NEW YORK: Brazil, once regarded as a prime emerging market for luxury brands, now represents a "difficult climate" because of its faltering economy and inflationary pressures, according to a leading market analyst.

Speaking to Luxury Daily, Gustavo Gomez, the director of research and methodology at New York-based consultancy Envirosell, warned that falling wages during the current slowdown has led to a psychological need among people to save money.

But he said luxury brands could take heart by concentrating on their quality and by using effective segmentation.

"While Rio might be struggling, São Paulo might be booming," he explained. "Luxury brands need to look at results at the city, neighbourhood and even store level to make strategic growth decisions. There is still a wealthy segment; growth just needs to be targeted."

His observations come as a new survey of 2,000 Brazilian consumers by the Boston Consulting Group (BCG) found 72% intend to reduce their discretionary spend.

With the country's economic growth forecast to amount to just 1% this year, Brazilians want to reduce their debt and are cutting back on loans for everything except cars.

Average spending on clothing and shoes, for example, is down 10% because consumers are using less credit to make purchases in the category.

Brands should rethink their pricing structures, BCG advised, as well gain a clearer understanding about specific locations where wages are improving.

"Given the slowdown in spending, companies must be prepared for more intense competition," said Olavo Cunha, a partner in BCG's São Paulo office.

"They'll have to adjust their cost structures, improve their innovation capabilities, rethink the value they deliver, and focus on the product categories with the greatest growth potential," he added.

However, Gomez appeared to disagree that discounting offered the best route forward.

"Luxury brands need to reinforce their quality," he said. "In slow economic times, consumers want items that last. They are seeking value and not necessarily price reductions."

Data sourced from Luxury Daily; additional content by Warc staff