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Shopping down to Rio

posted Apr 1, 2013, 2:02 PM by Mara Alexandru   [ updated Jul 29, 2013, 7:05 AM ]
From The Economist Magazine

Brazilians like to spend. Tiffany, a jeweller, has more stores in São Paulo than anywhere else in the world. Louis Vuitton, which makes expensive bags, until recently got its biggest profits per square foot from its São Paulo shops. But it is the scale of the mass consumer market that is opening up—the 1m points of sale for beer, the 165m mobile phones—which is raising the biggest hopes. “If the world is looking for savers, Brazil is not much good,” says Illan Goldfajn, chief economist of Itaú. “But if it is looking for consumers, then we might be able to help.”

David Neeleman, who has launched an airline, Azul, to serve all these new consumers, sums up the optimism that the new entrants to the middle class are creating. “America has an excess of everything: cars, credit,” says Mr Neeleman. “Down here people are getting their first car, first credit card, owning their first home. It feels like the beginning of the cycle.” He is talking about people like Eduardo Lins, who left his eight siblings in the interior of Bahia and followed a girlfriend to Salvador, the state capital, when he was 15. Now, 20 years later, Mr Lins has a new car, bought on credit, which he is paying off by driving a taxi, and has recently bought an apartment in the city. Life has got better.

Consumer credit has grown by 28% a year in nominal terms over the past three years. The middle class also needs apartments and houses to put its new purchases in. Brazilian housebuilders believe that as mortgages develop, the housing market will be a profitable place to be. They seem to have convinced foreign investors, who have provided most of the capital for Brazil's listed housebuilders. The government reckons the country needs 8m more houses. But most builders are even keener to provide apartments for Brazilians who are somewhat better off.

In addition to the need to house Brazil's existing middle class, says Wilson Amaral of Gafisa, a large listed housebuilder, Brazil needs to look to the future: it will have 35m new families by 2030, all of whom will need somewhere to live. Brazil's population is comparatively young and still growing....