Argentina’s red tape and bureaucracy threaten already weak luxury market

Aug 5, 2012

Controversial political decisions which have already had a negative impact on the economy, corruption at all levels, a drop in buying power and the lack of a wealthy middle class, high import duties and taxes have all been contributing to the weakening of Argentina’s luxury market, which is hardly the promissing BRIC emerging market.

Earlier this year, Italian luxury menswear house Ermenegildo Zegna, one of the pioneers of Argentina’s luxury market had to close one of its stores for two months, in Buenos Aires earlier this year,  because it could not import stock. In May it reopened the store, after it  was granted the import rights. But to be able to get the import rights, Zegna had to make  a deal with a Patagonian wool producer to export to Italy and Switzerland – a situation which is unacceptable!

Ermenegildo Zegna store, Buenos Aires, Argentina

Ralph Lauren shut down its store in Buenos Aires this Spring, while other brands such as Escada, Calvin Klein (underwear) also closed their mono-brand stores in Buenos Aires in March. Local media is circulating news about the imminent closure of the Cartier mono-brand boutique in October (Cartier is operated in franchising by a local partner).

Luxury brands face multiple problems in Argentina, none of them easy. The  first, and most important, is the country’s limits on imports – put in place to  protect Argentina’s foreign currency central bank reserves – which make it  extremely difficult to stock foreign made merchandise. Added to that, high  import taxes, as well as inflation estimated at some 25 per cent annually by  private economists, make luxury goods exorbitantly expensive. And recently  tightened currency restrictions make it difficult for foreign companies to get  their profits out of the country.

What the government would really prefer is that the brands produce their  goods in Argentina. But that’s not always an attractive option, notes the local  financial daily Cronista.

Adapted from FT, Cronista