The Olympics may be over but fashion houses are still going for gold in Brazil
The Niteròi museum in Rio, where the Louis Vuitton Cruise show was held in May © Louis Vuitton/Grégoire Vielle
The spotlight may be dimming on Rio. But while the summer of sport is over, the city is still the focus of continued foreign interest: the big luxury brands are moving in.
Last year five new designer brands moved in to Brazil, including Polo Ralph Lauren and Versace. The French luxury house Hermès unveiled its first Rio outpost this August and will open a third store in the original destination shopping mall of Iguatemi in São Paulo next year. Cartier has recently secured a huge two-story space on Faria Lima, São Paulo’s main shopping street. The house now operates three stores in Brazil.
The arrival and expansion of brands in the country may seem counterintuitive — Brazil is suffering from one of its worst recessions since 1901. But with 200m inhabitants, it’s still one of the largest luxury shopping destinations in South America, with a wealthy local clientele and a sizeable tourist trade.
“There’s been a gear-change among brands with a presence in Brazil,” says Carlos Ferreirinha, founder of the luxury market consultancy MCF Consultoría, and previously regional director for Latin America at the LVMH group. While the summer tournament presented few benefits for high-end retailers — “The weeks of the Olympics are not a good business trade for us anywhere in the world,” says Florian Craen, executive vice-president in charge of sales and distribution at Hermès — the Games played a vital role in changing consumer mindsets. “Everyone expected a low-quality event but it was quite the contrary,” says Maxime Tarneaud, country manager for Cartier in Brazil. “This is good for Brazilian confidence.”
Most luxury houses see Brazil as an opportunity to take advantage of the economic climate. And the risks may not be as great as they first appear. Despite the recession, the decline in purchasing power of the A and B classes in Brazil — the groups that make up the main market for luxury products — has been relatively slow. While the numbers of Brazilians defined as being part of the “C” class, comprising 40m people, fell by 2 per cent in the 12 months to November 2015 (according to research undertaken by Bradesco and the Getulio Vargas Foundation), the A and B categories remained stable. For the big luxury houses such as Cartier, Hermès and Louis Vuitton, Brazil is about investing for the long term, because demand is still robust.
Louis Vuitton has been especially visible in Rio. The LVMH-owned company staged their Cruise show in Rio in May, shortly before the Games, and the brand is confident about its future in the region. “Business has been phenomenal in Brazil in the past five years,” said Michael Burke, Louis Vuitton chief executive, at the time. “Brazil is now our 10th biggest global market and the home of six of its stores. The current situation is a blip. We invest for the long term at Vuitton. Everybody goes to a country during the boom times. But it’s more significant to come to a place when it’s having a harder time.”
The Cartier store in the Iguatemi mall in São Paulo © Cartier
“Harder times” are advantageous for business as well. “For maisons like Cartier, the fact the economy was shaky was a good opportunity to negotiate new spaces inside malls,” says Tarneaud. “It’s always during the storm that you make good commercial deals. And we have.” Property deals have been especially advantageous, with shopping mall operators willing to negotiate contracts at “heavily discounted” prices, says Massimo Mazza, a partner at McKinsey, the management consultancy firm: “It’s about getting the prime spots — because the market will recover.”
Last year five new designer brands moved in to Brazil, including Polo Ralph Lauren and Versace
Current indicators would suggest this is true. The Brazilian real has gained more than 20 per cent against the US dollar this year, making it the best performer among the 16 major currencies tracked by Bloomberg. And the country is still home to some 148,500 high-net-worth individuals, with an estimated $3.7tn between them to spend, according to a 2015 wealth report by Capgemini. While the total number of dollar-millionaires declined last year, Brazil is still on a par with Russia. Nevertheless, in a country riven by huge wealth divisions, keeping wealthier Brazilian clients secure is also a cost to consider: unemployment has increased significantly in Brazil in the past three years, with 12m Brazillians currently out of work. Two days after Louis Vuitton’s Cruise show, thieves made off with $140,000 worth of handbags from the brand’s Ipanema store. But the additional security provided by shopping-mall operators, and a greater police presence in downtown areas in recent years, means shopkeepers could share some of the cost burden.
The brands are also taking advantage of the lower tariffs that were once such a roadblock to sales of luxury goods. In 2008, items purchased in Brazil came in at 80 to 120 per cent price premium compared to the same items sold in the US and Europe. But this gap, fuelled by “outrageously high” taxes and hefty operating costs known as the “custo Brasil” (the cost of doing business in the country), is narrowing. In 2016, the premium is about 18 per cent.
By integrating locally, setting up their own entities to make themselves more tax-efficient, and renegotiating contacts with large shopping-mall operators, international retailers can bring down the final price of what they sell inside Brazil. “Operating conditions will improve,” says Craen, who has been encouraged by the sense of political renewal since former president Dilma Rousseff was replaced in August. Tarneaud of Cartier agrees: “Information from this new government suggests we could expect good news related to tax. But not today.” Michael Burke says that if and when tariffs fall further, Louis Vuitton will double its store presence in Brazil, from six to 12.
Hermès’ first Rio outpost © Tuca Reines
In the meantime, brands are turning their attention to the shopping experience for their Brazilian clients in Rio and São Paulo, who have typically preferred to spent their money abroad until now. Brands point to the emergence of a new, sophisticated set of shoppers who are focused on local heritage brands.
Hermès’ first Rio outpost, in a two-storey 1940s house on Rua Garcia D’Avila, has tapped directly into this consumer mood. Its unassuming white façade, minutes from Ipanema beach, is a far cry from the large shopping malls that appealed to the first generation of aspirational upper-middle-class shoppers. “A store like this will be running in a very similar format for the next 10 years,” says Craen. “This type of store in this location is a way to develop long-term relationships with local consumers.” Brazil, as the saying goes, is not for beginners. And it’s the prestige brands with staying power who will win gold.