default-output-block.skip-main
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

Latin America's $160 Billion Fashion Opportunity

The fashion market in Latin America is bigger than the Middle East and growing as fast as Asia. But will industry leaders continue to invest as much as the region needs to realise its full potential?
Alfredo Martinez campaign | Source: Izack Morales
By
  • Robb Young

MEXICO CITY, Mexico — Regina Barrios has a fearless streak that you can sense within five minutes of meeting her. A serial entrepreneur who smiles wide but speaks her mind, Barrios is fed up with ill-informed outsiders who underestimate her part of the world. "Actually, there's tonnes of money here. Tonnes of it," she says brusquely before turning on a dose of easy charm.

"Call me Gina," she entreats. "OK, true, in Latin America we have extreme poverty on the one hand and extreme wealth on the other. Some of the money is coming from weird places too so inequality is a massive problem, especially here in Mexico. It's all true. But that doesn't change the fact that there's serious purchasing power for fashion here now — and I mean, serious purchasing power."

Barrios should know. After ten years on the international trade show circuit wholesaling her jewellery line Ishi at the likes of Tranoi in Paris, Barrios opened a multi-brand boutique back in Mexico City called Lago DF which attracts wealthy chilangos and cool-hunting tourists alike. Her confidence in the local Latin American market has grown so big, in fact, that she decided to launch her very own trade show in the Mexican capital last year.

“Caravana Americana showcases the best of Latin American design by focusing on the artisanal side of luxury,” Barrios asserts. “I’m obsessed with quality and rescuing techniques and pushing this special fusion design culture we have here. It’s not just clothing, jewellery and textiles but also objects and furniture.”

The latest edition, which was held in March, drew designers from Mexico, Peru, Colombia, Venezuela and Argentina. Retailers came from across the region and as far away as Australia to buy.

When high profile imports meet high quality exports

Trade shows across the Latin American region have been growing or upgrading their offering in recent years. Big events in Brazil and Argentina as well as Colombiamoda in Colombia’s Medellin and Intermoda in Mexico’s Guadalajara have all had to up their game to compete with smaller carefully curated new entrants.

Caravana Americana trade show in Mexico City | Source: Diego Flores

“Well, there have been several similar events in Mexico City recently, but few really make a difference. You can definitely say Caravana Americana has become the top event of its kind,” says Raúl Alvarez, fashion editor of the Mexican edition of Elle magazine.

The growing dynamism of the region's B2B fashion trade is the product of higher quality exports and higher profile imports. As exciting Latin American designers like Mexico's Carla Fernandez, Colombia's Johanna Ortiz and Peru's Escudo by Chiara Macchiavello pushed forward to breakthrough into Europe and the US, a wave of global fashion brands entered the region.

Stella McCartney is the latest luxury player to put down roots in the region. Having opened a boutique in Saks Fifth Avenue in Mexico City's Centro Santa Fe shopping centre, McCartney is one of several designers partnering with the US department store chain since it first expanded south of the border ten years ago.

This wave followed a bigger one a few years ago which saw Louis Vuitton, Prada, Dior, Burberry, Hermès, Chanel and many others expand through El Palacio de Hierro, a glittering department store chain with over a dozen locations across Mexico — most notably its Polanco flagship that reopened after a $300 million renovation.

Meanwhile, Mexico’s third major department store player, the upmarket Liverpool chain, just announced it would spend $320 million to add 11 more branches to its already bulging portfolio. If that weren’t enough, the local giant is now in the final stages of acquiring a majority stake in the Chilean department store group Ripley for a reported $1.2 billion, which has over 70 stores across Chile and Peru.

Latin America's growth trajectory is actually in line with our clothing and footwear forecasts for Asia.

“Ripley has also expanded its sales pipelines by adding e-commerce, which is gaining territory in Chile and Peru to the point that Ripley.com now has more than 8 million visits per month,” says Francisco Irarrázaval, the managing director of Ripley’s online venture.

It is becoming easier for Ripley and competitors like Falabella, a retail group with hundreds of stores and dozens of shopping malls across the region, to attract international fashion brands to their growing e-platforms.

“Initially, some are sceptical about executing online sales in the region. However, after they realise how developed e-commerce already is in several countries in South America and see the special care brands receive… they end up wanting to work with us for their entire collection,” claims Ricardo Alonso, chief executive of e-commerce at Falabella Chile.

Further upmarket, online expansion is hitting fever pitch, suggests Karla Martinez, the editor-in-chief of Vogue Mexico and Latin America. "Delivery logistics have improved significantly in the region so brands are rushing to meet consumer demand," she says, citing the increasing popularity of global e-tailers like Net-a-Porter, Farfetch, Luisa Via Roma and MatchesFashion.

