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RIO DE JANEIRO — While China, Russia and Dubai might be generating most of the ink when it comes to growth in the luxury market these days, there’s another market emerging that’s brimming with demand and ripe for expansion: Brazil.

Many of the major foreign labels are here, many are expanding, and some of those not yet on the scene soon plan a presence.

São Paulo, South America’s largest city, accounts for 70 to 75 percent of Brazil’s fashion luxury market, while Rio de Janeiro accounts for 10 to 15 percent. Christian Dior, Giorgio Armani, Versace, Roberto Cavalli, Salvatore Ferragamo, Louis Vuitton, Cartier, Tiffany and Bulgari all have freestanding stores in São Paulo. Vuitton and Ferragamo have stores in Rio, too.

Those that don’t have separate stores are represented as well, in ultrachic fashion emporiums like São Paulo’s Daslu, situated in a 200,000-square-foot Florentine-style villa. Brands housed in corners there include Dolce & Gabbana, Gucci, Emilio Pucci, Chanel, Prada, Missoni, Valentino, Balenciaga, Fendi, Chloé, Jimmy Choo and Ermenegildo Zegna.

One of the biggest signs that Brazil’s luxury market is healthy and growing is an $830 million luxury complex, the Parque Cidade Jardim. The project will include nine residential buildings, four commercial towers and a mall when it’s completed in 2010 in São Paulo.

The Shopping Cidade Jardim, or SCJ, the largest multibrand luxury center in South America, slated to open in late March, is its centerpiece. SCJ will be a $150 million, 322,000-square-foot emporium, whose 120 shops will encircle a long, central garden. Modeled after Miami’s upscale Bal Harbour Shops mall, SCJ will host a mix of high-end local and foreign brands.

Among labels planning stores at SCJ are Armani, Ferragamo, Vuitton, Zegna, La Perla, Furla, Longchamp and French luxe children’s brand Bonpoint, the last three being newcomers to the Brazilian market. Tiffany, Cartier, Rolex and Montblanc will also have units there.

“SCJ is attracting major foreign brands because many, if not most, prefer to position themselves in luxury malls, not smaller multibrand stores, which [sometimes] give them little space, or their own freestanding stores, which require big investments,” said Sharon Beting, director of SCJ. “And we’re located in an upmarket neighborhood of São Paulo with no luxury malls nearby.”

This story first appeared in the January 8, 2008 issue of WWD. Subscribe Today.

While many foreign brands carried by independent shops like Daslu are jointly managed by the brand and the retailer, a number of international labels choose to operate as franchises, including. Armani, Ferragamo, Versace and Cavalli. This is typically because most foreigners prefer a local licensee to take investment risks in markets they don’t know.

“If Armani does badly in Brazil, I — the franchisee, who makes the investment and apparel purchases — lose money, not the mother company,” said Patricia Gaia, executive director of the Armani Group in Brazil, which includes three Emporio Armani stores, one Giorgio Armani and one A|X Armani Exchange. “That’s why, even though our revenues are growing at 8 percent a year, we keep stocks low.”

Dior and Vuitton are exceptions, with their stores owned by French parent LVMH Moët Hennessy Louis Vuitton. And at Daslu, these two labels rent space and run their operations independently, as will Vuitton at SCJ.

Dior has a long history in Brazil. It arrived in 1961 and produced locally until the early Nineties, the only major foreign fashion brand to do so. In 1992, Brazil’s President Fernando Collor lifted trade barriers and prohibitive import taxes — around 200 percent — on most goods, including foreign fashion brands, which were virtually nonexistent in Brazil until then.

After 1992, nearly all foreign fashion brands began appearing in multibrand stores here and later migrated to luxury malls. In 1999, LVMH opened the first of two freestanding Dior stores in São Paulo to be among the first foreign brands to do so.

“LVMH was not afraid to open its own Dior store in Brazil because the brand had been here since the Sixties. It knew the market, and the group likes to control all its operations, from manufacturing to retail,” said Rosangela Lyra, director for Dior in Brazil. “LVMH waited until 1999 to open its first Dior store to allow it to reposition itself as a label that imported its entire collection — higher-quality apparel than that which Dior had been producing here.”

