RIO DE JANEIRO, BRAZIL – After the first year of the Covid-19 pandemic, the resilience of the Brazilian luxury goods market is being put to the test again. The next five years should define whether the maxim, disseminated in the global industry, that Brazil would be an oasis for the sector’s brands, is still valid.
If the effects of the recession that began in 2015 had already undermined the expansion plans in the country of companies focused on the sale of these goods, reducing by R$1.2 billion (US$214 million) the annual revenue of the segment by 2019, the closure of physical trade made the accumulated decline in five years amount to 15%, according to data from consultancy Euromonitor International.
Last year, however, Brazil fared less badly than the world market. Revenue in the country from cars worth hundreds of thousands of reais, five-star hotels, clothes, shoes, drinks, and expensive cosmetics stood at R$25.4 billion, with an 11% retraction of the domestic market compared to 2019. On the same basis, using a constant exchange rate, global sales of luxury goods fell 13.8% to US$905 billion.
Considering the exchange rate fluctuation, however, the revenue in dollars generated by the country retreated 31.3% in the same period. In Mexico, the sector’s largest Latin America market since Brazil lost the position five years ago, the retreat in dollars was 36.4%. The contraction in local currency was 26.7%, to 11.93 billion Mexican pesos.
Euromonitor estimates that Brazil will now follow the growth of the world market and, by 2025, accumulate gains of 34% – Mexico, in turn, would grow 74%.
However, everything will depend on the effects of the changes caused by the pandemic in consumer behavior and the success of brands’ seduction strategies. Just as in China, the only country to register growth in the luxury market in 2020, of 1.4%, a wave of buyers is experiencing for the first time the sensation of acquiring these products and experiences in their own country.
Prevented from traveling to the northern hemisphere’s luxury corridors and with forced saving for a lack of what to purchase, part of the customers are spending in the domestic market, with a purchased ticket almost 30% higher than that registered by brands in the pre-pandemic. The Brazilian hit was not greater because this small but powerful elite maintained its consumption pattern.
“Before the pandemic, the luxury industry intended to expand its consumer group. Less expensive materials were at the center of the novelties in the product mix. In the coming years, a stronger focus on the highest levels of luxury is expected, targeting a select group of individuals focused on the local market and demanding sophisticated products,” explains Guilherme Machado, senior analyst at Euromonitor.
The automotive sector illustrates this appetite. While automakers are reviewing their country’s operations by halting the manufacture of cars and motorcycles in the country during the restriction periods imposed by the disease, BMW is riding the wave of consumption of limited-run models.
This month, the five units available in the country of a version of the X7 model – top of the brand’s line, with a suggested price of R$ 1.09 million – sold out in less than a week of pre-sale in the national version of the English marketplace Farfetch. The sales were blind and without test drives.
“In our niche, today, exclusivity is worth more than quantity. The launch of more customized versions of the models, which generate desire, will be a reality shortly”, says the BMW communications manager in Brazil, João Veloso Jr.
Brazil responds better than other markets to this exclusive sale. While the sale of high-end cars fell 10.8% in the world in 2020, in the country, it was the only segment to advance last year, with a rise of 2%, according to the Euromonitor study.
The good moment, says Veloso, is due in part to the fact that customers began to travel more on the roads and to consider these cars good investments in a context in which “you don’t know tomorrow.”
Materializing money to keep its value free from fluctuations has led to a consumption of jewelry that the local industry finds surprising. The perennial and ever-increasing value of precious stones led the segment to retreat only 14.5% in the country, a percentage that is not smaller than that of niche cosmetics and perfumery retraction of 5%.
The logic is the same as the local consumption change: fewer customers, more “quality” in the purchase of those who spent. According to the director for Latin America of the Italian jewelry company Bvlgari, Christian Konrad, the only boutique of the brand in the Iguatemi shopping mall in São Paulo, grew about 30% in revenue last year. Besides the greater purchasing power, the personalized contact with customers was decisive, which included private presentations to the delivery of Italian dishes prepared by renowned chefs.
