Purveyors of premium goods around the world take note: Latin American consumers are increasingly hungry for high-end products — and able to buy them. From Mexico City to Buenos Aires and beyond, demand for luxury is on the rise and — while starting from a smaller base — sales growth in South America is set to outpace that in most world markets for several years.
Powered by Brazil and Mexico, the southern continent is ready to take its place as one of the main markets for fashion and luxury on the back of increasing consumer confidence, expanding middle classes and retail modernization, with new malls opening in cities big and small. This was the key message to emerge from a Webinar titled “Luxury Goods and Emerging Markets: Business Opportunities in Latin America,” held by Euromonitor International.
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According to the market researcher, consumer spending in Latin America expanded 25 percent from 2009 to 2014, the second-highest growth rate after the 28 percent surge registered in Asia-Pacific. Mexico in particular is booming: over the five-year period of 2014 to 2019, sales of luxury goods in Mexico are forecast to jump about 34 percent. The country — where luxury sales reached $4.3 billion in 2014 — is the largest Latin American market in terms of spending on luxury goods, followed by Brazil ($4.1 billion) and Argentina ($1.2 billion). Total luxury goods sales in Latin America topped $14 billion in 2014, according to slides distributed after the event.
Citing figures from Cap Gemini and Royal Bank of Canada, Euromonitor said that in 2013 Argentina, Brazil and Mexico were among the 25 countries in the world with the largest high net-worth populations, and these are set to grow quickly. For example, from 2014 to 2030, the number of high net-worth individuals in Mexico is expected to triple, to about 1.5 million (in China, the number is also expected to treble in the period, to just shy of 10 million).
Beatriz Torres, Euromonitor in-country analyst for Mexico, said that luxury sales in Latin America are dominated by Mexico and Brazil, which together were worth 60 percent of the continent’s total luxury goods market in 2013; by itself, Brazil — where high import tariffs can be a deterrent to some luxury goods purchases — is the largest consumer market in the continent and the seventh largest in the world, Torres said.
Income aside, demographics are also very favorable to Latin America: according to Euromonitor, in 2030 about 40 percent of the highest income earners will be in their 40s, a key opportunity for brands seeking to establish lucrative, long-term relationships with prosperous consumers. “Demand for premium quality is huge,” said Fflur Roberts, Euromonitor head of luxury goods research. “These are mostly entrepreneurs, they’re used to taking risks and this is partly reflected in the types of luxury they buy, for example, jewelry and wines.”
There is still a significant income gap between men (higher earners) and women, but as men’s luxury is still very underdeveloped, this presents “one of the biggest opportunities over the next five years,” Roberts pointed out.
Another key insight for luxury brands is the growth in shopping mall destinations in Latin America. Such retail expansion appears to be coming at a time when strengthening currencies are encouraging more people to shop at home, rather than travel abroad for their luxury purchases — another potentially important shift in consumer habits in the continent. “Shopping malls are key for regional luxury goods growth,” according to Torres, “as they offer security and comfort. Brands — including Prada and Brunello Cucinelli — are opening in luxury malls to extend their footprint.”
Meanwhile, the next phase of the retail expansion trend in Latin American markets will see brands move further into second- and third-tier cities, much like what is happening in China. The numbers are appealing: in Brazil, for example, the number of households with annual disposable income of $300,000 and over expanded by more than 50 percent in 2009 to 2014 in second-tier cities like Cuiaba and Belém and by 40 percent or more in Vitoria and Fortaleza.
While there are ample opportunities, there are also challenges aplenty, starting with high tariff barriers, affluent consumers who like to travel-shop and the need for brands to engage customers with social media and online shopping in countries where broadband penetration is still — in many cases — relatively low.
But the toughest obstacle, Torres said, is a more basic one: “The biggest challenge for luxury brands in Latin America is to convince consumers to spend more at home than abroad. Brands have to find ways to make shopping experiences at home more luxurious than abroad.”