With a population of 48 million people, Colombia used to be one of the most dynamic markets in South America. However, the 3 fold devaluation of the Peso (the local currency) has plunged the economy into a stagnation mode. All the economic sectors have been affected, including luxury.
Colombia’s luxury market is estimated to be worth 3% of the total market compared to 6% in Peru and 9% in Chile. The neighboring economies have had a much more dynamic market development.
The luxury market has been stagnating and even showing signs of decline with very few new store openings. Gucci has once again postponed its market entry, while Prada, Hermes, Chanel, Fendi, Dior have showed no intentions to enter the market.
The immense devaluation of the local currency has directly impacted the buying power and is affecting both the wealthy who shop locally and those who travel abroad for shopping. A survey conducted by CPP in 2016 has highlighted that 2015 luxury sales were down 10 to 15% compared to 2014. Performance in 2016 is expected to deteriorate further.
Another challenge hindering the development of Colombia’s luxury market is its infrastructure. The existing luxury brands are focused on the capital of Bogota, however, brands are scattered around the city center either with street level locations or part of mass market mall. That is why, there is a clear need for a luxury shopping center, as a single specialized destination for all luxury shopping.
The timing however for such a shopping center, at least for 2016-17, is not appropriate. The brands which already operate mono-brand stores can hardly justify, at present, the investment into a new location, which, in most cases can vary from USD 1 million to USD 3 million (per store). As for considering opening a second location, the market does not have such a potential.
The potential of the luxury market outside Bogota is rather limited. In second tier cities such as Medellin, Barranquila and Cartagena, the market is covered by leading local multi-brand retailer LE COLLEZIONI (Salvatore Ferragamo, Dsquared2, Prada, Etro, Canali, Corneliani, Ermenegildo Zegna, Hackett, Harmont & Blaine). Le Collezioni operates several large multi-brand stores in Bogota too.
Outside Bogota, the presence of luxury mono-brand stores is limited. In the country’s second largest city, Medellin, there are only a few luxury mono-brand stores: Hugo Boss, Coach, Carolina Herrera and Montblanc.
Except for Louis Vuitton and Dolce & Gabbana which operate directly (each with one store in Bogota), all other brands are present in franchising with local or Panama based partners all of them located in Bogota: Burberry, Tiffany&Co, Montblanc, Paul & Shark, Coach, Michael Kors, Longchamp, Cartier, Hugo Boss, Max Mara, Carolina Herrera, Ermenegildo Zegna, Jimmy Choo, Emporio Armani, Victoria. Louis Vuitton operates one of the smallest store in a capital city the size of Bogota, however, the company appears to be content with its current business.
The other challenge facing the development of the luxury market could be oversupply with the existence of 4 luxury shopping center retail projects, currently all in initial stages of development. Each project has reached out to all brands and each has received moderate informal interest. For a market with such a limited development potential this diversification of new projects can only confuse the market and lead to no conclusions.
Grupo Wisa of Panama which owns the giant La Riviera beauty retail chain and currently operates the Burberry and Jimmy Choo monobrand stores, has announced the opening of 25 new stores in 2016 – MAC (Estee Lauder Group), TOUS (Spanish accessories stores), La Hora.
Italian luxury jeweler and watchmaker Bvlgari is reported to exit the Colombian market in 2016, closing thus a mono-brand location in the capital of Bogota.
One of the most affected luxury sectors in Colombia 2015 was the auto one with new luxury car sales dropping by as much as 50%.
Oliver Petcu in Bogota
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