Latin America’s Retail Sales Seen Slowing in 2024

MEXICO CITY — Mirroring the U.S. and other developed regions, Latin America’s fashion sales are expected to slow in 2024 as high interest rates and inflation dampen consumption.

While some brands, such as U.K.-based Kurt Geiger, have revealed expansion plans and expressed excitement about the region’s growth potential, economists warn sales could decline this year amid a challenging economic environment.

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“We are going to have a slowdown in the first half of the year,” predicted Pantheon Macroeconomic’s chief Latin America economist Andres Abadia. “We are seeing more unemployment and less remittance flows. While some central banks are cutting rates, they are still every restrictive and there could be a lag effect of some quarters until there is a positive impact.”

Abadia sees a “moderate contraction” in core retail of about 1.5 percent, though the numbers could improve if the region’s economies rebound after the summer (amid expectations of rate cuts and lower inflation) and the U.S. does not witness a severe recession.

In Mexico, Abadia sees retail sales growth halving to around 2 percent as GDP slows in an election year.

“We have seen contractions in recent months and inflation remains sticky,” he said. “No economy can support 6 percent inflation and we have some fatigue in the labor market.”

But Jorge Quiroga, a senior retail analyst at Retail Lab in Mexico City, expects sales to be much better than Abadia forecast, rising 11 percent, versus 12 percent last year.

This is mainly because the nation’s left-wing government of President Andres Manuel Lopez Obrador (AMLO) is introducing a slew of social benefits (such as consumption subsidies and higher wages) to boost consumption in the country’s large low-income population.

“The government is going to give out cash to win votes with people who don’t have money,” said Quiroga, adding that this will lift retail and fashion retail sales in the first half.

Depending on who wins the June elections, however, the second-half of 2024 could be more challenging, Quiroga conceded.

So far, however, the status quo is expected to remain in place, with the incumbent Morena party’s candidate Claudia Sheinbaum in the lead to win the next presidency.

Despite his rosy outlook, Quiroga said local competition is intensifying. China’s ultra fast-fashion online brand Shein, for instance, is sending a chill down the industry’s spine as it aggressively steals market share from dominant players by not having to pay import taxes.

“Shein is taking market share from Liverpool, El Palacio de Hierro, Suburbia, Copper, Walmart, Liverpool and Sears de Mexico [the country’s biggest retail chains],” said Quiroga, adding that retail lobby Canaive is desperate to stop the retailer but has not been able to convince the government to help.

Shein and Chinese rival Temu are exploiting Mexico’s de minimis regulations allowing up to $50 of clothing to be imported without paying tax.

Elsewhere in Latin America, the region’s biggest fashion market, Brazil, could stage a minor recovery, according to Abadia.

“We saw a big slowdown in the second half of last year but we are expecting a rebound in the second half as inflation moderates and the government cuts interest rates,” he said, adding that Brazilian retail could grow 1 percent to 2 percent.

Brazil’s retail market has been struggling amid sluggish consumption, prompting some analysts to recently recommend investors sell retail shares. Most recently, DM Martins Research analyst Bernard Zambonin, said he did not feel confident in leading fashion and accessories retailer Lojas Renner’s outlook, despite a relatively attractive valuation amid a 75 percent stock plunge since late 2021.

With 663 stores, mostly in Brazil but also in Uruguay and Argentina, Lojas Renner reported a 21 percent EBITDA decline in the third quarter of 2023, hurt by lower consumption and credit defaults amid higher expenses.

Renner’s challenges come as other industry giants have also been struggling. Lojas Americanas, for instance, filed for bankruptcy last year after it was forced to admit to $4 billion in accounting inconsistencies, rocking the industry.

“2023 is unlikely to be remembered favorably for Brazilian retail,” said Zambonin, adding that the macroeconomic backdrop and rising competition, also from the likes of Shein, will continue to pressure retailers.

Meanwhile, sales in the other top market Argentina are also looking dismal as new President Javier Milei engages in a major austerity drive to shore up the country’s anemic economy.

“People are every scared,” said regional fashion expert Marina Ancilletta, who is based in Buenos Aires. “The first semester is going to undergo a huge [economic] adjustment.”

On the upside, however, the new government — which aims to eventually dollarize Argentina — will allow fashion and raw-material imports to enter the country at more favorable tax rates, helping lower input costs for local labels.

Neighboring Uruguay is a bright spot, however.

“Uruguay’s economy has been growing very strongly and fashion companies have noticed,” Ancilleta said, noting that the upscale beach resort of Punta del Este has recently drawn a slew of international labels and designers catering to the wealthy.

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