Up until now, the market of luxury in South America was divided between São Paulo, Brazil, and Buenos Aires, Argentina. However, in the last year a competitor has risen: Santiago, in neighboring Chile.
Sales of luxury items have reached $30 million this year so far, according to the Chilean Asociación de Marcas de Lujo (Luxury brands association, or AML), 14 percent increase from last year. Financial stability, favorable tariffs and a population with increasing purchase power have made Chile an attractive market for high-end brands, which have established their own boutiques in the capital, as opposed to opening shops in department stores like in other countries like Mexico.
Jorge Sandoval, director of AML, said that Chile has surpassed Argentina in growth. “Changes in regional policies benefited Chile,” he said. Argentina, currently in the midst of a financial crisis and with a 25 percent inflation, has increased its import tariffs and luxury taxes, prompting many high-end boutiques to close.
Constanza Sierra, with Essentia Consulting in London, told El Economista América that this exodus from Buenos Aires to Santiago brings Argentinian revenue to Chile. “Even though São Paulo is a bigger market, the closeness of Chile’s capital brings many Argentines that can still afford luxury items,” she added.
Luxury items are also cheaper in Chile, due to lower tariffs compared with Brazil. Imported wine, for example, is taxed at 75 percent; cosmetics and perfumes, 50 percent; and cars, 55 percent. It does not help that Brazil has not signed trade agreements with any countries outside of the Mercosur alliance, with the exception of Israel. Chile, on the other hand, has a slew of free trade agreements, including with the U.S., the E.U. and other manufacturers of luxury items such as Japan and South Korea.
Nevertheless, AML clarified that while the market is growing, Chileans are still not big consumers of luxury items. “It is still not part of their lifestyle,” said AML's Nicholas Parkes to Chilean financial newspaper Emol.
Most Chileans buy things like expensive watches and designer clothes just a couple of times a year, even though many could afford to do so more regularly. Insurance company Allianz (FRA:ALV) revealed in a report that Chileans are, on average, the richest Latin Americans, with a median per capita household income of $14,000.
“Luxury brands face the challenge of creating their customers from scratch, a process that in Chile is just starting,” said Parkes.
Note: Photo by Shutterstock.com.