PANAMA CITY, Panama — It is fair to say that the world knows a whole lot more about the canal that runs through this tiny country than it does about the people who live in it. Perhaps this explains why many are surprised to learn that Panama has been crowned the happiest nation on the planet.
In an extensive Gallup poll released last year, Panama rose to the top of 135 nationalities surveyed for the Global Wellbeing Index. While this may sound like a bit of obscure trivia, it is anything but, if you are interested in a global business like fashion.
Connecting the Pacific to the Atlantic and North America to South America, Panama is the tropical thoroughfare where transport, banking, logistics and travel retail all converge at the very backbone of Latin America.
For a global nerve centre such as this, having locals with an optimistic outlook means that one of the most competitive and business-friendly economies in the region just got friendlier. And more to the point, as a trading crossroads for 600 million Latin Americans, Panama has a lot to smile about.
Regional Super Hub
Panama’s economy has been growing at an average of about 10 percent annually over the past few years, but the reason it is on the fashion radar is because of its growing status as a super hub.
Although it is at an earlier stage in its development than Singapore and although the wealth in its orbit is less glaring than that of Dubai, Panama has ambitions to do for Latin America what these city-states did for Asia and the Middle East.
“Panama has been an important regional hub for several years now. Previously, Miami was seen as the Latin American headquarters, and to some degree it still is, but Panama has always had a significant role in the region thanks to its duty-free business,” says Kelly Talamas, editor-in-chief of the Mexican and Latin American editions of Vogue magazine.
“Historically, Panama has served as a point of entry for Latin America too, so it’s a way to test the Latin consumer and, based on the results, potentially expand to other countries in the region,” she adds, pointing to the success of her own ‘Vogue en Vivo’ Panama shopping event, which has encouraged her to expand other initiatives there.
Indeed, for brands, magazines and retailers alike, Panama’s fast-growing domestic market of 4 million people is just an appetizer. The main course comes when they attract customers from the 30 or so international Latin markets on Panama’s doorstep.
Someone who understands this better than most is Judy Meana, vice president of the newly formed Panama Diamond Exchange, which is consolidating the regional diamond, gem and jewellery trade around a new bourse.
“We don’t see ourselves building the ‘Panamanian luxury market’ as much as we see ourselves building a Latin American and international luxury market in Panama,” she explains.
With about 9,900 ultra high-net-worth individuals currently living in Latin America, the region now has more people with assets over US$30 million than in the Middle East and Russia combined. And the super-rich in Panama are growing at the second highest rate among all Latin Americans, according to a report by property consultancy Frank Knight.
What is even more encouraging is the size of the overall fashion market. According to data modelled by Euromonitor International, the market for apparel and footwear in the Latin American & Caribbean region is now worth $150 billion, up 10 percent from last year.
This number is expected to increase dramatically in the coming years with more Latin American consumers falling into higher income brackets. The World Bank estimates that the region’s middle classes will rise from 30% of the population today to nearly 50% in just 15 years.
Although much of this consumption will be done locally, as the strategic gateway to the region, Panama is in an enviable position which could see it capture an ever greater share of this vast market as it becomes a more prominent retail showcase for fashion brands.
“Panama’s shopping infrastructure is probably the best in the [immediate] region. It’s already competing with Miami for the retail tourist market in Latin America and its adoption of the ‘Black Friday’ celebration last December saw 40,000 shopping tourists come to Panama in a 48 hour period,” says Britain’s ambassador to Panama, Dr Ian Collard.
Typically, prices in Panama are on par with fashion products in North America and Europe, says Dr Collard. This is mainly due to competitive import tariffs, VAT and taxes which can make a big difference for Brazilians and others who are used to seeing much higher price tags.
Panama has a competitive advantage over cities like Miami because it doesn’t require visas for most Latin American travellers, so shopping trips are not only closer and cheaper, but they are also less hassle than travelling to the US.
Copa Airlines, Panama’s flag carrier, has been on an aggressive expansion plan and today it counts direct flights to over 50 of the biggest cities across Latin America and more than a dozen in the US and Canada.
Last year, Tocumen International Airport greeted more than 8.4 million passengers and it is now building a second terminal.
Private jets regularly fly in to Panama from Honduras, Nicaragua, Costa Rica, El Salvador, Ecuador and Guatemala bringing well-heeled travellers. Business and pleasure seekers come from as far away as Uruguay, Argentina, Peru, Chile, Bolivia and Paraguay to connect to destinations around the world.
The enthusiasm for shopping in Panama is especially high among these nationalities because the brand mix and merchandise selection in Panama is often better than what they can find back home.
“They’re all shopping here, but most of all, you see the malls full of Brazilians, Venezuelans and Colombians – the ones with big purchasing power keep coming back. They’re all here; you’d be amazed,” says Magali Mendez, editor-in-chief of Panama’s high society magazine Mundo Social.
The net result, according to Panama’s Comptroller General, is that income from tourism is now nearly double what the country earns from the iconic Panama Canal itself.
None of this would have been possible if it weren’t for the revolution that Panama’s retail scene recently underwent. After a decade of non-stop store openings, the market has begun to consolidate around a few big-box shopping districts.
