The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
This article first appeared in The State of Fashion 2022, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company. To learn more and download a copy of the report, click here.
Though some have suggested that the repatriation of luxury spending in Brazil is only temporary, José Auriemo Neto believes otherwise. The increasingly local consumption habits Brazilians developed over the course of the pandemic aren’t going away, says the chairman of JHSF Participações (JHSF), who is so confident that he is building a hotel on top of the group’s largest luxury mall to make it more convenient and appealing for wealthy Brazilian travellers from across the country to shop domestically in the commercial capital.
One of two major luxury retail players in the country, JHSF has fostered long-term relationships with tenants such as Louis Vuitton, Christian Dior and Cartier, while establishing exclusive joint ventures with the likes of Celine, Valentino and Balmain. But more than a decade after he introduced the likes of Hermès and Jimmy Choo to Brazil by way of the group’s crown jewel Cidade Jardim, the executive is not plotting international, or even regional, expansion. Rather, Neto is doubling down on one state in Brazil, where he plans on strengthening ties with the group’s high-end clientele using a diversified, experience-first strategy.
BoF: Brazil was hit particularly hard by Covid-19, both in terms of the human tragedy and the economic impact on businesses. But how substantial were JHSF’s retail losses over the course of the pandemic and the local luxury sector more broadly?
José Auriemo Neto: In the retail division we were negative during the months we had to stay closed, down 15 to 18 percent, but sales recovered as of the last quarter of 2020, where we saw growth exceed 2019 levels. Sales in our malls grew 16 percent in Q2 2021, compared to Q2 2019. Of course, the luxury segment has benefitted as our clients were not able to travel and people were buying more domestically.
In the state of São Paulo, where the majority of our business is, vaccination [is happening quite quickly as of September 2021] so people are more confident about going out. We are seeing the luxury segment grow faster than other segments and the country’s GDP which I believe… will be something close to 4.5 percent. Our retail division is expecting to have double-digit growth this year [in 2021], and also next year, due to all the demand that we’re seeing.
BoF: How much of your retail sales did regional and international tourism respectively account for pre-pandemic? What did the repatriation of luxury spending look like for JHSF?
JAN: About 90 percent of our business was driven by locals, but we’d see people coming from the other regions of Brazil to buy in São Paulo — 25 percent out of this [domestic share of] 90 percent. Brazilian clients spent almost a year and a half with travel restrictions to destinations like the United States, Europe and also some of the countries in Asia and Africa. But this helped us provide an experience that they were not having before; I believe that the level of business that we are going to have post-pandemic is going to be higher, because customers adapted to buying in the country.
BoF: Brazil’s high tax burden has traditionally prompted luxury brands to retail at significantly higher prices than in other markets, which gave affluent Brazilians an added incentive to shop abroad in the brand flagships in Europe and the US where there is usually a larger selection — rather than buying at home. Are things changing?
JAN: Some of the brands, they’re now selling at 15 percent, 18 percent above US retail but our customers expected much higher price differentials considering prices used to be 50 to 60 percent higher than the US and Europe up until 2019, so we saw a very positive impact when they came to the stores and were saying, “Okay, it’s not that bad, so I can be a regular customer in Brazil after all.” Brands saw that they’d drive their business volume up, the closer they get to US and Europe retail prices so now they’re making a very strong effort not to be much higher than 20 percent.
BoF: What strategies are you using now or planning to adopt at your shopping centres next year to continue to benefit from repatriation? And how can you fend off competition from local luxury mall competitors in the process?
JAN: It’s all about providing these customers with the right experience. Through our brand partners, we can do merchandising and buy with a focus on our customers and their sizes. We are also having lunches and dinners where we are exhibiting some of the new products that we are receiving in advance. Some of the travel restrictions to France were lifted, so we’re taking some clients to Paris Fashion Week. We have another advantage in that clients buy in instalments; this is a common practice in Brazil.
