Once recognised for its enormous growth potential for the luxury goods industry, the BRIC group of countries has recently been struggling economically amidst an export bust due to falling global commodity prices as well as an escalating debt burden.

 

Brazil was the worst performing economy amongst the BRIC countries as its real GDP shrank by 1.9% in 2011-2016. On top of economic woes, Brazil has also been beset by a spike in political instability. Such a negative economic scenario, in conjunction with political instabilities, has filled Brazilians and its luxury goods market with uncertainties regarding the future

Indeed with unemployment on the rise, wages down, currencies in turmoil and public spending squeezed, the good times have unquestionably stopped rolling in Latin America’s biggest market. Small wonder the markets once lauded new middle class is feeling aggrieved, especially in major cities such as Sao Paulo where millions have taken to the streets in protest at worsening living conditions and alleged corruption at the highest levels of government.

As we move further into 2017 a gain of just 0.5% is expected for the year and 1.5% in 2018, down from 1.0% and 1.8%, respectively, in our November forecast.. A possible rebound in exports is one of the few bright spots, however a spreading corruption scandal and a steep fall in investment still cripples the economy.

For luxury goods retailers and brand that gorged on the boom times in Brazil what happens now and how do luxury brands etch out growth in an increasingly difficult trading environment?

 

Economic worries impact luxury goods sales at home and abroad

The economic crisis in Brazil has had devastating effects on its luxury goods industry making even the most resilient consumers more conservative with their purchases. As a result, the industry had its weakest growth performance of the last 10 years witnessing a real decline of -3.4% in 2016.Many international luxury brands that entered the market during the boom years have now shut shop and left the country.

This trend, however, has had an upside, with high-income consumers postponing or cancelling international trips and doing more of their luxury shopping at home. Indeed whilst the downturn has played a huge role on domestic luxury spend, outbound departures to the US was also down and reached 2 million trips in 2015 (down from almost 2.3 million in 2014 and representing a decline of 2.3% for the first time since 2003) - this also meant that there were less Brazilians shopping for luxury in traditional hotspots like Miami.

 

Luxury shopping centres remain in the spotlight

In Brazil, shopping centres remain the key areas for luxury consumption. These include the likes of Shopping Cidade Jardim, Iguatemi and JK Iguatemi in Sao Paulo, while Village Mall offers a range of luxury brands in Rio de Janeiro, Iguatemi in Brasalia and Pàtio Batel in Curitiba. The shopping centre culture is very strong in Brazil’s main urban centres. Urban violence and the threat of robbery are issues which concern consumers in general, but especially those in luxury environments. Thanks to heavy security, shopping centres rarely see such occurrences.

In fact, despite what appears to be a dismal landscape, JHSF Participações SA is in the process of building a new luxury mall in Haddock Lobo Street in the centre of the luxury shopping district in Sao Paulo. The new mall, which is set to open in 2018, will offer 50 luxury stores in an open-air environment, thus offering the atmosphere of the streets, drastically enhancing the whole experience of shopping but all in the security of a shopping centre.

Brazil’s wealth shows off its financial muscle

Despite the economic headwinds the number of affluent households in Brazil is expected to grow with a notable rise their disposable incomes foreseen in the long run, owing to the slow but rising economic prospects. At the end of 2016 there were almost 280 thousand households in Brazil with an annual disposable income over US$300k – making it the wealthiest market in the Latin American region. This number for 2016 was up by almost 3% on 2015 numbers and a vast improvement: much in-line with its luxury market this number fell by -4% in the previous year.

 

The role of millennials in Brazil’s luxury market

As the largest and fastest-growing cohort of consumers in world, millennials are unquestionably reshaping the luxury goods industry and Brazil is home to the fifth largest millennial population in the world.  

What the millennial wants, of course, varies from person to person, particularly by culture and income. However, a number of common wishes have been identified by Euromonitor International that many in this demographic prioritise. They want experiences rather than “things”, they want good value for money, they want products that speak to them specifically, and, above all, they want to be heard and interacted with. They also care passionately about authenticity, and it is important to them that luxury brands and companies are transparent about their ethical stances.

In terms of where Brazil’s millennials sit in the world, what is notable is their confident and aspirational compared to the global millennial population as a whole. Brazilian millennials tend to be more ambitious, confident and happy than other Brazilians, and less traditionally minded. They are image conscious and pleasure seeking, affluent, ambitious and trendy. All of these traits bode very well for the future outlook for luxury sales as well as the luxury wellness industry and experiential luxury.


About the author

Fflur Roberts

Head of Global Luxury Goods Research , Euromonitor

Fflur Roberts manages the research program for the global luxury goods industry at Euromonitor International, which she joined in June 2000. In her current post, Fflur Roberts has direct responsibility for the content and quality of Euromonitor’s Luxury Goods research, which provides strategic analysis of the global market and in-depth coverage of the industry in 32 countries world-wide.


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