Latin America’s luxury market is booming, underpinned by robust economic growth. The phenomenon has put the region on the map for the world’s largest luxury brands, which are expected to spend millions to pursue aggressive expansions in coming years.
Danielle Zito, a luxury consultant at Bain & Co. specializing in Latin America, said Brazil, Mexico and Argentina remain the largest markets, worth some $5 billion together, while Panama, Chile and Colombia follow close behind. Peru, too, is a promising market, he added, though the country’s retail infrastructure must develop further.
According to Zito, Brazil’s luxury market will grow by 20 percent this year to some $3 billion — even as overall economic growth there slowed in the third quarter — while Mexico and Argentina will expand 22 percent and 30 percent, respectively. The remainder of the Latin American market, worth some $700 million, will also grow significantly.
Zito’s comments follow those made by a panel of luxury experts at the Miami Festival of Media last month in which industry executives agreed that Latin America’s luxury market is poised for stellar growth in the near- to medium-term future.
They said the booming economies of Brazil, Colombia, Chile, Argentina and Mexico are bolstering consumers’ purchasing power and appetite for luxury products.
Carlos Ferreirinha, chief executive officer and founder of Brazilian marketing consultancy MCF Consultoria, said Brazil will welcome 15 new luxury labels by 2013, while Mexico, Chile and Colombia will also see a large number of labels open shop by that time.
“It’s interesting. Just a few years ago, luxury brands didn’t see Latin America as a priority. Now [as the U.S. and European economies struggle under the recession], they need us as much as China and India,” Ferreirinha added.
According to Ferreirinha, Latin America now accounts for 15 percent of Hugo Boss’ sales and is set to generate the lion’s share of Italian luxury label Salvatore Ferragamo’s sales (alongside Asia) in 2015 when the firm hopes to complete an aggressive expansion that will see it open 22 new shops to boost its regional count to 106.
Zito said luxury brands including Ferragamo, Hugo Boss, Ermenegildo Zegna, Giorgio Armani and Louis Vuitton are planning major store rollouts in the region in coming years. The latter brands already control the luxury apparel and accessories markets, he said, and are poised to strengthen their lead in the future.
Speaking about Argentina, Chile and Colombia, Zito said Hugo Boss and Ferragamo lead luxury sales in those countries, while Boss is the market champion in Peru. In Chile, Louis Vuitton leads the market, he added.
Zito noted that while Brazil will remain the region’s biggest market because of its large population, Argentina has a higher proportionate number of consumers with a disposable income of over $10,000 and $25,000, making it a more attractive market for superluxury brands. Luxury sales are mostly concentrated in Buenos Aires, though that will change in the future once secondary cities like Mendoza develop further.
Zito said Peru’s market also holds promise because of the country’s booming gross domestic product, which is set to eclipse most others in Latin America in the next few years. However, he added, Peru’s retail market must develop to provide an appropriate network for luxury brands to establish themselves.
While the country is developing a huge shopping mall network, observers said retail space is very expensive while good locations are hard to find.
During the Miami conference, delegates spoke about the complexity of marketing luxury products in Latin America.
One thing most panelists agreed upon was that marketing to wealthy Latin Americans must be done differently than in Asia or other parts of the world. In Latin America, they claimed, one-to-one marketing and targeted events work better than in other regions. Moreover, brands must train staff to engage customers in a “warmer, more intimate and more humble” way than in other markets.
According to Diego Stecchi, Latin American managing director for Salvatore Ferragamo, the Italian luxury purveyor is using this strategy to publicize its brand.
Stecchi said the firm’s main customers are professional males around 35 years old, much younger than its average European customer in his mid-50s.
When it comes to clothing, he said customers prefer more logotized shoes, ties and apparel than in other markets, due to their desire to wear the brand as a symbol of success. Ties, for example, are patterned differently for Latin American consumers, Stecchi noted.
For these reasons, Stecchi said Ferragamo is using a one-to-one store marketing strategy and special events to promote its franchise through word of mouth rather than splashy ad campaigns. The Italian retailer does, however, selectively advertise in men’s, fashion and business magazines across the region, he added.
As part of its social marketing strategy, Stecchi noted Ferragamo will launch several special events to present its collections to a selective group of customers, a scheme he notes works well in Latin America.
“In several parts of the world, people have a reluctance to go to a branded event but in Latin America doing so is very cool,” he commented. “It makes people feel like they are part of the brand’s family and they feel special and cherished as a result.”
That “I’ll make you feel special” approach is what luxury brands arriving to Latin America must bear in mind if they want to succeed, other panelists said.
“Latin Americans like to call out their new status,” said Karla Nausova-Velarde, a senior consultant with Effective Brands focused on the region. “This is a region unaccustomed to luxury but with a booming middle and upper class that has a lot more buying power and seeks products that can provide that status symbol,” she explained.
Ruud Smeets, founder and ceo of consultant Elysiants, added word-of-mouth also works well when selling luxury in Latin America, which is why having informative and well-trained staff is key to a brand’s success.
“The whole purchase is of very high interest for consumers, who want information about the brand and the product,” Smeets explained. “Then, in many cases and particularly with woman, they share information with their friends before making a purchase decision.
“It’s a social virus system,” Smeet added. “The more they like your brand, the more they tell their friends who then come to see your products for themselves.”
Smeets said winning customers in Latin America won’t come easy and that brands will need to educate consumers about their products to boost sales. One way to do this will be through advertising and Smeets expects luxury brands will spend a fortune to publicize themselves in this fairly unchartered market.
“In the U.S. and Europe, people wake up in the morning and they see luxury in their life,” Smeets added. “Not in Latin America. I can guarantee that no other region in the world is going to demand more interaction with media networks to learn about luxury than Latin America. Latin Americans need to be educated about it, taken by the hand.”