Affordable brands like H&M, Mango and Forever 21 continue to aggressively expand their footprint across the region too and many new shopping malls are opening in Mexico, Chile, Peru and Colombia. But if international luxury brands are to continue their march into Latin America, even more physical retail expansion and infrastructure upgrades are necessary.

The difference between a cautious and passive approach

Despite the many champagne-fuelled boutique launches the region has seen in recent years, some experts believe that European and US brands have been too cautious and conservative or that their approach has been too passive for a market with significant pent-up demand and a bright future.

According to BMI Research, an emerging market analysis firm, the Latin American fashion market was already worth more than $160 billion in 2016, a figure that pales in comparison to Asia but is far larger than the size of the fashion market in the Middle East.

But it is Latin America’s growth opportunity rather than its sheer size that arouses keen investors. Spending on clothing and footwear is forecast to increase at a compound annual growth rate (CAGR) of 7.2 percent over the next five years surpassing $220 billion by 2021.

European and US brands have been too cautious and conservative or their approach has been too passive.

“Latin America will be one of the fastest growing markets globally. The region will easily outpace North America (1.8 percent) and Europe (1.9 percent) over the same period,” says Josh Holmes, a consumer analyst at BMI Research. “Latin America's growth trajectory is actually in line with our clothing and footwear forecasts for Asia (7.2 percent) and specifically China (7.8 percent) — which may come as a bit of a surprise given that fashion markets across Asia tend to grab more of the headlines in terms of growth opportunities.”

Stronger underlying economic activity and cooling inflation are set to boost disposable income and spending in this region of 650 million people. “As confidence in the region returns, we expect to see a substantial uptick in investment in new shopping mall developments and formal retail spaces. This will open up expansion opportunities for multinational fashion brands,” Holmes predicts.

However, some Latin American retail markets have been suffering, most notably Brazil and Argentina which underwent two years of painful recession after the commodities bubble burst. But there are now signs of a recovery for both.

BMI forecasts a return to growth for the Brazilian economy this year at 0.5 percent and economic growth for Argentina at 3.1 percent. “Venezuela is the outlier in the region. It will remain in the economic doldrums for the foreseeable future,” says Holmes, referring to the crisis that has intensified under Hugo Chávez’s successor president Nicolás Maduro.

Although income inequality has fallen in recent years, the World Economic Forum asserts that Latin America remains the most unequal region in the world. Yet the region’s middle classes have reached an all-time high, according to World Bank figures, accounting for around one-third of the population. This combined with the region’s increasingly visible affluent class has caught the fashion industry’s attention.

Brazil, Mexico and Colombia anchor luxury

By 2025 Latin America will be home to 841,100 US dollar millionaires, having swollen by 42 percent in just a decade, according to figures released by New World Wealth. The region can already boast 591,500 millionaires, higher than the Middle East’s 479,400.

Although Mexico now vies with Brazil for the luxury crown, it is Brazil that reigns supreme overall and accounts for more than 40 percent of the region’s total apparel and footwear market. As the only Portuguese-speaking nation and largest economy in the region, Brazil tends to be more self-contained than its neighbours.

Brazilian fashion blogger Loo Nascimento | Source: Instagram

The autonomy of Condé Nast's Brazilian edition of Vogue is one case in point, led by Silvia Rogar and stylistically different from Karla Martinez's Latin American edition in Spanish. Another is the domestic nature of retail giants like Iguatemi, Brazil's luxury shopping centre group with 17 malls across the country and where Valentino and Fendi recently opened inside the firm's São Paulo complex.

According to Bain & Company, a consultancy, the city of São Paulo alone was worth around €2 billion in luxury sales last year. “Obviously, Brazil is amazing [and] they're traditionally in the best position in terms of the scale of the import market and their own brands [but] they’re blocked now and kind of separated from the rest of us,” says Barrios, referring to Brazil’s recent political crisis and its many protectionist policies that hinder the fashion trade.

"But this mess of bureaucracy is a problem we face all over the region, not just Brazil. Like in Mexico, here we have this tax called pedimento individual that's ruining our chances to be e-commerce leaders. We have a lot of work to do to keep bugging the government to let us grow. It's part of what I do," she adds.

Brazil is a member of Mercosur, a trade bloc that includes its neighbours in the eastern zone of the region: Argentina, Uruguay and Paraguay. But many economists see the trade bloc as much less effective than the newer Alianza del Pacífico (Pacific Alliance) in the western zone which is made up of Mexico, Colombia, Chile and Peru.