“Brazilians reacted differently than in other countries. We felt that in Brazil, there is a lot of energy and willingness to buy. Some customers, by the way, watched the presentations from their yachts or country houses,” says Konrad.
He reveals that for the first time, the brand sold in Brazil high-end jewelry pieces worth more than US$ 150,000, which denotes the movement of “spending less often, but with significant prices.”
“This shows us that fashion jewelry, with more affordable prices, suffers more the effects of the pandemic, while for Bvlgari, or even for Tiffany and Cartier, the scenario remains very good.”
By directive of the French group LVMH, of which the jewelry company is part, the executive cannot reveal sales figures in the region, but he says that December was a record month in the country. Digital channels, including direct communication with sellers through apps, represented 20% of total sales, compared to the usual 7%.
One of the challenges of this new consumer profile is to align the logistics of delivery of exclusive pieces, which need to go from somewhere in the world to another and, taxed at the entrance with no guarantee of purchase by those who are interested, need to arrive as soon as possible with the support of companies specialized in shipping this size. The effort and costs involved, says Konrad, are worth it. “These are customers who used to buy the same parts, but outside the country.”
Knowing this consumer, where he comes from, and his customs is the maxim that guides the German brand Montblanc’s strategy. First luxury brand to start its own operation in the country in the context of economic opening in the early 1990s when it opened its first store in São Paulo, the label has developed an application to map these customers and guide sellers of 200 points of sale throughout the country, its seven own stores and five external boutiques.
According to the brand’s director in Brazil, Michel Cheval, the pandemic illuminated the need to create personalized experience journeys for each customer, not overload them with information, understand their tastes, and offer products within their consumption habits. The changes enabled a 60% higher frequency on the brand’s website.
“The beginning of Pandemic was hectic because it brought new challenges and a need to explore e-commerce not only as a sales platform but also as a relationship platform. Customers who bought received calls from salespeople, were listened to, and this was very important,” explains Cheval.
One of the surprises was the Northeast and Midwest region performance, which are not usually included in the list of main markets for luxury brands because most customers in these regions traveled to Sao Paulo or Rio de Janeiro to buy their luxuries.
In Fortaleza, where the brand has a partnership with the multi-brand store Tallis Joias, November and December sales were “the most important of the year”. According to the company, there was a 20% increase in the writing category – Montblanc’s flagship in the country – 50% in small leather items and 71% in the extended leather category, which includes briefcases, bags, and backpacks.
“We are paying attention to these movements to look closely at who is our customer and the growth potentials in the cities. One of the focuses now, for example, will be to improve penetration in Porto Alegre, a market we have found to have important potential for the brand,” he says.
The decentralization of investments does not only affect the strategies of international luxury brands. Arezzo & Co., of the brands Arezzo, Schutz, Ana Capri, and Fiever, should launch a major project in the second quarter so that, according to CEO Alexandre Birman, the company takes a strategic leap to expand capillarity in regions underserved by its brands, but that have great consumer demand.
He does not reveal details but says that the focuses will be the Midwest region and São Paulo interior, where, it is known, are some of the most important portfolios for the maintenance of high standard consumption. “Brazilians have understood that there are extremely high-quality products being made in Brazil and that that shopping tourism, to Miami or Paris, doesn’t have to happen,” says Birman.
The revenue of the entrepreneur’s homonymous brand, whose ticket of R$1,500 is the highest of the group and competes worldwide with medallions of the order of René Caovilla, Christian Louboutin, and Aquazzura, grew 41% in the first quarter of this year in relation to the same period of 2019.
The data goes against the backdrop of the 16.9% decline in revenue generated by luxury footwear in the world in 2020. However, the recent good performance of the Alexandre Birman brand foreshadows a climate of optimism in mature markets, especially the United States, caused by the accelerated vaccination and the consequent cooling of the pandemic.
So much so that, says Birman, the brand will launch a special collection in the United States in May, “a month in which we expect an explosion in consumption also supported by the proximity of summer.”
