Between 2016 and 2018, almost one in four luxury brands closed their stores in Brazil: Versace, Piaget, Ralph Lauren, Lanvin, Kate Spade, Lush, Kiehl’s, Vacheron Constantin are the best known.

With the 2015-2016 recession, consumer behavior changed. Many rich or nouveau riche, impoverished by the crisis or seeing more and more neighbors forced to close factories and shops, have begun to consume more attentively and less ostensively. The middle-upper class, hit hard by the loss of purchasing power, was forced to give up the purchase of part of the luxury goods to which they were beginning to get used to.

According to research by Euromonitor, the Brazilian luxury goods market contracted by 8.5% in 2017.

To further complicate the scenario, the coronavirus pandemic arrived, which however spared the Brazilian luxury market.

As more than 20,000 stores in São Paulo closed their doors in 2020, the luxury market has seen sales grow.

Since no one was allowed to travel, consumption was concentrated in Brazil and all the luxury brands had an outstanding performance, with better sales than in 2019.

In the prolonged period of limited mobility (never a real lockdown, but many more or less respected restrictions) the phenomenon of e-commerce of luxury products exploded in Brazil. The pandemic has dramatically accelerated the development of this channel and many companies that had always been reluctant or hesitant have been forced to be present online in a more structured way.

In 2022, according to data from the Brazilian Association of Luxury Companies (ABRAEL), the market grew by 50%, and this despite the increase in inflation and the uncertainties of the economy. For 2023, a consolidation of this growth is expected and the emergence of three trends:

– The first is that of a personalized online experience: those who buy luxury goods online expect to receive the same attention as those who enter a physical store. So refined packaging, free delivery and ease of returning products, but also an interaction with the seller through whatsapp, online chat or Facebook.

– The second trend concerns the growing importance of the so-called “generation Z”, young people born between 1995 and 2010, whose consumption of luxury products will represent around 30% of the market in 2030. This is a generation that consumes more responsibly and that is very attentive to the socio-environmental sustainability of the products it buys.

– The third trend concerns the crucial nature of “omnichannel strategies”: that is, the integration of physical sales channels with digital ones. If the growth of online sales is now unstoppable, the possibility of trying out products in a showroom or picking them up in-store can become a competitive factor for big brands.

Even if the Brazilian luxury market is growing at a fast pace, we have not yet seen the reopening of points of sale of brands that left Brazil during the years of crisis. Recently, only Polo Ralph Lauren has opened a 260 m2 store exclusively for men in the Iguatemi shopping area of Sao Paulo.

The other brands, burned by financial losses and the intricate Brazilian tax system, prefer for the moment a “lighter” presence in multi-brand stores or still rely on digital channels alone.

There are two big reasons that hold back big brands when it comes to opening their own stores in Brazil:

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

The high taxation of imports is a generalized 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.

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

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

For a significant segment of Brazilians, it is still much more convenient to go shopping in Miami or ask a friend to buy an iPhone or perfume during a trip to the USA or Europe.

Appendix: the luxury goods market in Brazil

At the end of the first decade of the 2000s, several brands focused on a presence in Brazil through their own or franchised points of sale. Brazil was considered the most promising emerging country after Russia. The public was composed not only of the “super-rich”, who could afford to shop abroad (especially in the USA), but of the increasingly large upper-middle class, in search of quality and status. To facilitate access to consumption in this new segment, the possibility – unprecedented compared to other markets – to make purchases in installments, by credit card.

It was in this period that many international luxury brands landed in Brazil with their own stores, helped in this sense by the strong growth of the most luxurious shopping centres. Just quoting the main ones 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 changed. Many rich or nouveau riche, impoverished by the crisis or seeing more and more neighbors forced to close factories and shops, have begun to consume more attentively and less ostensively. The middle-upper class, hit hard by the loss of purchasing power, was forced to give up the purchase of part of the luxury goods to which they were beginning to get used to.

According to research by Euromonitor, the Brazilian luxury goods market contracted by 8.5% in 2017.

In 2018 and 2019, the market returned to growth, but still below its potential: the turnover was around 26 billion reais and Euromonitor estimated it could reach 29 billion in 2023, before the pandemic hit.