Luxury Brands in Emerging Markets

G. Atwal, D. Bryson, G. Atwal, D. Bryson

• Editorial: Palgrave Macmillan
• Año: 2014
• ISBN:
  9781137330536
• Categoría: Business
• Categoría: Management

This book is an invaluable repository of knowledge that brings clarity to key issues and trends for practitioners, academics and students of luxury brands. It sets out to decode the luxury markets in the primary emerging markets (BRICs) and provide a rich resume of the key factors that influence the effectiveness of luxury brand strategies.

Part I

Brazil

1

Understanding the Brazilian Luxury Consumer

Claudio Diniz, Glyn Atwal, and Douglas Bryson

Economic prosperity in Brazil, as is evident in other emerging markets, has created new high-end consumer markets. According to Euromonitor International (2012), Brazil’s luxury goods market has grown rapidly in the last decade and was valued at over US$ 7 billion in 2011. Other market estimates indicate that the Brazilian luxury market is close to US$ 12 billion (MCF Consultoria and GfK 2011). The high potential of the seventh largest national economy continues to attract ever increasing attention of international luxury brands. For example, the JK Iguatemi mall in São Paulo, which opened in June 2012, has given luxury brands such as Burberry, Gucci, and Prada, an increasingly prominent footprint. Difficulties encountered by international luxury brands, such as high taxes, red tape, and lack of infrastructure, continue to hinder market entry and expansion plans. However, the failure to gain a deep understanding of the Brazilian luxury consumer should not be overlooked. This chapter sets out to decode the luxury consumer. Indicated actions stemming from our analysis will give international luxury brands the necessary knowhow to capture a greater share of the bourgeoning luxury market in Brazil.

Emerging prosperity

Extreme income inequality in Brazil has traditionally meant that wealth was exclusive to a small elite minority. Profiling and targeting the Brazilian luxury consumer was essentially the ‘global luxury consumer’ who shared traits similar to the very affluent luxury consumer in North America, Europe, or Asia. The game changer that is redrawing the market for luxury brands is the growth of Brazil’s middle and affluent classes. Income growth projections suggest that luxury goods will be financially accessible to wider sections of the population. Boston Consulting Group projects that in 2012, 20 million emergent and established households will account for around 29 per cent of the total, and represent 35 per cent of Brazil’s income (BCG 2013). These are consumers who will typically trade up and use credit to acquire premium and affordable luxury items. While they may not be able to afford a Chanel handbag, they can access the universe of Chanel by purchasing Chanel sunglasses or cosmetics. An interesting perspective is given by Edmonds (2011): ‘When a good life is defined through the ability to buy goods then rights may be reinterpreted to mean not equality before the law, but equality in the market.’

Affluent households will still be a critical source for luxury sales as the increase in the number of these households will account for a projected 29 per cent of all Brazilian consumption in 2020 (BCG 2013). Data from Credit Suisse indicates that there are currently 227,000 millionaires in Brazil and this number is set to increase to 497,000 by 2017 (Polland 2012). Greater spending power at the top of the wealth pyramid will have positive implications for the growth of numerous luxury goods and services categories, from pens and watches to yachts and high-end real estate. The luxury market in Brazil is evolving. As a result, luxury brands need to create a compelling proposition that is relevant to the very affluent, but also accessible to first-time luxury consumers.

Demographic bonus

Brazil’s momentum to developing into a high-growth consumer market can be partly attributed to its ‘demographic bonus’. About two-thirds of the country’s population is between the ages of 15 and 64, the most economically productive age group. This demographic dividend was a result of a strong decrease in birth rates after the 1970s, while mortality rates decreased at a slower pace. It is projected that the growth rate of this economically active group will peak at the start of the next decade (Newmann 2011). This demographic dynamic will provide significant opportunities for luxury brands, but will also mean that luxury brand owners will need to adopt a more ‘youthful’ marketing approach as opposed to developed markets in the United States or Europe. According to a survey conducted by MCF Consultoria/GfK (2011), 33 per cent of luxury consumers in Brazil are between 36 and 45 years old, and another 32 per cent are between 25 and 35 years old.

Market concentration

Seventy per cent of Brazil’s domestic luxury consumption takes place within São Paulo (Cox 2012). Prominent luxury retail malls include Cidade Jardim (e.g. TAG Heuer, Cartier, Louis Vuitton) and Iguatemi (e.g. Burberry, Gucci, Louis Vuitton). The dominance of São Paulo is perhaps not surprising given that São Paulo is the largest city in Latin America, and the third biggest in the world by population. The city is considered as Brazil’s financial capital and is the focus of the economic activity of the country. São Paulo comes ninth in global rankings of cities with the most High Net Wealth Individuals (HNWIs) with net assets of over US$ 30 million (Knight Frank 2013). This wealth has certainly left an impression on the city; there are 420 helicopters registered in São Paulo, a total that is second only to that in New York City, according to the Brazilian Association of Helicopter Pilots (Geromel 2013).

