Big prizes, barriers in Brazil's luxury market

By Jenny Barchfield

Associated Press

Published: Saturday, Jan. 14 2012 6:50 p.m. MST

People mingle in a bar before the start of the Auslander show during the Fashion Week in Rio de Janeiro, Brazil, Saturday, Jan. 14, 2012. Brazil has been long dismissed as the land of bikinis and rubber flip flops. But with its galloping economy and hordes of new millionaires, the South American giant is the fashion and luxury industry's newest darling.

Victor R. Caivano, Associated Press

RIO DE JANEIRO — Brazil has been long dismissed as the land of skimpy bikinis and rubber flip flops. But with its galloping economy and hordes of newly minted millionaires, the South American giant is the fashion and luxury industry's newest darling.

Fashion insiders from Brazil and beyond descended on Rio de Janeiro for the city's five-day-long winter 2012 displays, which were wrapping up on Saturday.

Prada and Bottega Veneta opened boutiques here over the past months, and a host of other top-tier labels are expected to open shop throughout the year. Consumption of luxury goods by Brazil's booming middle and wealthier classes is growing, despite an economic crisis that weighs on demand in Europe and the United States.

But for luxury labels scrambling to get a foothold here, there are major hurdles hiding behind the dollar signs.

"People think 'Brazil: football, the beach, caipirinhas, that it's all super relaxed here,'" said Abraao Ferreira, a Brazilian-born fashion industry consultant. "Next thing you know, their product is stuck in customs for three months. Then they start to realize that not everything in Brazil is as laid back as it might appear."

Brazil's red tape is legendary, as other industries find when they try to move into Brazil. In the latest "ease of doing business" ranking by the World Bank, Brazil came in at No. 126, despite being forecast to overtake Britain as the globe's sixth largest economy.

Just getting goods through customs in Brazil is a Herculean feat, and situations like the one Ferreira described happen with sobering frequency.

"When you want to import things into Brazil, you have to do everything absolutely by the book," said Bruno Astuto, a fashion editor for Brazilian newsweekly Epoca and columnist with Vogue. "The problem is that the book keeps changing and they keep adding pages or chapters, so a lot of times merchandise doesn't get to the shops until months later, if at all."

And that's just the beginning.

Brazil's stiff tariffs on all imports push the already-steep prices of luxury goods into the stratosphere.

"It's a really difficult market," said Astuto. "Because of the duties on imported goods, luxury products here can end up costing from two to four times the price outside Brazil."

At multi-brand stores, price inflation can reach epic proportions, Astuto added. Once you factor in the sales taxes and the retailer's margin on top of the import duties, ticket prices can reach up to 18 times the product's wholesale price, he said.

At a mall in Rio's exclusive Leblon neighborhood, a pair of women's flats by Salvatore Ferragamo — sold at the Italian shoemaker's own store — cost 1500 reais, or $842 at the current exchange rate. Online in the United States, they retail for $395. At the Burberry store in Sao Paulo, a trench coat that retails on for $915 on its U.K. website was selling for 3695 reais, or $2075.

Another challenge for international brands arriving here is the strength of the country's domestic clothing industry.

Brazil is the world's fifth-largest textile producer, according to industry statistics, and Vogue Brazil and other fashion magazines here don't just feature top-tier international labels like Chanel, Dior and Lanvin. They're also chock-a-block with domestic brands that have virtually no name recognition outside the country.

Ever hear of Osklen? Maria Bonita? Alexandre Herchcovitch? In Brazil, these homegrown labels are household names with a devoted fan base among the wealthy elite as well as the country's growing middle class.

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