin America, behind only Brazil.
If the two countries were to grow at the same rate again in 2013-2014, Mexico would then overtake Brazil to have the largest UHNW population in the region. Though Mexican UHNW individuals are still spending slightly less than their Latin American counterparts – approximately US$313,000 on luxury annually, in comparison to US$353.
“ If the UHNW population grows at the same rate in 2014, Mexico will overtake Brazil ”
Dynamic growth in the sale of luxury goods was driven mostly by the economic and political stability brought about during the presidential elections of 2012, combined with the increase of new luxury brands entering Mexico and investing in opening their own stores. This, together with positive levels of consumer confidence, boosted sales of luxury goods (Euromonitor).
2013 marked a notable shift from luxury brands offering their products in high-end Mexican department stores, to opening their own stores in shopping centres in exclusive neighbourhoods. Luxury brands also began to open stores in different regions of the country, which allowed them to increase their geographic reach and therefore their sales, according to Euromonitor.
On-going violence in Mexico has spawned a segment of luxury dedicated to protection, whereby body armour has become the new fashion accessory among the country’s elite. Companies that make this equipment are witnessing a surge in sales, with stylish jackets being outfitted with vests that block bullets from AK-47s and luxury cars equipped with shatterproof windows (Fox Latino).
Aston Martin’s first Mexico showroom opened in February 2014
According to Jose Eduardo Llanos, chairman of the Mexican Automotive Bulletproofing Association, demand in the private sector is growing. Estimates he provided show that in 2012 Mexicans purchased close to 2,500 bulletproof cars. “Usually they’re luxury cars and 80 percent are SUVs,” he continued. The cost of bullet-proofing a car is estimated between US$30,000 and US$60,000.
“It’s for people with money in conflict zones,” Llanos explains. For Mexican armouring companies, the country’s capital, Mexico City, has always been the biggest market. “Unfortunately I think the market will keep growing,” Llanos said. “We predict the market will grow to provide new solutions for more people.”
“ Estimates show that in 2012 Mexicans purchased close to 2,500 bulletproof cars ”
Changing societal attitudes are also impacting luxury consumption, as the combination of delayed parenthood and dual income has encouraged more expensive tastes. Couples with dual incomes but no kids – “Dinks” as they have been coined – are on the rise in Mexico, nearly doubling since 2005, according to Reuters.
“They are buoying a growing high-end goods market, splashing out on everything from expensive lingerie to home decor. Though just over a million in number, the couples are a gold mine for leading brands, and their spending habits are shoring up consumer demand as Mexico’s economy cools.”
“You’re talking about relatively young couples that have strong purchasing power because they work and have enough discretionary income,” explained Carlos Miranda, vice president of Grupo Axo, a local retail partner for Sephora and Emporio Armani.
Little concrete data exists on how much Mexican Dinks spend, but a 2008 study by consulting firm De la Riva Group found that each couple shells out about 165,000 pesos ($12,900) per annum, largely on movies, restaurants and bars – or some 220 billion pesos ($17.17 billion) in total. That infusion is helping to boost Mexico’s luxury goods market, particularly for brands with more accessible price points
Bullet-Proof Cars: Mexico’s Must-Have Accessory
Income disparity is a concern in Mexico, as it is in many emerging markets. Though the middle class is growing and consumer goods and luxury goods sales are rising, many middle-class families actually saw their household incomes fall over the past two years. The country’s president, Enrique Peña Nieto, campaigned on the simple promise “You’ll Earn More,” and has pledged to significantly increase GDP growth.
While the upper income bracket continues to fare relatively well, robust economic growth will depend on the inclusion of a broader segment of the country’s population in modern Mexico’s success (Forbes).
“ Many middle-class families actually saw their household incomes fall over the past two years ”
Luxury goods in the Mexican market still have a great deal of potential in terms of consumption, according to Euromonitor. “Customers are becoming increasingly aware of the advantages that luxury products can offer them in terms of quality, performance and status, and are likely to increase their demand for these types of goods over the forecast period.”
“In addition, the expected increase in the availability of products resulting from the entry of more luxury brands is also likely to support the positive performance of this market. Consumers will be faced with a wider range of options, which might encourage them to increase their spending per product and increase the frequency of purchase.”
As witnessed in Brazil, a thriving class of young and high-earning professionals are set to fuel future luxury apparel and goods sales. This emerging class is quite different from the one that bought luxury in the past, in the sense that they are far more informed about fashion, trends and brands, with the rising access to information brought about by the Internet.
El Palacio de Hierro Interlomas
“Today we see 15-year-old girls carrying Gucci or Louis Vuitton handbags,” reveals Carlota de la Vega, director of Fashion Group International in Mexico City. “With males, we see them wearing upmarket polos such as Lacoste or very trendy and expensive watches.”
“This compares with two decades ago, when most consumers would buy luxury when they were about 30 years old. If you were in high school, these things were a lot less accessible.”
Going forward, Mexican consumers will become more discerning when it comes to spending on luxury goods. In 2013, Euromonitor noted that consumers became increasingly aware of how their purchasing decisions could have a positive or negative impact on social and environmental issues, as they began to ask more questions about the processes and activities involved in the manufacturing of products.
This led luxury companies to become increasingly transparent and engage in environmentally and socially responsible causes. In 2013 this trend was observed amongst consumers, who preferred luxury goods, which in addition to high quality and exclusivity, would offer them the opportunity to support a cause.
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