Other luxury destinations include Rio de Janeiro and Brasilia. The World Cup in 2014 and the Summer Olympics in 2016, as well as the expectation of growth in petrol production, will strengthen Rio de Janeiro’s position as an important luxury market destination. The launching of the Leblon Shopping Mall (e.g. Chanel, Ferragamo, Ermenegildo Zegna), the revival of Sao Conrado Fashion Mall (e.g. Diesel, Armani, Ermenegildo Zegna), and the opening of the Village Mall (e.g. Tory Burch, Burberry) are recent developments that have improved the city’s luxury brand retail infrastructure. Brasilia has the highest income per capita in Brazil, and is emerging as an alternative luxury destination to São Paulo and Rio de Janeiro. For example, the Magrella mall in Brasilia (e.g. Céline, Stella McCartney, Lanvin, Roberto Cavalli) has evolved as an important luxury retail landmark. However, rising incomes beyond the Rio–São Paulo axis are creating further opportunities for luxury retail. For example, in October 2012 the shopping centre Riomar was launched in Recife (the largest metropolitan area of the North/Northeast) and has become home to H. Stern, Burberry, and Hugo Boss. In September 2013, Iguatemi mall, which includes over 200 stores such as Canali, Coach and Tod’s, opened in Ribeirão Preto (São Paulo State). Patio Batel was recently opened in Curitiba in the Southern region of Brazil, bringing Louis Vuitton, Burberry, Coach, and Versace together under one roof. Remarkably, according to Euromonitor International, US$ 3 billion is expected to be spent on 100 new Brazilian shopping malls by 2014 (Mount 2012), which will give premium and lifestyle brands broader access to new geographical markets.

Regional differences

Many international companies have often approached Brazil as one market. However, this is a vast oversimplification; a misconception perpetuated by the great distances from luxury producers’ HQs to Brazilian soil. Each region has its own idiosyncrasies and consumer habits vary widely, which can have implications on how luxury brands should connect with the potential luxury buyer. Affluent consumers from the North or Northeast visit São Paulo about once a month to shop, and they love to enter a shop where the sales assistant will play their favourite song, or will serve them champagne and remember their favourite styles. Although often aware that they are paying a higher price than they would abroad, they are unconcerned. As many of them are not fluent in English or French, they do not experience the same type of customer service in New York, Miami, or Paris. They like to be pampered, and form a cosy bond with their salesperson. Due to the language barrier, they do not experience a ‘thrill’, which is an essential aspect of the luxury brand experience, when shopping abroad. Elsewhere, Carioca women from Rio are remarkably easy-going and extroverted; they do not hesitate to enter shops or jewellers in their swimwear. In São Paulo, on the other hand, they are likely to dress up, get a manicure and a hairdo to go shopping, and have a more formal attitude and attire. In Brasilia, the nation’s political capital, luxury consumers prefer to pay cash rather than to charge their credit cards. Brazil is in fact many dissimilar markets within one nation.

Shopping abroad

It is reported that 80 per cent of luxury items owned by Brazilians are in fact ‘tourist purchases’ (A.T. Kearney 2013). Brazilians outspend even the Chinese when they visit cities in the United States, spending on average US$ 4,940 per stateside trip (Cox 2012). The incentive for Brazilians to purchase luxury items abroad, whether in Europe (Paris, Milan, London) or the United States (Miami, New York) is huge given the price differences. Even with the 6.38 per cent extra charge on international purchases by credit card, it is still much more advantageous to buy abroad than locally. Taxes and import costs mean that luxury goods sold in Brazil are far more expensive than in the United States. In the clothing sector, taxes charged range from 80 to 120 per cent, while in the jewellery sector they are between 28 and 44 per cent. To put this into perspective, an automobile costing the equivalent of R$ 45,000 in primary markets around the world will cost R$ 75,000 in Brazil. Higher prices might allow for higher margins for luxury brand owners, but it also means that many luxury goods remain out of reach for many aspiring middle class consumers who would otherwise fall into this category of consumer.

Having vs. being

A feature of luxury consumption in Brazil is related to sensations, where ‘having’ is more important than ‘being’. That means that the lack of content for ‘being’ requires higher levels of ‘having’ as a password to a social group, and to access its status. Although, due to crime, there is a concern for public safety, Mazza and Stul (2012) assert that there is a need for Brazilians to publicly display their social and lifestyle status: ‘Luxury is associated with exclusivity: Why own or do something exclusive if no one knows about it?’ This condition of ‘having’, however, reflects two sides of consumerism: the satisfaction of a personal need and social ascension, i.e. belonging to a group. ‘Many consumption decisions are intended, consciously or subconsciously, meant to signal one’s place in the social continuum. Clothing, hair styles, club memberships, automobiles, and housing neighbourhoods all have some component of social identification associated with them’ (Friedman and Grilo 2005, p.2). Interestingly, this phenomenon strikes a chord with both the emerging ‘new money’ and traditional ‘old money’ segments of the luxury consumer population. For instance, the traditional elite, founded on social prerogative, adapts its purchasing behaviour in order to maintain its social distinction. This was the case when the emerging group began purchasing designer clothes for ostentation, and the traditional group responded by wearing personalized designer clothes. Similarly, the need to acquire social distinction via knowledge, e.g. the choice of a wine’s best year, or region of origin, suggests that this group of consumers is searching for codes of consumption in order to differentiate themselves from the emerging group.

