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- 14 Jan 2014
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A Long Road Ahead for Luxury in Argentina


Buenos Aires, Argentina (Mente Argentina)

Growth in Argentina’s €1.1 billion luxury market is being threatened by harsh import regulations, heavy taxes and a crumbling local currency

For all the talk of ‘the promise’ of emerging markets, comparatively, little is discussed about just how difficult they can be for foreign luxury brands ‘to crack’. Except perhaps in the case of Argentina, where headlines regarding luxury in 2013 have been littered with the names of brands choosing to exit, and proposals to increase taxes on gated real estate, luxury cars, boats and tourist planes.

At a glance, Argentina seems like a prime target for luxury capitalization. Between 2003 and 2007, real GDP grew annually by approximately 9% consecutively. Economic growth even outperformed Brazil, and was more on the scale of India and China.

Following a blip in 2009, real annual growth returned to 9% in both 2010 and 2011. This fact improved all macroeconomic indicators, including employment, poverty rates and socio economic distribution (Euromonitor).

 The country’s limit on imports make it extremely difficult to stock foreign made merchandise 

In terms of wealth, the upper middle class, expanded by 7% between 2005 and 2010 to reach 3 million members in 2010, accounting for 10% of the population aged 15+. High and upper-middle income classes were eager to spend their incomes on goods in line with the positive economic landscape.

And indeed, the luxury goods retail market is set to achieve €1.1 billion in 2013, up from €1 billion in 2012, according to Euromonitor’s Luxury Goods in Argentina report. Though the market intelligence firm does concede that this positive growth may be explained by increases in prices, rather than an increase in consumption.

President Christina Kirchner’s government has stated that both dollar clamp and import substitution policies will continue being at the heart of the current economic model, to sustain activity and increase local manufacturing industries. Resultantly, foreign luxury brands are faced with several serious barriers to entry and operation.

 High import taxes & inflation make luxury goods up to 4 times more expensive than prices in Europe 

The first, and most important, is the country’s limit on imports – put in place to protect Argentina’s foreign currency central bank reserves – which make it extremely difficult to stock foreign made merchandise.

Instead the government would prefer that brands produce goods in Argentina, which is not necessarily a viable option for a majority of luxury goods brands, who market their products based on French or Italian provenance.

High import taxes and inflation (estimated as high as 25% by private economists) make luxury goods up to four times more expensive than prices in Europe. Tightened currency restrictions make it difficult for foreign companies to get their profits out of the country (Financial Times).


President Christina Kirchner

Even with sound growth, and consumers eager to purchase high-quality products, various companies announced the suspension of local operations in 2012 (Euromonitor). This has been the case for Yves Saint Laurent, Montblanc, Polo Ralph Lauren, Louis Vuitton, Kenzo and Cartier. Escada and Armani exited the country in 2010 when such restrictions were first introduced.

The local market is understood to be supported largely by inbound tourism, notably that of wealthy Brazilian tourists capitalizing on the comparative weakness of the Argentinean peso to the Brazilian real. Though such tourism is in a period of deceleration, resulting in a marked period of considerably reduced luxury spending.

Going forward, the trend is not expected to ease, with luxury goods predicted to record reduced volume and constant value sales growth. As is the case with many emerging markets – faced with limited supply and inflated prices – there is nothing to say that wealthy Argentines won’t prefer to shop for luxury abroad.

Currently, Argentines are the 34th highest spenders when it comes to Tax Free Shopping, in Q3 spending was up 15% on the corresponding quarter in 2012 (Global Blue). The only nearby country that offers TFS is Uruguay, and cross-border shopping is fast becoming a phenomena, with both Brazilians and Argentinians taking short trips to Uruguay purely for shopping.

 Argentines are the 34th highest spenders when it comes to global Tax Free Shopping 

The local market is also faced with the potential local currency collapse, and control over circulation and exchange of foreign currency (Euromonitor). As the Financial Times reported in May 2013, luxury car sales have risen this year as Argentines take advantage of a widening gap between the ‘official’ rate and a ‘black market’ rate of US dollars, to buy vehicles at discounts.

By selling dollars at the black market rate of approximately 9.9 pesos per dollar to pay for cars – imported at the official rate of 6.06 – consumers reap discounts of as much as 40%.

As IHS Automotive analyst Augusto Amorim explains, “a BMW 335i has a price tag of 483,500 pesos. According to the official exchange rate, the sedan would cost less than $89,000, but $57,000 following the “black” rate.”

 People who have dollars are selling it in the “black” market & buying luxury vehicles 

“For this reason, people who have dollars are selling it in the “black” market and buying luxury vehicles. The government estimates that Argentineans have taken about $160 billion out of the banking system or the country. How would you feel if buying a luxury car would make you save money?”

In a bid to slow the demand for luxury cars, the nation’s money-laundering watchdog has decreed that Argentines must now justify purchases of vehicles costing more than 350,000 pesos ($57,769) by providing details including tax returns and bank account information.

In a further bid to discourage ”discourage extravagant consumption,” Christina Kirchner’s government has proposed new taxes on luxury goods, aimed at cars, boats and planes. The measure is the latest in a series of government moves aimed at curbing inflation, which could exceed 30% in 2013, and stemming a sharp drop in its hard currency reserves.


Zegna has struck a deal with a Patagonian wool producer (Amman boutique pictured)

Cabinet Chief Jorge Capitanich declined to give exact proposed tax rates at a press conference, though luxury car buyers already pay taxes of between 10 and 12.5% of their cars’ value. “This project has to do with creating hindrances for those who want to acquire luxury goods,” Capitanich explained. “They’ll have to pay more. That’s the goal,” (Bloomberg).

There are a few luxury brands that are engaging with Argentina on it’s own complex terms to ensure a future in the 8th largest country in the world. Ermenegildo Zegna originally closed one of its stores for two months this year as it was unable to import stock, but was able to re-open after it made a deal with a Patagonian wool producer to export to Italy and Switzerland (Financial Times).

“We’ve already completed two export shipments, and we have two more planned for September and December,” explained a Zegna spokesperson. “That has allowed up to comply with the government’s request to compensate for imports with exports, which has let us get the license to import again.”

 Zegna has struck a deal with a Patagonian wool producer to export to Italy & Switzerland 

Deals like this suggest there is hope for Christina Kirchner and her government to force two-way economic prosperity from large foreign conglomerates looking to enter Argentina. Though it remains to be seen how many luxury brands deem the market lucrative enough to play the game.

And, as the Financial Times suggested, with its high duties perhaps Argentina would benefit more immediately from opening up imports of luxury goods, and in so facto, collecting hefty chunks of tax revenue.

Whichever way you look at the facts and the forecasts for the future, it is unlikely to expect any kind of stellar luxury market growth for Argentina in the coming years, despite the optimism for luxury in the Latin American region as a whole. We can only watch with baited to breath to see if further luxury goods brands follow suit and exit, or if Zegna’s more collaborative strategy pays off.

To further investigate local luxury markets on Luxury Society, we invite your to explore the related materials as follows:

- Australia: The New Land of Opportunity for Luxury?
- Chinese Crackdown on Luxury to Drive Demand
- Southeast Asia & South America New Growth Leaders for Luxury