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8 Apr

Latin America’s Luxury Sales Drop After Two-year Boom 

Latin America’s luxury market is predicted to say no this 12 months as soaring inflation and sluggish economic growth hit sales of high-end products, analysts said. 

“We’ll grow 8 percent this 12 months, which is lower than the 12 percent in 2022 and 20 percent in 2021,” said Abelardo Marcondes, founding father of local consultancy Luxury Lab, adding that this 12 months’s gains will clock in sharply above gross domestic product (GDP). “We’ve an inflation crisis within the region and within the U.S.  but we’ll still manage to grow above the economy.” 

This is basically resulting from Mexico’s buoyant sales, Marcondes added, which is able to sharply outpace the remaining of the region’s, gaining 10 percent as a powerful tourism industry and rising Chinese foreign direct investment (FDI) will bolster employment and consumption.

“There may be a really strong near-shoring trend, each from U.S. corporations but additionally Chinese,” Marcondes noted. “The U.S. has put many restrictions on China’s imports so you might be seeing many firms spend money on border-town maquiladoras [factories] to service the market.” 

Then there may be electric vehicle-maker Tesla, which is about to construct its newest and largest Gigafactory in Monterrey, Northern Mexico, creating yet more jobs and fueling additional growth.

Amid this backdrop, global luxury brands are upping the ante in Mexico with a slew of homes opening stores in Mexico City recently. One such firm is Fendi Casa, which just inaugurated a 4,800-square-foot store within the capital’s Presidente Masaryk high street. The three-story boutique, opened in partnership with luxury fragrance distributor Falic, mirrors Rome’s Palazzo Fendi. Spain-based Pepa Pombo also installed a recent flagship in Masaryk, Mexico, in November, preceded by Dolce & Gabbana, which added a boutique within the glitzy recent Artz Pedregal mall last September. 

Speaking concerning the opening, Dolce & Gabbana chief executive officer Alfonso Dolce told local media: “The Latin American market, with Mexico particularly, has grown rather a lot lately, each qualitatively and quantitatively. We’ve opened in Artz Pedregal to supply a more immersive shopping experience for our customers, including the youngest ones.”

Spanning 4,300 square feet, the shop features gold, damask and Italian marble finishes and shelf decorations, and reportedly will carry the entire brand’s recent ready-to-wear and accessory collections, in addition to fragrances and eyewear. It would also feature its “Dolce & Gabbana Sartoria” tailoring service.

Elsewhere in Latin America, where industry sales reached $28.5 billion in 2021, business shouldn’t be looking so rosy.

In Brazil, for example, growth is forecast to inch up a mere 3 percent from this 12 months until 2025, in line with Brazil’s Association of Luxury Firms (Abrael).  

That’s a pointy decline from the 52 percent surge in 2021 when well-heeled Brazilians were forced to buy at home as a substitute of in Latest York or Miami, where they’ve traditionally flocked for luxury shopping. 

Brazil’s retail sales are anemic, rising just 1 percent in 2022, the bottom gain in six years, as soaring rates of interest and stubborn inflation strangle investment and consumption. Adding to that is lingering uncertainty about third-time President Luiz Inácio Lula da Silva’s recent policies to extend social spending amid a big fiscal deficit. 

The once high-flying beauty industry can be struggling. Market leader Natura, for example, has been forced to shed assets to shore up its business. The newest such move was revealed Tuesday when L’Oréal agreed to amass Natura’s Australian brand Aesop in a deal that had an enterprise value of $2.5 billion.

But Thaya Marcondes, who runs Luxury Lab in Brazil, said things are usually not so bad. She noted Abrael’s forecast was probably referring to the aspirational fashion segment where brands equivalent to Lacoste, Michael Kors or Coach could also be suffering. The full market, she noted, will grow as much as 7 percent versus 12 percent last 12 months as brands catering to wealthy and super wealthy customers will proceed to do well, she claimed. 

“There may be a 12 months and a half wait to purchase a Porsche in Brazil in order that shows you that the very wealthy are still buying. Brands equivalent to Gucci or Louis Vuitton proceed to see brisk sales across the country’s malls while leading local brands equivalent to Natalie Klein and Arezzo shoes are also growing,” Marcondes insisted. 

But as some have struggled, entrepreneurs have found a possibility to choose up rival brands at bargain prices. 

Such is the case of fashion entrepreneur Alexandre Birman, who recently snapped up several brands, including local shoe label Carol Bassi and a majority stake in Italy-based Paris Texas to create a multibranded group along with this Arezzo footwear trademark.

In Argentina, where luxury has been struggling for years, the outlook is far bleaker, nevertheless.

“All the highest brands have left,” lamented Marina Ancilletta, a neighborhood luxury expert, adding that just some Hermès and LVMH Moët Hennessy Louis Vuitton operations remain within the country after the likes of Polo Ralph Lauren, Kenzo, Escada and Armani exited lately, spooked by high import taxes and limited access to U.S. dollars. 

Luxury sales, Ancilleta predicted, will likely be flat or decline in 2023 as GDP ekes a 0.5 percent gain amid 100% inflation.

As international brands have a limited offer, many wealthy Argentines have change into avid consumers of local designer labels equivalent to Gabriel Lage, who has a four-month wait for ladies trying to buy his high couture dresses, in line with Ancilletta.

In Colombia, premium labels are selling well because the U.S. dollar’s gains against the peso have sharply boosted foreign investment and tourism.

“There are numerous foreigners spending on fashion, entertainment and real-estate,” said Catherine Villota, who leads Fashion Group in Colombia. “But that doesn’t mean the posh market can sustain that sort of growth for for much longer.”

It is because the brand new government of leftist President Gustavo Petro has raised import taxes by 40 percent, lifting merchandise prices to almost unsustainable levels. It will eventually impact sales and worsen the medium-term outlook in a rustic that has otherwise seen relatively rapid growth lately, Villota noted.

Zara, seen as an aspirational brand in Colombia, and the opposite Spanish Inditex labels equivalent to Paul & Bear will likely begin to suffer in coming months as consumers will suffer from sticker shock, Villota added. 

Colombia has seen a string of top luxury labels enter after which leave the country as consumption missed expectations, despite its fashion-centric society, which buys rather more luxury than neighbors in Chile, Peru or Ecuador, in line with the expert. 

“We want a much higher spending power and for more wealthy Colombians to spend here versus the U.S. if we would like to have the identical market dynamics as Mexico or São Paulo,” Villota said.

That won’t occur soon. After two years stuck at home due to the pandemic, Latin Americans are once more shopping abroad, this time favoring recent U.S. destinations equivalent to Rodeo Drive in Beverly Hills and European fashion outlets equivalent to Las Rozas Village in Madrid. 

The latter has “good prices and ‘hands-free,’ VIP shopping services which Latin Americans love,” he concluded.

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