Big Prizes, Barriers In Brazil's Luxury Market

Published January 14, 2012 9:18PM (EST)

RIO DE JANEIRO (AP) — Brazil has been long dismissed as the land of skimpy bikinis and rubber flip flops. But with its galloping economy and hordes of newly minted millionaires, the South American giant is the fashion and luxury industry's newest darling.

Fashion insiders from Brazil and beyond descended on Rio de Janeiro for the city's five-day-long winter 2012 displays, which were wrapping up on Saturday.

Prada and Bottega Veneta opened boutiques here over the past months, and a host of other top-tier labels are expected to open shop throughout the year. Consumption of luxury goods by Brazil's booming middle and wealthier classes is growing, despite an economic crisis that weighs on demand in Europe and the United States.

But for luxury labels scrambling to get a foothold here, there are major hurdles hiding behind the dollar signs.

"People think 'Brazil: football, the beach, caipirinhas, that it's all super relaxed here,'" said Abraao Ferreira, a Brazilian-born fashion industry consultant. "Next thing you know, their product is stuck in customs for three months. Then they start to realize that not everything in Brazil is as laid back as it might appear."

Brazil's red tape is legendary, as other industries find when they try to move into Brazil. In the latest "ease of doing business" ranking by the World Bank, Brazil came in at No. 126, despite being forecast to overtake Britain as the globe's sixth largest economy.

Just getting goods through customs in Brazil is a Herculean feat, and situations like the one Ferreira described happen with sobering frequency.

"When you want to import things into Brazil, you have to do everything absolutely by the book," said Bruno Astuto, a fashion editor for Brazilian newsweekly Epoca and columnist with Vogue. "The problem is that the book keeps changing and they keep adding pages or chapters, so a lot of times merchandise doesn't get to the shops until months later, if at all."

And that's just the beginning.

Brazil's stiff tariffs on all imports push the already-steep prices of luxury goods into the stratosphere.

"It's a really difficult market," said Astuto. "Because of the duties on imported goods, luxury products here can end up costing from two to four times the price outside Brazil."

At multi-brand stores, price inflation can reach epic proportions, Astuto added. Once you factor in the sales taxes and the retailer's margin on top of the import duties, ticket prices can reach up to 18 times the product's wholesale price, he said.

At a mall in Rio's exclusive Leblon neighborhood, a pair of women's flats by Salvatore Ferragamo — sold at the Italian shoemaker's own store — cost 1500 reais, or $842 at the current exchange rate. Online in the United States, they retail for $395. At the Burberry store in Sao Paulo, a trench coat that retails on for $915 on its U.K. website was selling for 3695 reais, or $2075.

Another challenge for international brands arriving here is the strength of the country's domestic clothing industry.

Brazil is the world's fifth-largest textile producer, according to industry statistics, and Vogue Brazil and other fashion magazines here don't just feature top-tier international labels like Chanel, Dior and Lanvin. They're also chock-a-block with domestic brands that have virtually no name recognition outside the country.

Ever hear of Osklen? Maria Bonita? Alexandre Herchcovitch? In Brazil, these homegrown labels are household names with a devoted fan base among the wealthy elite as well as the country's growing middle class.

At the country's two fashion weeks, one in the economic hub of Sao Paulo and the other in Rio, these and dozens of other local brands field their Southern Hemisphere season-appropriate wares. That there are no real seasons in this tropical country, where it's perpetually spring-summer, also makes things more complicated for international labels.

And though Brazilian brands are rarely available outside the country, here they provide real competition for foreign luxury labels.

"Brazilian brands know how to treat their customers," said Jorge Grimberg, a marketing director with trend forecaster Stylesight. "You have to pamper them, make them feel special, treat them like friends."

The kinds of sales tactics that work in other developing countries don't work in Brazil, where sales staff knit tight friendships with their customers. This is true across industries, whether it's cars, kitchen supplies or banking services.

"Brazilian consumers are extremely loyal if you know how to treat them right," said consultant Ferreira. "This can eventually work in foreign labels' favor, once they crack the code and figure out how to spoil customers here."

The rewards can be huge for labels that get it right.

Brazil has always had a superrich elite with extravagant tastes. But booming commodity prices fueled by Chinese demand, along with some of the world's biggest offshore oil discoveries, have created an expanding, new class of wealthy Brazilians.

The number of millionaire households in South America's biggest nation is forecast to more than triple by 2020, and economic reforms have lifted millions out of poverty and into the burgeoning middle class over the past decade, creating a deep new well of potential consumers.

Luxury goods sales in Brazil in 2010 hit $8.9 billion, an increase of 28 percent over 2009, according to a study by GfK Custom Research Brasil and the luxury goods consulting firm MCF Consultoria. Figures for 2011 are not yet available.

The ranks of the new rich, and luxury goods sales, are also growing in other developing countries as well, especially the so-called BRIC group of Brazil, Russia, India and China.

The number of millionaire households in Brazil, a nation of 190 million, will have increased 230 percent to more than 1 million by 2020, according to a May report by the U.S.-based consulting firm Deloitte. China's figure will rise to 2.5 million, Russia's to 1.2 million, and India's to 694,600.

But fashion industry insiders here contend that despite Brazil's daunting barriers for foreign businesses, the country has a distinct edge over its BRIC counterparts.

"The advantage we have is that Brazil is not a dictatorship like China and it doesn't have the kind of grinding poverty you find in India," said Epoca's Astuto. "Brazil is the best developing country: It's peaceful, it's fun and it's true that we do have really good beaches."

By Salon Staff

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