COUNTDOWN TO RIO 2016: TWO WEEKS LEFT TO GO

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1 COUNTDOWN TO RIO 2016: TWO WEEKS LEFT TO GO Brazil accounts for more than 50% of South America s wealth derived from high net worth individuals, worth nearly $4 trillion in 2016 according to Capgemini. This figure is down only 1.4% from The luxury French fashion house, Hermès, was named the official saddler to the Brazilian show jumping team for this summer s Games. According to Brazil s Central Bank, international visitors spent more in May of 2016 than they did in the same month last year. Due to the weakening Brazilian real, a gold and steel Cartier Tank Anglaise watch costs 32,700 reais at the Cartier store in São Paulo, or US$9,326. The same watch costs approximately US$580 more on Fifth Avenue in New York City. DEBORAH WEINSWIG Managing Director, Fung Global Retail & Technology deborahweinswig@fung1937.com US: HK: CHN:

2 COUNTDOWN TO RIO 2016: TWO WEEKS LEFT TO GO Fung Global Retail & Technology is counting down the weeks until the 2016 Summer Olympic Games in Rio de Janeiro, Brazil, which begin on August 5. The Olympic Games have evolved into one of the best managed global brand marketing outlets in the world due to their global reach, and they are one of the largest and most profitable of all media events. We will track developments and news related to business, the economy, politics, retail and technology in the run-up to the Games. Source: Wilkinson Eyre COUNTDOWN: 2 WEEKS LUXURY BRANDS CAN EXPECT A SMALL BOOST FROM RIO OLYMPICS Despite difficult economic conditions in Brazil, luxury spending has recently increased in the country. Luxury apparel and footwear retailing proved more resilient than apparel and footwear specialist retailers in 2015 with 3% growth, although that is down from 8% in 2014 according to Euromonitor. This is largely due to the inelasticity of luxury goods during times of recession because high-income consumers are less impacted by economic concerns. Luxury sales had a CAGR of 4.2% in from 2014 to 2015 according to Euromonitor. Louis Vuitton hosted its Cruise 2017 runway show an hour outside of Rio de Janeiro at the Niterói Contemporary Art Museum in May, despite the contracting economy. The show was a sign of hope for the luxury market. Louis Vuitton s Chief Executive Officer, Michael Burke, alluded to the idea 2

3 he is hopeful for Brazil s future when he said We re not surfers, we re investors. We invest in fundamentals. We buy for the long term. Source: independent.co.uk Brazil accounts for more than 50% of South America s wealth from high net worth individuals, worth nearly $4 trillion in 2016, according to Capgemini. This figure is down only 1.4% from Although the numbers are somewhat encouraging, Brazil s luxury market is still struggling. Brazilians often do not shop at their local luxury boutiques as prices are up to 60% higher for certain items than they are abroad due to high import taxes. According to the Business of Fashion, Brazil had the most expensive price for the Louis Vuitton monogrammed Speedy 30 bag in the world in May of 2016: R$4,650 or $1,286. This was 67% higher than the price of the same bag in Morocco. In 2015, Chanel announced it would set its prices the same across the world in order to entice consumers to shop locally everywhere except Brazil due to the country s strict custom laws. Figure 1. Price of the Louis Vuitton Monogrammed Speedy 30 Bag by Country in USD Source: Business of Fashion 3

4 HERMÈS PLAYS OLYMPIC SPONSOR AND OPENS A NEW STORE IN RIO Hermès started as a saddlery in 1837, so equestrian equipment is deeply tied to the company s history. The luxury French fashion house was named the official saddler to the Brazilian show jumping team for this summer s Games. This is the first time Hermès has been officially appointed as a saddler for an Olympic team. The firm s saddles retail for approximately US $4,700. Source: eliteequestrianmagazine.com The new Hermès store is set to open on July 25, just in time for the Games. The store has just over 1,700 square feet of retail space in Rio s upscale neighborhood of Ipanema. The location will debut a total of 16 special lines with tropical touches to fit the environment, including a perfume line, and beach and pool items such as towels, beach bags and sandals. TOURISTS WILL SPEND MORE THAN EVER IN RIO THIS SUMMER International tourists are spending more in Brazil this year than ever before. According to Brazil s Central Bank, international visitors spent more in May of 2016 than they did in the same month last year. Foreign exchange revenue was US$434 million in May, versus US$417 million in May of 2015, an increase of 4.1%. Tourist spending increased by 10.2% to US$2.8 billion from US$2.5 billion. May 2016 was the fifth consecutive month of growth in tourism spending. Due to the favorable exchange rate and the influx of new duty-free spaces in Brazil, tourists will be inclined to shop. According to Forbes, travelers are simply more likely to spend more on luxury items abroad than in their native countries. The luxury market in Brazil,however, is undoubtedly hurt by the red tape that includes high taxes, import duties and currency fluctuations, which will deter some spending. 4

5 Source: Business of Fashion Russia Today called Brazil a shopping paradise for luxury goods due to the country s weakened currency. Bloomberg also noted the country s attractiveness: a gold and steel Cartier Tank Anglaise watch costs 32,700 reais at the Cartier store in São Paulo, or US$9,326. The same watch costs approximately US$580 more. on Fifth Avenue in New York City. The same pattern can be noticed at Prada, Tiffany & Co., Salvatore Ferragamo and Christian Louboutin. Savings range from a few dollars, to about US$1,000 on a pair of crystal-encrusted Louboutin New Very Riche Strass stilettos. CONTEXT Brazil is the first South American country ever to host the Olympics, and it has faced both challenges and triumphs as it has undertaken rapid and expansive development in order to succeed in its role as Olympic host. The Summer Olympic Games, taking place August 5 21 in Rio, constitute one of the most highly anticipated global sporting events and are expected to generate recordbreaking viewership numbers. According to Nielsen, the Beijing Olympics attracted 4.7 billion viewers over 17 days in In 2012, NBC s London Summer Olympics broadcasts were the most-watched television event in US TV history. Thus, all eyes are on Brazil as it prepares to host more than 10,000 athletes and hundreds of thousands of tourists. MACROECONOMIC CONDITIONS IN BRAZIL According to the Instituto Brasileiro de Geografía e Estatística, Brazil currently faces: Unemployment of 11.2% Inflation of 9.81% (June 2016 versus June 2015) An exchange rate of R$1 = US$0.31 A 9% decline in retail sales volume in

6 Figure 2. Brazilian GDP: YoY % Change Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar Source: Bloomberg Figure 3. Price of the Brazilian Real in USD: Jun May Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Source: Bloomberg RIO OLYMPICS BUDGET FIGURES According to the International Olympic Committee (IOC): The 2007 proposed balanced Olympic budget from the Organising Committees for the Olympic Games (OCOG) was US$2.82 billion. The 2007 proposed non-ocog capital investment budget was US$11.1 billion. The current operating Olympic budget is R$7.4 billion (US$1.85 billion). Total private and public Olympic-associated expenditures have totaled US$10 billion. 6

7 Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: Hong Kong: China: Rachael Dimit Research Associate HONG KONG: 10th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: LONDON: Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0) NEW YORK: 1359 Broadway, 9 th Floor New York, NY Tel: FBICGROUP.COM 7