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Brazil’s virgin territory
Economy

Brazil’s virgin territory

Thursday, 16 February 2012
By Manuel Palos
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Manuel Palos

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6 min read

Brazil is on a fast-track to growth, and watchmakers are impatiently looking out for the least sign of an opening in this still to be conquered market. Some even claim that with lower import duties, sales of timepieces there could outstrip those in the United States.

“We are not a tiger, moving in leaps and bounds. We are a whale that makes slow but steady progress.” This declaration by former president Fernando Henrique Cardoso could easily describe Brazil’s economic boom of recent years. The country that seemed destined to always be the next big thing for watchmakers is now facing a highly promising present. Its positive performance makes a sharp contrast with the debt crisis in Europe, or problems of inequality in the United States. And unlike the other BRIC countries (Russia, India and China), the nation of “order and progress” has grown on a foundation of democracy and welfare. How many other emerging economies can say the same?

In 2010, the Brazilian institute for geography and statistics announced 7.5% growth, the country’s highest ever in 25 years. The International Monetary Fund forecasts close to 5% for 2012, despite the impact of recession in Europe and the overheating Chinese economy. The position of president Dilma Rousseff, who continues to consolidate her authority and relentlessly fight corruption, suggests greater institutional stability on healthy, solid bases. The country’s highest representative, in January she chose to attend the World Social Forum in Porto Alegre rather than join the world elite in Davos. A decision that speaks volumes about Brazil’s current (and future) identity.

The question of distribution

All of which explains why luxury appears to be following a different path here in the birthplace of Oscar Niemeyer, Santos Dumont and Caetano Veloso, compared with other consumer societies. This difference is especially evident in São Paulo’s Golden Triangle, bordered by Ruas Oscar Freire, Haddock Lobo and Alameda Lorena. Amid the chaotic traffic and constant buzzing of helicopters overhead, luxury boutiques and malls are springing up, such as Villa Daslu or Cidade Jardim, where Louis Vuitton and Hermès have respectively opened their fifth and first stores in Brazil. Ermenegildo Zegna already has four stores here. Chanel chose São Paulo for its biggest Latin-American point of sale. Van Cleef & Arpels also plans to locate its first outpost in the country’s economic capital. Cartier, Chopard, Rolex, Prada, Armani, Gucci, Corum and Hublot all want to conquer Brazil, and more to the point Brazilians who “maybe know more about fashion than the Mexicans and are also very demanding,” in the words of Maurice Spiri, LatAm director for Ellicot which has been building its presence in the region for a number of years.

 

No one brand stands out in this country.
François-Henry Bennahmias

But as François-Henry Bennahmias, President of Audemars Piguet North America, explains, “no one brand stands out in this country. Anyone who claims the contrary is having you on. It’s quite simply impossible because there are so few points of sale. Brazil has a population of 190 million compared with 110 million in Mexico, yet we have seven major partners in Mexico versus how many in Brazil? Two. One in São Paulo and one in Rio de Janeiro. They’ll shortly be joined by a representative in Brasilia, which will make three. If we pushed harder in Mexico, we know we could have between 15 and 20 points of sale, but try as you might you’ll never come anywhere near that figure in Brazil. Do Brazilians like fine watches? Of course they do, but they buy them abroad.”

A lack of distributors and high import duty are the two hurdles to any kind of spectacular growth of the luxury market in Brazil, even as Brazilians return from trips to Miami, New York and Geneva laden with rope-handled bags filled with jewellery, watches and couture. “As the situation stands, Mexico is the biggest market in Latin America, ahead of Argentina. Brazil ranks third,” says François-Henry Bennahmias. “Yet if tomorrow the Brazilian authorities were to review taxes on luxury goods, Brazil would become our main market and could even overtake the United States. Brazilians have a greater appreciation of watches than do Americans.”

Latin America’s booming economies and political stability have sparked the current buying fever. Furthermore, and for the first time in the country’s history, a majority of Brazilians belong to the middle class: 46% versus the 39% who earn less than the average wage. At the top end of the scale, 15% of the country’s population earn more than twice the average annual income, according to an official report published in 2009 by the French Embassy in Brazil.

The bubble gets bigger

Cardoso’s “whale” still has obstacles to overcome as it swims towards greater development. “An overvalued currency, trade deficit, and to a certain degree inflation,” comments Ricardo Delgado, a Buenos Aires-born economist who, after working as an analyst for successive Argentinean governments, set up a consultancy in São Paulo seven years ago. “A number of indicators suggest we’re looking at a bubble, as in the property market. All of this relates to the strong real and high revenues from foreign capital,” he adds. Delgado is spot on. Last April, Brazilian magazine Veja revealed that Rio de Janeiro, which will host the 2016 Olympic Games, is now the fourth most expensive city in the world. In neighbourhoods such as Ipanema, prices have increased 380% over the last five years.

 

CNN has named Brazilians the coolest people on the planet.

The fiscal adjustments which Dilma Rousseff implemented last year to cool off the economy show that the authorities are aware of speculation-related risks. Meanwhile, the whole world is in love with “Brand Brazil.” CNN has named Brazilians the coolest people on the planet. We envy them their sportsmen, their supermodels (Adriana Lima is an ambassador for IWC), their films and their food. It’s no coincidence that Parmigiani, in a much commented-on initiative, is sponsoring the Confederaçao Brasileira de Futebol, whose representatives include football legend Ronaldo. The brand issued a special-edition Pershing chronograph to mark the event.

The majority of watchmakers want just one thing from Brazil: lower taxes. As well as benefiting watch brands that could set up in the country, and their potential clients, such a move would have a positive impact on Brazil’s major jewellers, like Frattina in São Paulo, Sara in Rio and Porto Alegre, Griffiths in Brasilia, or chains such as H. Stern. The door would then be wide open for fine watchmaking to find all kinds of interesting ways to celebrate the land of samba and carnival. Already, Patek Philippe’s catalogue includes a special line, Gondolo, which it developed in collaboration with a Brazilian jeweller.

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