“After major cities like Sao Paolo or Mexico City, I’d say that Panama City now has the largest presence of international brands in the region,” says Talamas.
Built by one of the country’s biggest retail moguls, Abdul Waked, the sprawling complex of towers reportedly cost his firm Grupo Wisa $360 million. Much of Waked’s fortune can be traced back to the business he does around a regional duty free beauty empire called La Riviera and a distribution company for fine jewellery and timepieces.
In a bid to capture an even greater share of the market, Waked recently snapped up the upmarket department store chain Felix B. Maduro, which has been a landmark in Panama City for over 130 years.
Waked’s main competitor is the Multiplaza Pacific Mall, which was revamped just last year and is now an interesting mixture of high-end brands like Hermès, Zegna and Gucci and high-street players like Zara, Forever 21 and Gap. Market observers estimate that the mall, which is owned by Ricardo Poma’s subsidiary Grupo Roble, now exceeds annual sales of $450 million.
“Panama City has become a cosmopolitan, open and dynamic place,” says Marilina Vergara, editor of the Panamanian edition of Ocean Drive magazine. “The city’s really thriving.”
Other Panamanian tycoons like Stanley Motta, Joseph Harari and Alfredo Maduro have been just as aggressive over the years, transforming local firms into Latin American powerhouses that distribute, franchise or operate fashion stores across the region.
One thing that they are all watching carefully is the Panama Canal Expansion Project, which was started eight years ago and is set to double capacity next year when completed.
“The canal’s expansion will allow us to become more efficient in the management of international merchandise and collections. And products will be available to customers quicker than before,” says Marielena Velarde, marketing manager at Ben Betesh, the distributor of Lacoste and operator of an eponymous multi-brand selling brands such as Canali and Bally.
“From Panama’s Colon Free Zone, we sell, distribute and manage many brands for the region. It’s very practical to have a representative that can handle several markets there, instead of having an office in each country,” she adds.
It is not only European and American brands cashing in on Panama’s retail boom. In recent years, Panama has seen the arrival of brands from Colombia, such as Arturo Calle, Velez and Studio F. The Panamanian designer fraternity is evolving, too, with Anna Francesca Blasser, Edda Gonzalez and Michelle Nassar catering for the growing social scene.
“You could say that there are about 20 Panamanian designers who live well from their work, which is a lot [considering our size],” says Marie Claire Fontaine de Bueno, director of Panama Fashion Week.
Stable and Secure Market
Relatively speaking, Panama is an oasis of calm in a region still fraught with political and economic instability. As a consequence, it has inadvertently benefitted from the misfortune of some of its neighbours.
“Panama has become a second home – or a new home – for many Latin Americans fleeing their countries like Colombia or Venezuela,” Vogue’s Talamas explains.
“It’s also a friendly place to do business given that both English and Spanish are spoken fluently here and its currency, the balboa, is linked to the US dollar, which is also accepted in Panama as an official currency.”
Significant tax breaks, government incentives, the ability to establish a company in a week, confidence from the ratings agencies and free trade agreements with the EU and its neighbours, are other factors that continue to attract investment to Panama.
“There’s a lot of technical support digitally and operatively speaking too. Panama has many advantages for [fashion] entrepreneurs who are looking to do business. Here it's a reality, not some illusion,” says Velarde.
Chanel, Puig, Ralph Lauren, Michael Kors, Tommy Hilfiger, Calvin Klein, Adidas, Nike and Coach are some of the global fashion brands reported to have set up Latin American regional offices in Panama alongside the hundred-plus big multinationals like DHL, Phillips, and Procter & Gamble.
“The cost of doing business in Panama is lower than in other Latin American countries, for example Brazil, so I think there’s huge potential for growth,” says Brenda Diaz de la Vega, editor-in-chief of Harper’s Bazaar Mexico and Latin America.
But besides its competitiveness and business culture, much of the market’s appeal boils down to how a collective sense of security impacts the bottom line.
“Even though the gap between rich and poor is very pronounced here too, Panamanian society is different [from other Latin American countries],” says Victor Elmor, an associate director of local management consulting firm Xcellentia.
“The ‘yeye’ in Panama – that’s slang for posh people here – they’ll be wearing $30,000 worth of clothes and jewellery on the street here and most won’t have a single problem, really.”
In a region where robberies, kidnappings and volatile market conditions are still not uncommon, Panama often appears like a safe haven but unfortunately it is also considered by many to be a tax haven.
Certainly Panama’s journey toward development has had its periods of tarnish and controversy, Mendez concedes.
“We had a government where you saw a lot of prosperity but also a lot of corruption. Now, with the new government that came in last year, we’re suffering the consequences of what was done before. Foreigners can’t really feel it but it has really affected Panamanians,” she says.
While Elmor agrees that it hasn’t always been smooth sailing, the most important quality for Panama to protect is its stability, he says. It is this which will keep incentivising a steady stream of foreign entrepreneurs, wealthy expat retirees, business investors and short-term visitors to live, work and shop in the country.
“That way, Panama itself can be a micro market but as a hub it will have all the conditions necessary for brands to get macro-sized rewards by setting up here.”