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Totally Brazil
Economy

Totally Brazil

Friday, 07 March 2014
By Quentin Simonet
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Quentin Simonet

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4 min read

Now is the time to be Brazil-bound! This year, all roads lead to the capital of samba, hot on the trail of the football World Cup and the Olympic Games soon after.

Already, 2014 is shaping up to be the year of Brazil, something which hasn’t escaped watchmakers’ attention as they cast covetous glances towards Sao Paulo, Rio de Janeiro and Brasilia. The reason is devastatingly simple: for the next three years, the eyes of the world will be on Latin America’s biggest country. Firstly because the World Cup, a major sporting event that attracts billions of television viewers, takes place there this summer, followed two years later by the Olympic Games in Rio de Janeiro. All of which should boost the local economy, whether home-grown consumption or spending by tourists and other sports fans. Including watch sales. At the recent Salon International de la Haute Horlogerie in Geneva, Brazil was the one word on countless chief executives’ lips.

Within the next four to five years, Brazil could rank among the top five markets
Jean-Marc Jacot
Order and Progress

Never have brands announced so many new store openings or expansion projects in the country whose motto is Order and Progress, despite Brazilians’ reputation as shopaholics. Omega, Piaget, Vacheron Constantin and numerous others are set to take the plunge, or have already done so. Parmigiani Fleurier, for one, already celebrated Brazil last year with a Fine Watch creation. “Within the next four to five years, Brazil could rank among the top five markets,” declared Jean-Marc Jacot, chief executive of the Manufacture, at a Reuters global luxury and fashion summit. Markets such as Brazil and, more widely, the LatAm region should indeed expand in the longer term. For the minute, however, Brazil – the continent’s largest economy, the seventh world economy, and with a population of 200 million – doesn’t even register in the top 20 export markets for Swiss watches, coming in behind Greece and Israel.

Undeterred, brands are rolling out initiatives. Just some examples: Parmigiani is sponsoring the Confederaçao Brasileira de Futebol (the Brazilian football federation). Last year, under its partnership with UNESCO and the International Herald Tribune to preserve marine environments, Jaeger-LeCoultre donated USD 20,000 to help manage the country’s Fernando de Noronha nature reserve, a UNESCO world heritage site. Corum entered the Brazilian market in 2012 with Grifith Jeweller, while Brazilian supermodel Adriana Lima is a long-standing ambassadress for IWC.

Hublot is pulling out all the stops in Brazil
Hublot in the frontline

Hublot is pulling out all the stops in Brazil this year, beginning with a new store in Rio de Janeiro, then on to its role as official timekeeper for the football World Cup, which the country is hosting from June 12 to July 13. Naturally the brand intends tapping into the event, with a hotel in its colours on the world-famous Copacabana beach where it will entertain customers and VIPs. Not forgetting that Gustavo Kuerten, alias Guga, three-times winner of Roland Garros, last year joined the Hublot family as one of its ambassadors.

Numerous observers rate Brazil as one of the most promising emerging markets for luxury after China, although the country has yet to confirm these dispositions. Security is a particular concern: the country has one of the world’s highest homicide rates, prompting its wealthier residents to drive bullet-proof cars or travel by helicopter. Hublot has hired a specialist security firm to take care of its guests during the World Cup from the moment they land at the airport.

Taxes are another stumbling block. Last year the luxury sector generated BRL 25 billion (USD 10.5 billion) in Brazil, a 20% rise, while the new middle class has transformed the country into a gigantic consumer market. Yet Brazilians continue to make the vast majority of their purchases when travelling outside the country, in Mexico, Florida and, increasingly, Europe. This is due to prohibitively high import duties confounded by other taxes. As a result, certain luxury goods cost up to 50% more than the same product sold outside Brazil.

But Swiss watchmakers are working on it.
A winning gamble

Despite this, watch brands have their money riding on an explosion in local consumption, particularly if the country loosens its tax grip these next years, as hoped. “We just have to work with lower margins,” confides Stephen Urquhart, CEO of Omega. Vacheron Constantin, meanwhile, has no illusions about the store it will open in Sao Paulo this year: “It won’t be our most profitable store by a long chalk, but that doesn’t matter. Our aim is to be near to our customers so we can provide them with first-class after-sales service. I would hate that Vacheron Constantin watches lie unworn in a drawer simply because they need servicing or a repair,” says Juan-Carlos Torres, at the head of the Geneva Manufacture.

The gamble could ultimately pay off. According to UbiFrance, Brazil’s affluent classes – 42 million people in 2011 – should soon double. Barclays predicts that from 165,000 in 2011, the number of millionaires could easily climb to 600,000 by 2017. The day taxes are lifted, watch brands will be ready and waiting… those that took the plunge, at any rate. Not that any such easing of the tax burden is about to happen. As Juan-Carlos Torres observes, this doesn’t appear to be the current government’s main priority. A state of affairs already lamented by Longines’ ebullient president, Walter Von Känel, back in 2007: “Look at the figures! Brazil isn’t even one of the top export markets for Swiss watches. How can that be?” But Swiss watchmakers are working on it, putting their faith in the future, sport and… samba!

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