A Slice of Brazilian Luxury Retail

With retail space in São Paulo running approximately $3,500 per square meter monthly, the relative high cost of some products and the proven success of the direct sell model in Brazil, beauty retailers must be diligent in their positioning. São Paulo is a city in which what appears to be a simple and relatively small drugstore is anything but.

Drogaria Iguatemi opened its first door in 1966 and didn’t open another door until the early 1990s—10 years after Jose Leonardo Jorge bought the store. At the time of the purchase, Jorge found that the Brazilian market needed something more sophisticated and with more differentiating factors and specialty products. There was a marked gap between Brazilian products and foreign products, but both the Brazilian industry and its consumers began searching for higher quality offerings. Drogaria Iguatemi focused on high-end and luxury products, thereby staffing its relatively small, mall-based shop with pharmacists, dermocosmetic consultants and makeup artists.

With sales up 24% in 2008 on the back of a good economy, loyal consumers and non brick-and-mortar expansions, the time was right for Jorge and his family run business to publish Drogaria Iguatemi’s own glossy magazine/catalog and expand by adding Internet retailing. In addition, the drugstore aims to expand by two doors by 2009.

In all, the retailer offers 22,000 SKUs, 60–70% of which are imported. Though the ratio of Brazilian to foreign brands is the same as it was in the 1990s, Brazilian products are now offering more comparable matches to foreign brands, according to Leonardo Diniz Jorge, director, Drogaria Iguatemi. Despite the increase in quality, consumers still tend to choose foreign labels first.

“Everything French are top sellers, though physician brands and skin care are also very popular,” said Diniz Jorge. “Body lotions and anticellulite products are big sellers—huge.” According to ABIHPEC, Brazilian consumers are more focused on body care than facial care.

The director also notes the changes in consumer spending, stating the biggest change in the market is that Brazilian men are beginning to buy—notably hair and skin care products. “Men are starting to try new products and talk about products,” he said. “Advertising is starting to change the scene, so men are starting to talk.” Advertising has also had an impact on Brazil’s growing sun care market, and Diniz Jorge attributes a Nivea campaign to a marked increase in sun care sales. Interestingly, though the fragrance category is second in value only to hair care in Brazil (valued at R$2.7 billion in 2007 by ABIHPEC), fragrances have been a difficult sell in Drogaria Iguatemi—like sun care products, with tax issues taking a toll.

“My customers buy abroad,” said Diniz Jorge. “So, they can purchase fragrances without the Brazilian taxes. To sell fragrances, we only work with creators of traditional cologne or exclusive brands, which will bring people into the stores.”