We also launched a benefit programme where we provide 2 percent cash back on all their buys in the mall; this is connected with our real estate division, so if you buy a house in one of our countryside projects, you collect 0.5 percent cash back that you can use in our malls, restaurants and hotels. So we’re exploring these synergies more and providing more benefits in terms of service, experience and advantages to our clients.
BoF: Who is your core shopper? How have their habits changed over the pandemic and what shifts do you predict for the year ahead?
JAN: Around 65 to 70 percent are women, aged 22 to 55. In terms of geography, it’s mainly São Paulo, and states like Goiás, Minas Gerais and Rio de Janeiro. We are seeing more people travelling to São Paulo, not only to buy, but also to enjoy the city. We’ve seen more of our clients buying online, and more of our clients accessing our concierge service, which we started this year [in 2021] with one person but we are expecting to have 50 staff working on it by next January.
BoF: JHSF operates five malls — with a total gross lettable area of over 265,000 square metres — and has others under construction. What exactly are your expansion plans?
JAN: We have four retail projects that are under development. One, in the area of Faria Lima, the central financial district of the city of São Paulo, is a mall with exactly the same model that we recently inaugurated in the Jardins area of São Paulo. We have a physical retail platform, and we also have a digital platform integrated into some of these stores; some of the merchandise is in the stores, but some orders that clients are receiving at their homes is delivered from a warehouse. We have another three projects: one in the countryside of São Paulo [state], called Boa Vista Village; another one in São Paulo, called Real Parque; and the extension of Cidade Jardim mall that we are opening in H1 2022.
BoF: You’re really betting big on São Paulo. Why?
JAN: Our business is focused on high-end clients, so we have to be where they are. It’s the centre, the wealthy part of the country. More and more of these Brazilian clients are travelling to São Paulo from elsewhere, too, so we want to give them as good experience [as possible] when they are here. We’re even opening a new hotel on top of the Cidade Jardim mall. It’s going to be completed in about one-and-a-half years, so people will be able to stay in the same place they’re shopping when they are travelling.
BoF: You also have shopping centres outside the state of São Paulo, in cities like Manaus and Salvador. How do they factor into your plans?
JAN: When we look at the growth opportunities in the country, they are more connected to the state of São Paulo, and we are not seeing a very relevant growth in the North or Northeast region where we have those two malls that you mentioned. Right now, we’re focusing our expansion 100 percent on luxury malls but the ones we run there are not luxury malls, they’re more democratic.
BoF: Once restaurants and shops re-opened after lockdowns in Brazil, did you see a fall in e-commerce sales versus physical retail sales?
JAN: Yes, the level of demand for the online platform stabilised, and then went down about 10 to 15 percent. But of course, that means clients did download our app [CJ Fashion] on their phone and they started to surf this digital world, and once they started to go to digital, they got more used to it.
BoF: There are many big global luxury e-commerce platforms out there with wide assortments of merchandise trying to tempt wealthy Brazilians to buy from them. How can your online offering compete?
JAN: We have an advantage over international players because the brands that we offer on our digital platform are in our malls. We really believe that for a country where there are a lot of logistical challenges, it’s very important to have both; it’s different from other markets, where you can deliver merchandise across the country from a big warehouse. This integration is how we’re giving our clients the access to the merchandise that they want, and how we can understand our clients in a very deep way.
BoF: JHSF also operates the Catarina Fashion Outlet outside São Paulo. What shifts have you seen in your outlet business, and what are your expectations for 2022?
JAN: The outlet business is growing a lot. We’re seeing this business grow year over year in double-digits.
BoF: Everyone is bracing themselves for continued uncertainty in 2022. How is JHSF adapting to a more volatile market when it comes to luxury, travel and retail?
JAN: A good part of our strategy is related to mixed-use projects. This is helping us a lot, because we can provide for our clients not only the experience to buy merchandise, but the experience for them to live in our properties. I believe that this is relevant for the next few years, because we’re seeing that people want to get together; they want to spend time with their families. So our challenge is to be on that trend even more.
This interview has been edited and condensed.