Dior, with three São Paulo stores, plans to open one in Rio in 2009. Vuitton has three stores in São Paulo and Rio, will open at the SCJ mall in 2008 and plans to open a fifth in the nation’s capital, Brasília, in 2009. Ferragamo, with four stores in São Paulo and Rio and a fifth opening at SCJ this year, also plans to open four more by 2010: in Brasília, Belo Horizonte and at Brazil’s two biggest airports in Rio and São Paulo.

Daslu, which boosted sales to $125 million in 2007 from $90 million in 2006, plans to open two smaller stores, one in 2009 in São Paulo (at 11,840 square feet) and one in Rio (16,200 square feet) in 2010. “In Brazil, the upper-middle class, following the example of the elite, are getting more comfortable with the culture of luxury and are buying more,” said Daslu owner Eliane Tranchesi, who was a pioneer in importing international designer brands in Brazil.

In September, partly as a way to curb Chinese imports, Brazil’s government raised import taxes on all foreign textiles and apparel from 20 to 35 percent, which, when added to freight and insurance costs, made the price of foreign apparel here 70 percent higher than abroad. But a strong economy, which grew by 5.7 percent in 2007 and 3.7 percent in 2006, and a strong local currency, the real, which has greatly appreciated against the dollar and the euro since 2003, have made imports cheaper and helped to offset this tax hike.

This growth has boosted the purchasing power of many people, “especially the upper-middle class and the rich, those customers who traditionally can afford foreign fashion,” according to Carlos Ferrerinha, president of MCF, a São Paulo consulting firm that specializes in luxury goods. “Because the rich and upper-middle class have gotten richer and because Brazil is still a young luxury fashion market, it has lots of room for growth — not only in São Paulo, where the country’s wealth is concentrated, but also Rio and other major cities. That’s why nearly all foreign fashion labels here posted increased revenues in 2007 and why some of them are expanding.”

Brazil’s annual sales of $900 million in luxury fashion — part of the country’s $3.9 billion-a-year overall luxury market — grew 17 percent in 2007 and should grow by at least 10 percent annually in the foreseeable future, he added.

The average income of the upper class (earning more than $150,000 a year) and upper-middle-class families (over $25,000 a year) grew 7.3 percent in 2007 from 2006.

By contrast, the average income of all families in Brazil grew 5 percent in 2007. Working-class (making around $6,000 a year) families’ incomes grew 4 percent, while average income among low-working-class and poor families (making less than $6,000 annually) rose by 2 percent, according to MCF, which compiled figures based on government statistics.

The growth of foreign fashion houses here has also lifted domestic brands.

“When foreign luxury fashion labels began entering the market in the Nineties, top domestic designers, who suddenly saw the repressed demand for such apparel, began investing in more expensive, higher-quality collections to compete,” said Alexandre Herchcovitch, the only Brazilian designer who shows during the New York runway collections.

Oskar Metsavaht, the designer-owner of Osklen, a top local sportswear brand, agreed: “Before European fashion names came here, most domestic stylists were copying them. But when Europeans began coming to Brazil, they forced domestic stylists to become more original, better quality brands, some of which, as a result, now export their collections.”

A number of top foreign fashion brands haven’t yet arrived here, or have a very small presence, like Ralph Lauren, Hermès, Issey Miyake, Kenzo and Calvin Klein (which only sells jeans and underwear here). Others, like Gucci, Prada, Chanel and Dolce & Gabbana, will likely have a bigger presence in the near future than the corner-size spaces they now have in Daslu, said Silvio Passarelli, the director of the M.B.A. program for fashion management at FAAP, a São Paulo university.

“The foreign fashion luxury brands not yet here are waiting for the best moment to enter this market. Those minimally positioned here, like Gucci, Chanel and Prada — with corners in Daslu — are also waiting for the right time to increase their presence,” said Passarelli. “Most are prioritizing China, Russia and places like Dubai, where the luxury market is booming. But give them five years and they will be here or will have a stronger foothold here.”

Fernanda Boghosian Rossi, Brazilian director of the Versace and Cavalli franchises, concurred. “Brazil’s foreign fashion brands may not be enjoying the boom that is occurring in China, where Versace plans to open 12 stores in the next three years,” said Rossi. “But that doesn’t mean business is bad in Brazil. Versace’s and Cavalli’s sales grew by 10 percent and 15 percent, respectively, in 2007 because, even though competition is growing, so is demand.”

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