The Fashion Trail | Unravelling Brazil’s Luxury Market

RIO DE JANEIRO, Brazil – Arriving in Rio de Janeiro in the middle of the Brazilian summer, in a country experiencing an ongoing economic boom, certainly puts the bleak, uncertain economic outlook of wintry Europe and North America into sharp relief.

I was invited to Brazil on the generous invitation of ABIT, the Brazilian Textile and Apparel Industry Association, to attend Fashion Rio, the smaller of two semi-annual fashion events just concluded in Rio and São Paulo this week. And as ever on my trips to international markets, it was the perfect opportunity to explore firsthand one of the fastest growing luxury markets in the world, to see some local designers, and to get to know the local BoF community as well. Brazil ranked 13 on our list of countries with the most BoF readers, based on website traffic in 2011.

I came to Brazil with three questions on my mind: what are the prospects for the Brazilian luxury industry, what’s it like to do business here, and who is the Brazilian consumer?

HOMEGROWN LUXURY

With a population of 190 million people – the fifth most populous country on the planet – for years, Brazil received little attention from the international luxury goods industry, which was content to serve the market through other channels, primarily via licensing and franchises.

For years, Brazilians also simply bought luxury goods from their friends, who imported luxury products in their suitcases from their trips abroad. This is how the São Paulo-based luxury emporium Daslu is said to have been founded, before growing into the beacon (and then target) for a superrich elite in one of the world’s most unequal countries.

On my last visit here in December 2007, Brazil had yet to welcome stores from major international luxury brands like Prada, Hermès and Bottega Veneta. But all of this has changed. The aforementioned brands have recently opened new stores in Brazil and more than 30 other new retail openings are expected to follow in 2012, Carlos Ferreirinha, president of MCF Consultoria & Conhecimento, a São Paulo-based retail and luxury consulting company, told WWD. In short, the luxury retail landscape is being completely redefined.

This seems well-timed. The number of millionaires in Brazil is on the rise, spurred by a commodities boom and new oil discoveries, and is predicted to surpass 1 million by 2020. Property prices in Rio De Janiero are sky-rocketing. Meanwhile, this year, the Brazilian luxury goods industry is expected to grow to more than $12 billion. In comparison, there is also a thriving homegrown apparel and textiles industry, valued at more than $60 billion, with only $1.5 billion going to exports.

Brazil’s answer to LVMH and PPR is In Brands, a multi-platform “consolidation of lifestyle and premium fashion brands – the iconic brands – in Brazil,” but relatively unknown outside the country. These include high fashion line Alexander Herchcovich, menswear lifestyle brand Richards, swimwear label Salinas, online website FFW.com.br, and the branded fashion weeks organised by Luminosidade in Rio de Janeiro and Sao Paulo, whose fashion week is touted as the fifth largest fashion event in the world.

But the Brazilian fashion brand with greatest international visibility (if not sales) is Osklen, built around the relaxed lifestyle of Rio, founded in 1989 by orthopaedic physician Oskar Metsavaht. With 63 stores in Brazil and 10 stores and growing abroad, Metsavaht’s business is estimated to turn over between $170 to $230 million each year. Reports in Brazilian and international business media say that a majority stake in the Osklen business is currently for sale, with LVMH and PPR as two of the potential suitors.

BYZANTINE BUSINESS ECOSYSTEM

But beneath this glossy surface is a complex market with a complicated future. Despite the sense of optimism, the Brazilian economy has actually been slowing down. After rapid GDP growth of 7.5 percent in 2010, growth fell by more than half in 2011, to about 3 percent. Consensus forecasts peg 2012 growth to be slightly more than this. The spectre of a Brazilian bubble is debated in the financial newspapers.

Many local business people also complain that the Brazilian market is impossible to navigate. The country was ranked 126 in the latest “Ease of Doing Business,” report published by the World Bank in June 2011. As one expat described it to me, Brazil will welcome you with open arms, but when you actually try and do business here, you will eventually find yourself stuck in a morass of government bureaucracy, corruption and an incomprehensible system of taxation.

Indeed, nobody could definitively explain to me the country’s byzantine tax system. According to Rafael Cervone Netto, chief executive of Texbrasil, a textile and apparel industry export program, tax rates differ depending on the product category, the state into which the product is imported, and where the product is purchased, resulting in more than 300 different tax positions within the textile and apparel sector alone. What’s more, these tax policies are constantly changing, at multiple levels of government. A staggering 38 percent of Brazil’s GDP is comprised of taxes, versus 8 to 20 percent for other countries, Mr. Netto said.

Not only does this make Brazil extremely difficult for global luxury brands to manage, it also makes imported products as much as two or three times more expensive than in their home markets. According to Jenny Barchfield, fashion writer for the Associated Press, “at the Burberry store in Sao Paulo, a trench coat that retails on for $915 on its UK website was selling for 3695 reais, or $2075,” or more than twice as much as it costs in the UK.