It is in these countries where regional economic integration has been making good progress and good economic performance keeps attracting investment. Tellingly, it is in the capital cities of the same four countries where the Latin American edition of Vogue has opened up its four offices.

Excitement for Peru and hopes for Argentine recovery

“Peru and Colombia are two of our favourite growth markets in Latin America [but] Brazil and Mexico are the largest and most rewarding retail markets due to the sheer size of their populations and an expanding middle class that has a huge appetite for international brands,” Holmes explains.

“We’re more cautious on Mexico’s prospects though, as the health of its economy is very much dependent upon maintaining strong relations with the US, which is under threat under president Trump,” he adds.

Signs on the ground, however, suggest that Mexican retail leaders are somewhat undeterred by Trump. Grupo Sordo Madaleno is the developer of many of the country’s upmarket malls, including Mexico City’s Antara Polanco and Andares in Guadalajara. The firm’s executives recently confirmed they are moving ahead with plans to spend $2.5 billion in eight malls and two mixed-use properties over the next three years. Another developer, Gicsa is reportedly investing $1.5 billion in malls and other projects over the same period in Mexico’s second tier cities like Leon, Queretaro, Cuernavaca and Culiacan.

“Argentina is another country to watch,” Holmes predicts, pointing to the “rapidly improving” situation there where economic restrictions introduced by the previous government led to many foreign fashion retailers downsizing or withdrawing completely.

“Pro-business president Macri is gradually restoring investor confidence and a number of international brands, including Burberry, Forever 21 and H&M, have indicated their intention of either entering or returning to the market from 2017 onwards,” he adds.

Peru and Colombia are two of our favourite growth markets in Latin America [but] Brazil and Mexico are the largest and most rewarding.

Diego del Rio is the marketing manager of IRSA, a commercial real estate company that operates 13 malls across Argentina including eight in the Greater Buenos Aires area and others in the cities of Cordoba, Mendoza, Salta and Santa Fe. “I would say that international fashion has indeed been cautious,” he says.

“Having faith that Argentina resumes economic growth, we’ll probably see some big developments in Buenos Aires and its surroundings, but we’ll mostly see new formats such as outlets or lifestyle centres. On the other hand, many shopping malls are already over 20 years old so we’ll see many renovations and extensions too in the coming years.”

In a recent sign of confidence in the region, a private equity fund formed by LVMH, Groupe Arnault and L. Catterton, made an investment in a Latin American fashion brand with significant exposure in Argentina, Mexico, Chile, Uruguay, Colombia, and Paraguay. L. Catterton, which has a stake in Hackett, Sandro and Maje among others, injected an undisclosed sum into Rapsodia, a womenswear brand that operates 90 stores across the region and is preparing to accelerate expansion further.

“They decided to invest in Rapsodia as their first bet on the Argentine market [because they] saw a strong company and brand identity with a differentiated positioning, [as well as] a rapid growth model for success in multiple Latin American markets,” says Pilar Rodriguez Varela, marketing manager at Rapsodia Argentina.

Another Latin American brand filling a vacuum left by cautious global brands is Arturo Calle, a men's tailoring brand from Colombia that has been ploughing further and deeper into the region. In recent years, it opened three boutiques in Costa Rica, two in Panama and even doors in upmarket malls in El Salvador and Guatemala to serve wealthy pockets of Central America.

While some international brands merely dip their toe in the water and others refuse to get wet, local players like Rapsodia and Arturo Calle are more than happy to dive in. But with such positive signs and prospects for the overall region, why don’t many European and American brands seem as enthusiastic or assertive in the region?

Making Latin America a higher priority

“I think historically [Latin America] has been overlooked and slightly underestimated [by the international fashion industry]. The top consumers in this region might be a small percentage compared to a region like Asia but they’re spending a lot of money on fashion and accessories,” says Karla Martinez of Vogue Mexico and Latin America.

Photo shoot for Mexican magazine Revista 192 | Source: Izack Morales

Martinez is at the top of her game in a region worth billions but, surprisingly, the entire region can still escape the radar of a few industry figures in the fashion capitals. “It has been challenging to receive invites to fashion shows and presentations from brands whose presence and distribution is not yet that big in the region,” she concedes. “But what people don’t realise is that with social media, consumers here are much more savvy and informed about brands from all over the world now.”

And when international brands enter but only do so half-heartedly, it can be a boon to local players, suggests Daniela Cassab, the Mexican founder of DanCassab, a brand sold in Saks Fifth Avenue Mexico City which is known for hand-finished and embellished leather jackets.

