IMG-20190405-WA0019[1]The last to close its stores in Brazil was the Versace brand, which ended its operations last Christmas. It was the last store, located in the prestigious Shopping Iguatemi of San Paolo.

In the last 3 years, since the Brazilian crisis exploded (in recession in 2015-2016), about 25% of the more than one hundred luxury brands in the country left Brazil at the height of the growth boom.

The most well-known brands that have closed (or are about to close) their stores are, in addition to Versace, are:

Ralph Lauren (clothing)

Lanvin (clothing)

Kate Spade (accessories)

Vacheron Constantin (watches)

Piaget (watches)

Laudurée (pastry)

Lush (cosmetics)

Kiehl’s (cosmetics, closure announced for the end of March 2019)

 

Paraphrasing the incipit of Anna Karenina by Tolstoy, “all happy businesses are alike, every unhappy business is wretched in its own way”.

In the case of Versace, at the beginning of 2017, the same Donatella – considering the business as very strategic – had decided to directly manage the Brazilian sales points, breaking the agreement with the local franchisee. A poor choice, given the result.

Lanvin, a brand recognized for its classic style, refined materials and understated style, has failed to seduce Brazilian consumers. He interrupted Brazilian activities after only three years of presence.

Even Ludurée, producer of the famous macarrons, could not resist the effects of the devaluation of the real. The selling price of a macarron, R$ 11, had become equal to the cost of importation and due to the economic crisis and to the relative decrease in demand, an increase in price was unmanageable. With no reasonable margins for the brand, the company decided to close the operations.

On the other hand, the case of Vilebrequin, a renowned beach wear brand, which in 2016 closed its stores after eight years of Brazilian presence, is different. The most sought pieces were beach shorts that cost, on average, R$ 900,00 (US$ 250,00) and whose price, with the devaluation of the real, increased to around R$ 1,400.00, a value too high for the Brazilian market, according to brand managers. At the end of 2017, however, it opened a new “pop-up store” in the Shopping JK Iguatemi in São Paulo, which was definitively transformed into a flagship store in 2018.

 

The luxury market in Brazil

At the end of the first decade of the 2000s, several brands focused on a presence in Brazil through their own sales points or franchises. Brazil was considered the most promising emerging country after Russia.

The public was composed not only of the “super-rich”, who could afford to make purchases abroad (especially in the USA), but from the increasingly broader upper-middle class, in search of quality and status. To facilitate access to consumption in this new segment, the possibility of making purchases in installments, by credit card.

It is in this period that many international luxury brands have landed in Brazil with their own stores, helped in this sense by the strong growth of the most luxurious shopping centers. Only quoting the principals of São Paulo: Iguatemi, JK Iguatemi and Cidade Jardim.

Among the brands that landed in Brazil were Dolce & Gabbana, Gucci, Valentino, Pucci, Jimmy Choo, Ermenegildo Zegna, Dior, Chanel, Burberry, Louis Vuitton, Cartier, Vacheron Constantin, Tag Heuer and Longchamp.

With the 2015-2016 recession, consumer behavior has changed. Many rich or new-rich, impoverished by the crisis or seeing more and more neighbors forced to close factories and shops, have begun to consume in a more careful and less ostensive manner. The upper middle class, hit in full by the loss of purchasing power, was forced to renounce the purchase of part of the luxury goods that it was beginning to get used to.

According to a Euromonitor survey, in 2017 the Brazilian luxury goods market contracted by 8.5%. In 2018 a slight recovery is estimated (+ 2.5%), above all thanks to the gastronomy and tourism sectors.

In the 2017-2022 period, Euromonitor research expects growth of 29% globally and 14% in Brazil, which is equivalent to a market of US $ 7.6 billion in 2022 (50% of which is concentrated in the luxury car segment ).

 

Projection of the luxury market goods (in millions of dollars)

World

 Brazil
2017 2022 2017

2022

Clothing

 123.129 134.840 1.222 1.312
Beverages (wines, champagne and spirits)

93.168

 118.838 130 159

Cars

505.668

712.016

 3.282

3.824
Glasses

20.491

 23.763 806 863

Hotel

 51.058 60.953

196

326

Jewelry

41.756

 45.232 290 308

Leather products

49.193

 55.841 232

255

Electronics

891

1.307

 0 0

Watches

28.234

29.467

 143 144

Writing and paper products

1.502

 1.555 20 23

Beauty products

39.632

47.340

 362 404

TOTAL

954.721

 1.231.150 6.683 7.618

Compared to the world average, Brazilians have a preference for spending more on glasses (11% of luxury goods spending), clothing (17%), beauty products (5%).

 

Relative weight of the different luxury goods segments – projection 2022

World Brazil
Clothing

11,0%

 17,2%
Beverages (wines, champagne and spirits)

9,7%

2,1%

Cars

57,8%

 50,2%

Glasses

1,9%

11,3%

Hotel

5,0%

4,3%

Jewelry

 3,7%

4,0%

Leather products

 4,5% 3,3%

Electronics

 0,1%

0,0%
Watches

2,4%

 1,9%

Writing and paper products

 0,1%

0,3%
Beauty products

3,8%

 5,3%

100,0%

100,0%

 

The two big problems: taxes and bureaucracy

The high import taxes imposed by the Brazilian state on luxury products are often very insurmountable obstacles. Imported products have an average price of 38% higher than in the countries of origin, but there are products that come to cost more than double in Brazil.

The high tribulation of imports is a general problem, but in the case of luxury products it becomes a real barrier to entry, one of the protectionist mechanisms that contribute to making Brazil one of the most “closed” economies in the world.

To the import taxes are then often added Kafkaesque bureaucratic procedures for the release of goods in Brazilian ports and airports. Containers and shipments blocked for weeks or months for reasons that are sometimes obscure, and that in the case of cosmetic or food products (subject to health regulations and inspections) can lead to the total loss of the load.

It is clear that these costs can only be partially absorbed by increasing the selling prices, at the cost of making the (albeit wealthy) potential customers flee. As a consequence, profit margins are thinning and often do not justify, as demonstrated by the escape of the brands described above, the permanence of operations in Brazil.

For a significant segment of Brazilians it is still much more convenient to shop in Miami or ask a friend to buy an Iphone or perfume while traveling in the US or Europe.