Appearance

There is a commonly held assumption that Brazilians are obsessed by their physical appearance. Brazil in 2011 had the second highest number of plastic surgery procedures in the world (Lapper and Stillman 2013) and is the world’s second biggest market for gyms (Reuters 2012). It is also set to overtake Japan as the second largest beauty market (Erlich 2012). This culture of perfecting one’s physical appearance suggests that attractiveness is in fact related to social status. As pointed out by Edmonds (2011): ‘For many consumers attractiveness is essential to economic and sexual competition, social visibility, and mental well-being.’ Sephora, for example, aims to leverage this huge market opportunity. It opened its first store in Brazil in July 2012, and has plans to open an additional 39 stores over the next five years. It has also acquired a 70 per cent controlling stake in Sack’s, a Brazilian online retailer of fragrances, cosmetics, and toiletries (Bonifacio 2012). The societal and peer pressures of ‘appearance’ are however extended to combine beauty with fashion. As observed by Broide et al. (2012a): ‘Fashion and beauty is not an indulgence, but very nearly a necessity for every demographic and income group in Brazil.’ Brazilian consumers are extremely fashion conscious and data released by Euromonitor International (2012) shows that designer clothing and footwear constitutes 37 per cent, and luxury accessories 17 per cent, of spending of luxury goods consumption by category in 2011. The notion of ‘appearance’ is a very Brazilian specific attribute as noted by Mazza and Stul (2012): ‘They like to go to places that are famous for the people who go there rather than the place itself.’

Impulsive

A defining and perhaps unique feature of the Brazilian consumer is their strong inclination towards spontaneity. With little consideration to any self-set budget limits, Brazilians often buy fashion and luxury items on impulse. Purchases are habitually made on credit and are mostly paid off in instalments. In a consumer’s mind, she is not spending R$ 5,000 but 10 instalments of R$ 500 each: a bargain. More than 70 per cent of luxury product sales are in fact paid with credit card instalments (Mazza and Stul 2012). To be able to buy more, Brazilians often pay the minimum charge on their credit bill, which allows them to buy more without paying the total balance up front. Brazilian customers, often more emotional than rational when faced with a possibility to spend, are a unique case for the luxury market. As noted by Roland Villard, chef at Le Pré Catelan (Copacabana), Brazilians are willing to splurge on a bottle of champagne without thinking of the cost if the champagne is for the purposes of having a good time: ‘Tout le monde va boire une fois dans sa vie du champagne, c’est comme s’offrir un petit morceau de France; les Brésiliens n’ont pas la prudence des Européens, ils font des sacrifices pour faire la fête’¹ (Oualalou 2012, p.8). Even a large number of consumers, who frequently travel abroad, buy luxury brands locally as well. If they desire a product they buy it immediately, as they cannot wait for the next trip abroad to buy it. Similarly, in terms of buying items online, there is ‘an unwillingness to wait for an item and the desire to touch and feel it’ (Broide et al. 2012b). This impulsive shopping behaviour can be attributed to ‘. . . very near memories of hyperinflation, when it didn’t make sense to save. Moreover, many of the rich are newly so, with the impulses that often accompany that group. They are in their 30s and 40s and they want their fun now’ (Mazza and Stul 2012).

Social

The need for social relationships and interactions is a distinctive attribute of consumer behaviour in Brazil that transcends social and income groups. For example, a McKinsey study found in a mass-market apparel study of Brazilian shoppers that 54 per cent of respondents purchase clothing for going out with family and friends, compared to 32 per cent in Russia, 23 per cent in India, and 24 per cent in China (McKinsey 2007). The shopping experience in the growing number of malls is also a group leisure time activity that brings family and friends together. Moreover, social activity has a very strong online significance. According to Broide et al. (2012b), Brazilians spend more than twice as much time online as the British, French, or Spanish, and remarkably, more time than Americans on social networking sites. In fact, Brazilians have the highest number of online ‘friends’ in the world. According to a report by TNS (2011), the typical Brazilian has an average of 231 social network friends, and 357 for those accessing the Internet via their mobile phones, vs. an average of 176 in Latin America, and 120 globally.

Consumers globally use social media to obtain friends’ opinions on a product they are considering buying and comment on product and brand experiences – positive or negative. This is of significance for luxury brands where nine out of ten Braz...