The weather is a key factor for the sale of luxury goods because it interferes with customers’ mood; an intangible factor is taken into account in the forecasts of consultants on the growth of the luxury industry. For its proximity to the United States and the lower prices of products due to import taxes less onerous than those in Brazil, Mexico may be, according to experts, the first Latin American country to feel the coming wave of happiness.
According to the LuxuryLab consulting company director, Abelardo Marcondes, it is already possible to notice recovery in consumption of high standards and a greater flow of tourists vaccinated in hotels in Mexican tourist spots – the highlights are the Valle del Bravo region, bordered by Lake Avandaro. The State of Nayarit, located on the private Peninsula Punta Mita, addresses Four Seasons and St. Regis brands.
“Until last year, these resorts were the refuges of Mexicans, but now we see many Brazilians and Europeans staying. There is the issue that the restrictions are softer in Mexico than in Brazil, and, therefore, the hotel industry here suffers less,” explains Marcondes.
By way of comparison, according to the most recent data from Euromonitor, revenue generated with luxury hotels in Mexico fell 57.7%, with a total of US$ 679.5 million, while in Brazil, the market decline was 63.4% compared to the pre-pandemic, with an estimated revenue of US$ 86 million.
Marcondes, who analyzes the entire Latin American market and promotes events focused on the luxury sector, says that at this time, the elite of Mexico have been benefiting from the ease of travel to the U.S. and, staying with relatives who live in the country, find ways to get vaccinated against coronavirus in cities in the interior. “This migration stimulates the climate of recovery and the will to party and consume.”
Meanwhile, in Brazil, the luxury consumption thermometer has not yet entered a party mood and points to more conservative purchases in the short term. According to the director for Latin America of the Farfetch marketplace, Daniel Funis, the profile of clothing purchases is still focused on pieces to stay at home and comfortable shoes.
“We had more new customers coming in, while old customers bought less. However, the customer base has increased exponentially both globally and nationally, and it’s a great opportunity to introduce other product categories that consumers don’t know as much about on our platform,” Funis says.
“We had more customers coming in, while old customers bought less. However, the customer base has increased exponentially both globally and domestically, and it’s a great opportunity to introduce other product categories that consumers don’t know as much about on our platform,” says Funis.
A world leader in luxury e-commerce, Farfetch estimates that by 2020 it has managed to add 2 million users to its customer base, attentive to portfolio diversification and the convenience of online shopping. Throughout the year, the executive adds, the children’s clothing and accessories segment should increase by about 20 brands, following the expanded offer strategy that the marketplace has undertaken in the jewelry sector, in which 15 new brands have been implemented.
Supply is also the motto of the two main shopping center groups’ retail arms, JHSF, owner of the Cidade Jardim shopping mall and the CJ Fashion marketplace, and Iguatemi of the homonymous network of malls and the Iguatemi365 website.
Both have accelerated their portfolio expansion projects through partnership agreements in which the brands mitigate operation costs by sharing profits with the groups. Since 2019, brands like Italy’s M Missoni (iRetail) and France’s Balmain (JHSF Retail) have arrived in the country hand in hand with the malls, and now, with the pandemic, more brands will enter the pack.
While in the new CJ Shops, a reduced version of the Cidade Jardim shopping center launched in December, the first Latin American points of sale of Isabel Marant and Inès de La Fressange were installed, the JK Iguatemi will receive the first of Balenciaga. The pieces are already in Brazil and the opening, scheduled for April, depends on the loosening of trade restrictions by the São Paulo government.
For the general manager of iRetail, Manoela Mendes, these associations tend to increase in the coming months due to the customers’ proximity to the mall and the logistics facilities and monitoring of changes in the consumption profile.
“At the same time, we know that for these brands, it is important to maintain their global positioning, and since we already have expertise in this, we have seen these negotiations advance in the pandemic. Besides having just started operating [the footwear brand] Christian Louboutin again, we are finalizing negotiations with another major brand to start operating in the second half of the year,” says Mendes.
For her, the secret of the luxury equation in the country will increasingly involve customer loyalty. “It is not only getting to know them but also opening other communication channels. And, it must be said, not every brand works with a physical store. To make it work, today, the Brazilian has to know who it is.”
Source: Valor