“Often, you can't find many options in their stores here. It’s [either an accessories-only play] or the full collection isn’t available. But times have changed and Latin American competitors have raised their quality standards and raised their game too,” she says.

“Listen, I have this one Mexican client, Anna, she's a script writer and earns her own money. She usually buys pieces from Balenciaga, Celine or even All Saints and Bape. But she also buys a DanCassab jacket from us every week and spends $700 a pop. She’s literally given herself a weekly budget for it.”

Not everyone sees so much room for expansion. Nina Mackenna is one of the founders of the Santiago-based lifestyle magazine Revista SML and former creative director of the Chilean magazine Paula.

“Chile is an attractive market [but] here luxury brands sell a lot to a very few people and during very specific dates and holidays,” she claims, suggesting that many international brands don’t invest enough in local media, marketing or influencers. “This creates a huge distance with the end consumer.”

Some international brands fail to penetrate cities in the region because they are scared off by serious challenges. Although countries like Chile typically perform better than others, unemployment and fiscal crises both pose very real risks to doing business in much of Latin America. Multinational executives also have anxiety over corporate governance issues and security.

Latin America has this unfortunate stigma when it comes to the way the global market sees us.

But if there is one issue that keeps global brands and investors on their guard, it is Latin America’s reputation for political instability. Driven by inequality, corruption or other social problems, violent street protests erupted last year in Brazil, last month in Chile and last weekend in Venezuela. Scenes like these haunt a consumer industry like fashion. The ‘Panama Papers’ incident of 2015 highlighting a seismic level of fraud by Panamanian legal firm Mossack Fonseca hasn’t helped that country’s once booming retail scene either.

Yet despite these and other challenges, the region finds itself on the cusp of change. About half of the eighteen major nations in Latin America will hold presidential elections over the next two years. The question that industry leaders are asking is whether the new political landscape will bring more stability and prosperity — or less.

“We expect most major economies will maintain a business-friendly environment following elections — specifically Chile and Colombia. The stakes and risks are higher in Mexico and Brazil where there’s growing levels of frustration with the political establishment,” says Holmes.

Escudo by Chiara Macchiavello | Source: Courtesy

“It’s bittersweet,” says Chiara Macchiavello, the designer behind Peruvian womenswear brand Escudo which was a favourite at the Caravana Americana trade show. “Latin America has this unfortunate stigma when it comes to the way the global market sees us. Because of its long history of crooked governments and these jarring social, economic problems, we’ve sometimes been perceived as underdeveloped and, because of that, people sometimes still question our taste.”

“But we live in the era of the perpetual Instagram scroll, right? A Tumblr post gets forwarded from Brooklyn to Sydney to Bogotá in a fraction of a second and, you know, we’re digesting it here too at the same time and at the same pace. Trends really are quick to get here. What’s fun is to see how Latin people interpret them,” she adds.

Tourism driving exciting new retail opportunities

Because high duties and foreign exchange rates can make imported fashion expensive in some countries, there is still an outflow of well-heeled Latin American shoppers to destinations like Miami and Los Angeles.

But there is also an increasingly important inflow of Europeans, Americans and other Latin Americans helping to change the face of fashion retail in the region. And it’s not just boosting duty-free operators like Dufry which operates accessory and beauty shopping halls in 50 Latin American airports.

“Nobody used to stop in DF (Mexico City) itself. All the tourists used to just connect to Tulum or wherever or fly straight to the beach in Cancun or Los Cabos,” Barrios recalls. “Now, DF is cool so everybody wants to come here to experience the gastronomy, our design, our mixologists and of course the shopping.”

A similar pattern may emerge in Colombia where affluent tourists sometimes bypass Bogota and Medellin in order to go straight to the country’s resort cities on the Caribbean coast.

"The fact that we now have retail spaces in iconic buildings in cities like Barranquilla and Cartagena says something about the maturity of the company and something about the maturing of the market itself,” says Alex Zielcke, founder of Colombia’s Le Collezioni chain of luxury multibrand boutiques.

Latin America’s fashion industry has already begun a long overdue process of integration and consolidation, one that has seen some players specialise, others expand or upgrade — and more than a few wither and die. But for the regional industry to continue to mature, it will need more investment from outside the region. And a bit of soul-searching from within too.

“Latin America needs a real hub,” says Barrios. “If we want to attract the attention of the rest of the world and create more global businesses here [then] we need to be stronger and more united too,” she says.

Research for this article was contributed by Graciela Martin.
Disclosure: Robb Young travelled to Mexico City as a guest of Caravana Americana

Related Articles:

© 2021 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
CONNECT WITH US ON
Voices2021
© 2021 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions and Privacy policy.
Voices2021