WHO IS THE BRAZILIAN LUXURY CONSUMER?

All of this begs the question: who exactly are these Brazilian luxury consumers and why are they willing to pay such outrageous prices? Why don’t they simply shop abroad like their counterparts in China and India?

Brazilians do shop abroad, particularly in Miami or New York, but contrary to popular opinion as gregarious people, they “tend to be shy and prefer to buy at home because they are more comfortable here, where they can speak in Portuguese” said Graça Cabral, a director of Luminosidade. Customer service is also a magnet for shopping. In Brazil, clients have close relationships with their favourite sales people, who constantly feed them information.

On the recommendation of a Brazilian friend, I flicked on the television in my hotel room one night to watch Mulheres Ricas, or ‘Rich Women,’ a new reality TV show based around the lives of extremely wealthy women in Rio who apparently have nothing to do all day but flaunt their designer dogs and Birkin bags. One character named Brunete Fraccaroli, with her blown out hair and extreme plastic surgery, spent much of the episode clutching a Barbie-style doll, of herself. As it turns out, the doll was a gift from Mattel, who bestowed her with this honour.

Are these the kinds of consumers snapping up luxury goods at inflated prices in Brazil? Not entirely, said Monica Mendes, founder of the country’s leading lifestyle public relations firm that has worked with Daslu, and global luxury brands like Hermès, Chanel and Prada. “Of course we have these kinds of clients, but these are the very new rich, who want to show everything,” she said.

And then it came out. “The woman in Brazil is completely crazy,” said Mendes enthusiastically. “She is completely fashion-oriented. She knows everything about fashion.”

These women, said Ms. Mendes, follow American Vogue as much as they follow Brazilian Vogue. They see all the same editorial and advertisements at the same time as the women in America. “They tear out the pages, mark them with post-its and send them to sales girls who bring it all to their homes.”

“We like fashion,” agreed Ms. Cabral. “It’s a media phenomenon in Brazil. It’s not like [this] anywhere in the world. You see fashion on television, in every kind of slot and programme. You see fashion in all the newspapers. You see fashion in magazines — even magazines that are not fashion magazines.”

But still, how can they afford it? Luxury prices in Europe and America are already stratospheric, but in Brazil they are in another galaxy. “We’ve had a lot of economic crises. We’ve changed our [currency] I don’t know how many times,” recalled Ms. Mendes, and with no irony added: “The Brazilian people are very creative with money.”

You see, in Brazil you can buy everything by payment plan, even luxury goods from Chanel and Hermès. You can pay for your tweed suit in four payments or pay for your luxury handbag in seven installments, and so on. Depending on the kinds of stores you’re visiting, and how much you’re spending, you can split your payments into smaller and smaller chunks.

More than one expert suggested that these payment plans are also a convenient way for women to disguise their luxury purchases from their husbands, splitting up payments across credit cards, cheques and cash.

“We like to dress up. It’s different from other cultures. Maybe more similar to the Arabian culture,” said Ms. Cabral. “Don’t forget, we come from Indians and Africans, and all of them like to wear things and decorate themselves. It’s part of our DNA. It’s there.”

“We want to be cool and have everything that everybody has. We want to wear the Brazilians, but also the international designers,” she added. “We have more and more consumers that want [to buy] quality as well, who are more demanding. And even if you can buy a bag from a Brazilian designer that is 2,000 reais, or a bag from Balenciaga that is 2,000 euros, they prefer [the latter],” she said.

“It brings status as well, because they need that too.”

Imran Amed is founder and editor-in-chief of The Business of Fashion

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7 comments

  1. Love the article, and yes, Brazilian women are “crazy” for fashion and for designer names…sometimes a bit artificial but at the same time natural. Great post!

  2. Pretty sure 190 million is bigger than Russia’s 141 million.

    MG from Alameda, CA, United States
  3. Fantastic article. It’s amazing how booming Brazil is, despite all the economic and political problems they have. I have many good friends in Rio, and it’s amazing how they can spend money do easily. The middle class seem to spend a great amount of money as well. It’s fantastic how they can stimulate their economy, but I strongly believe that the people of Rio spend for themselves, and not for their government, which most seem to resent greatly.

  4. great article – Brazil is amazing what a country – would love to do. The colours would be great – have seen web site http://www.bluemohitio.co.uk that would be great over there

    katherinemas from Burntwood, Staffordshire, United Kingdom
  5. Nice indepth article.Knowing many importand issues.
    As a cloth exporter, wish to do business in Brazil.
    http://www.bizsl.com

    Sayeed Rumi from Dhaka, Dhaka, Bangladesh