Latin America is one of the world’s fastest-growing wealth markets, and it is the home to an affluent class wealthier than other regions of the world. The average high net worth individual in the United States is worth USD 3 million, whereas in Latin America the average is USD 15 million.
The South American emerging markets remain relatively modest when it comes to luxury good sales. But undoubtedly, Latin Americans have started spending serious cash – both at home and abroad.
Euromonitor reported that sales growth and number of luxury outlets to open in Latin America in the recent two years had risen by almost a quarter, a significant rate that outshone expansion efforts in any other region.
Brazil, Colombia, Panama, Peru, and Chile Rank as Best Investment Destinations. LVMH’s Sephora and Estee Lauder are investing heavily and already seeing strong returns. In their latest earnings call last month, the latter said that: “Latin America continues to perform with excellence and delivers faster growth than any of other region worldwide”.
Brazil has the highest number of HNWIs in Latin America and third highest among BRIC nations. Luxury brands including Burberry, Dolce & Gabbana, Lanvin and Yves Saint Laurent established their only shops in Latin America in São Paulo. The country’s hefty import tariffs are still a bigger barrier to foreign brands than its weakening economy. Prices can virtually double, sending consumers flocking overseas – although this tide has been turning slightly since the devaluation of the real. Half of all sales made in the M.A.C flagship store in New York’s Times Square are made to Brazilians, and 8 million Latin American tourists made luxury purchases in Miami last year.
Colombia, has been highlighted by Deloitte as having “improved governance, competitive industries, and favorable demographics”.
Louis Vuitton, Cartier, Armani, Escada and Calvin Klein all shuttered their stores in Argentina. The financial crisis and a 25 percent inflation have played a crucial role in the business. The country increased its import tariffs and luxury taxes, prompting many high-end boutiques to close.
Financial stability, favorable tariffs and a population with increasing purchase power have made Chile an attractive market for high-end brands. Luxury items are also cheaper in Chile, due to lower tariffs compared to Brazil. Imported wine, for example, is taxed at 75 percent; cosmetics and perfumes, 50 percent; and cars, 55 percent. “Even though São Paulo is a bigger market, the closeness of Chile’s capital brings many Argentines that can still afford luxury items,” said Constanza Sierra, Essentia Consulting in London. Nevertheless, AML clarified that while the market is growing, Chileans are still not big consumers of luxury items. “It is still not part of their lifestyle,” said AML’s Nicholas Parkes. “Luxury brands face the challenge of creating their customers from scratch, a process that in Chile is just starting,” said Parkes.
But luxury sales in China continue to soften, and economic growth in many once stellar emerging markets is de-accelerating thanks to a mix of issues including currency headwinds and social unrest. So beyond Brazil – comparatively – the future of luxury is looking rather bright for Latin America.