MEXICO CITY — Mexico’s luxury market will grow as much as 9 percent to $15.3 billion in 2015 as consumers continue to favor upmarket brands and aspirational goods, though economic uncertainty could cripple long-term gains.
Emboldened by rising consumption of pricey items, foreign brands, notably Bulgari, Prada, Gucci, D&G and Yves Saint Laurent, are boosting their presence in Latin America’s second-largest market, according to Abelardo Marcondes, director of trade consultancy Luxury Lab, which provided the growth forecasts.
This year’s figures are lower than in 2014, when the sector grew 12 percent to around $14 billion, on top of a 17 percent hike in 2013 and similarly buoyant levels in 2012 when it eclipsed Brazil’s pace of growth.
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“The first half of 2014 was really good but the second half was very bad,” Marcondes said. “We’ve had some bad political issues, including corruption scandals that have hurt consumer optimism.”
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While the economy is expected to gain 3.9 percent in 2015 (from a meager 1.1 percent jump in 2014), the windfalls expected from a major energy reform have not fully materialized, prompting well-heeled Mexicans to pare consumption. The government has also been slammed for back pedaling on over-hyped economic projections in 2013 and 2014, fueling concern it’s failing to properly run the country and that this year’s forecasts may also be too optimistic.
“It won’t be a double digit year but the sector should grow double the economy or 6 to 10 percent,” added Raul Romo, director of L’Oreal Luxury’s division in Mexico.
L’Oreal remains bullish on the market, where a growing number of aspirational consumers are boosting aspirational purchases in the entire luxury circuit including beauty.
Mexico has added over 4 million of these highly coveted individuals in the past five years, and many brands, particularly those operating in the affordable luxury space, will watch future growth numbers closely.
To profit from the buoyant market, L’Oreal recently introduced its Urban Decay line and will expand its best-selling Kiehls, Clarisonic and Lancome labels. “Lancome has very aggressive proposals for 2015 to maintain its market lead in the women’s skin care market,” Romo said. The French cosmetic giant’s Mexican luxury franchise will also continue expanding its Helena Rubinstein Prodigious Women line after broadening it last year, as well as its Lancome Absolute Precious Cells trademark.
Romo added Mexican retailers remain confident on the market’s medium to long-term potential, with department stores Liverpool and El Palacio de Hierro staging aggressive incursions. Luxury focused El Palacio de Hierro, for example, is currently revamping its store in Mexico City’s swanky Polanco quarter, a move that will open up new retail space for upmarket beauty and other brands. “We will open a new Kiehl’s boutique [with will straddle the outside and inside of the overhauled store] and a new Lancome flagship,” Romo explained, adding that other pricey brands such as Georgio Armani Cosmetics and YSL will also up their presence in the El Palacio de Hierro store, which is slated to open in October.
L’Oreal is not alone in its Mexican enthusiasm. Bulgari recently inaugurated new shops in Cancun and Mexico City and hopes to install a third one in the refurbished El Palacio de Hierro in Polanco. Prada, Gucci and John Varvatos have also opened standalones in the posh Masaryk high street recently.
Marcondes said the market is benefiting from near price parity with the US and Europe, and rising credit options and installment payment plans are encouraging shoppers to buy locally rather than jetting to Miami or New York to snap up the latest collections.
For brands, low withholding taxes (at least compared to Brazil) and import duties are making Mexico the must-be emerging market in Latin America, where many brands are prioritizing expansion after Asia.
According to Romo, selective beauty products may cost $100 in Mexico but $150 in Brazil, where many labels continue to carp about high import duties and red tape stifling their expansion.
A rising influx of so-called global shoppers descending to Mexican beach resorts (many Brazilians) such as Cancun is also helping buoy the market, he said.
At Tiffany, executives are also excited about the market’s future. Country manager Andrea Artigas said the jeweler will sharply increase investment to promote its engagement division, where sales of wedding rings fetching $20,000 to $100,000 have been gaining traction.
She said customers are increasingly purchasing high-priced jewelry from top global brands as rising incomes coupled with greater access to travel and the Internet have turned them into more sophisticated shoppers.
“Brides want a Tiffany ring in a blue box, regardless of whether it’s $20,000 or $100,000. They have come to understand it’s a symbol of quality and status.” And they are demanding customer service catering to a high social rank. “Our shoppers expect and demand a full customer experience that comes with their status. Seventeen years ago, when I started working here, that wasn’t the case. Consumers were not as informed and knowledgeable as they are now,” said Artigas.
She said the luxury jewelry segment is gaining around 10 percent a year in Mexico, where Tiffany operates 11 stores, two on its own and nine through El Palacio de Hierro. The brand also has expansion plans in Latin America, where it intends to open a store in Chile this year to take its count to 31 shops throughout the region.
The Mexican market is not without risks, mainly from economic and political volatility.
“If the reforms are not fulfilled and don’t have the economic buzz they were supposed to generate, which is more confidence and consumption,” the luxury market may suffer, Romo said. “If you look at the latest economic confidence numbers for December, they were negative. That needs to recover and it can only do so with the right political decisions to stimulate growth.”