Iguatemi, the biggest dept store in South America

A booming economy, a fast growing middle class and a high number of millionaires makes Brazil the next Eldorado for luxury goods.

A growing GDP (Brazil more than doubled its GDP in 5 years), stable inflation and the strengthening of the currency make larger its luxury customer base.

Brazil: trends in values and lifestyle

According to data by GFK-Eurisko, Brazilian consumers are more interested than average in fashion, beauty, finance, environment and cars.

Brazilians are very confident that things will be better in the future: 84% age 15+ are very/somewhat confident they will be better off in 12 months.

The value profile of Brazil shows a balanced combination of traditional culture (first value is the faith), social sensitivity and pleasure of life.

With reference to lifestyle statements, Brazilian try to mantain work/leisure balance, along with indulgence.

Basic financial products are very common in Brazil: 85% of consumers hold saving/checking accounts, 77% hold at least one debit card, 42% hold at least one private health insurance.

Internet activities are high: over half of Brazilian Internet users are online shoppers: 88% get access to news or other up-to-the-minute information and 77% find out information about products to buy in store.

The luxury market in Brazil

According to the market analysis made by Bain & Co., Brazil is a small but fast growing market for luxury goods. Brazil has a market value of € 2,3 billion (the market value is an estimate of sales at retail value of international luxury brands including a few Brazilian brands with international recognition).

Brazil is the 11th country in the world for number of HNWIs (High Net Worth Individuals, having investable assets of US$ 1 million or more, excluding primary residence, collectibles, consumables and consumer durables). The HNWIs are around 155.000 (more than India and Russia), of which 5.000 UHNWIs (Ultra High Net Worth Individuals, having investable assets of US$ 30 million or more, excluding primary residence, collectibles, consumables and consumer durables). Among those 5.000 billionares, 50 individuals control wealth for an amount roughly corresponding to the Danish GDP.

Predictions are that in 2015, São Paulo will have more people with higher income  levels than those in London and Paris.

Brazil luxury goods market is currently fuelled by over 100 millions target customers.

10 millions are DINKs (Dual Income No Kids, families composed of two people, both employed). DINKs have more leisure time, a high spending capacity (two salaries and no child to grow), a strong propensity to purchase and seek satisfaction in material goods.

90 millions individuals (corresponding to nearly half of the population) form the growing middle class.

Predictions are that by 2014, the middle class will be 60% of the population (in 2002, it was only 38,8%).

In Brazil, unlike in other emerging markets, female consumption of luxury goods represent around 75% of total, thus characterizing the market in a very peculiar way. Luxury cosmetics and fragrances account for over 60% of total market. Hard luxury, and especially jewels, is the 3rd largest category.

Brazilians like very colorful but “easy” items to wear. They like colors in their clothes, regardless gender, age, social class, and occasion of use. Brazilians are loyal to brands and hardly abandon the preferred ones of proven quality. Usually they wear very casual clothes but they’re very formal when going to work or to special occasions. In Brazil, the more classic catalogue shopping is still used by many consumers, especially for cosmetics. For Brazilian is not uncommon to finance products’ purchase through loans.

Opportunities and weaknesses

The opportunities of a market in such rapid growth have not escaped the international luxury brands, which in the last 15 years have entered the Brazilian market by focusing their openings in the city of St. Paul (which holds 70% of the domestic luxury market) and the city of Rio de Janeiro (25% of the domestic luxury market), for a total of more than 80 stores in these two cities. There are already 60 international brands in the country.

 Italian brands in Brazil (today and entering in the near future)

Among the weaknesses, however, we may include:

1. Tariff barriers

In order to import foreign products, international brands must pay a large amount of taxes and licenses. Brazil does not intend to lower those costs for the moment. There is a very protective policy for the local businesses. The domestic brands, favored by the policy, are more easily and widely distributed, for which they are absolute leader in the market.

2. Non-tariff barriers

There are also numerous non-tariff barriers. An international brand that wants to start operations in the Brazilian market must take into account a multitude of permits and licenses, considerably more cumbersome bureaucracy.

3. Distribution

Suppose you are a manufacturer of a good that costs € 100 to the final consumer in Europe. The distributor/dealer asks a discount of 50%, so he buys at € 50. He is then forced to add a fortnight of taxes and duties, for which in fact he buys the property in question at € 101 (at a higher cost than the list price in Europe). To this he must add the cost of distribution, so the final price can easily climb to € 350-400 (3 - 4 times as much). The international brands that want to invest in the Brazilian market should keep in mind the problem of pricing. The Western products are sold to the consumer at a price three times (some categories of products such as designer goods also four times) than their price in Europe or the United States. As just one example, a pair of Diesel jeans can cost € 1000.00 to final consumer. A pack of mascarpone cheese is sold at € 15.

But despite the problem of pricing, the demand is very high and as we have seen is likely to grow.

The barriers set out above translate into very low margins for Western companies, but it is a market where it is important to be there, whatever it costs. Entering the Brazilian market is not as easy as entering China, but with a long-term strategy, it is certainly a market guard. "From the point of view of Italy, the Brazilian market is an opportunity not to be missed," said Santo Versace, President of Altagamma Foundation. "Many high-end Italian companies are already present and others are about to enter. The cultural proximity with the Brazilian mentality, make all of us helpful with the growth of this wonderful country."

This article is an abstract of the Altagamma Market Focus dedicated to Brazil, which was held on 25 October in Milan. The Altagamma Market Focus seminars are dedicated to specific markets and see the participation of key players in the market: analysts, entrepreneurs and managers.

Among the players who discussed and analyzed the socio-cultural scenario and the market high-end consumption in Brazil were: Paolo Anselmi (Vice-President GFK-Eurisko), Claudia D'Arpizio (Partner, Bain & Co.), Carlos Jereissati (CEO, Iguatemi Group), Henry Cavallari (Home and Hospitality Director, Technogym), Marco Piscitelli (Commercial Director, Flos), Diego Stecchi (Director for Latin America, Salvatore Ferragamo).

Altagamma Foundation is made up of 80 Italian companies operating in the highest segment of the market which express the Italian style and culture, with attention to innovation, quality, service and design. Altagamma Foundation's mission is to support excellence and culture of the Italian industry.