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The demographic and behavioral shifts in LATAM starting with Lima, Peru

One question I get asked often -- in multiple ways and forms -- is how do I expect the LATAM population to adopt a product/service like Atelier when it seems like it's targeted to a niche or "too upscale" population?

For the longest time, this question irritated me because, regardless of how it's phrased, it implies stereotyping and underestimating millions of people under the bias that the "middle class" can't afford higher-quality products -- there are only a few ways to give an answer that will change this bias.

Today, however, I love it because if there is such a thing as a superpower, mine is people observation and understanding and knowing why we do things -- which brings me to knowing my customers and understanding how trends are created and when an important shift in behavior may occur.

I was asked this question recently in a blind pitch and, unfortunately, 30 seconds is not enough time to explain all the nuances in behavior and demographic shifts that have developed in every subgroup of the population in the last 5 to 10 years.

As some of you may know, Atelier is starting out in Lima, Peru as our pilot. This means we have gathered data for the last 12 months on this specific topic.

The short answer to the question is don't underestimate the middle class. It is the fastest-growing economic force in Peru and in LATAM. According to McKinsey, the middle class in LATAM represents 47% of its population and it is responsible for 58% of their consumption; expected to account for 65% by 2030.




Segmenting the consumer population in Lima


So how does this translate into specific consumer behavior in Lima, Peru?

If we start solely with socio-economic factors, Atelier is targeting millennials and Gen-Zers in the middle economic class, tending up and down within this spectrum.


This means targeting high and high to middle-class segments and mid-low segments as well. This represents 48 million potential customers (consumers) across LATAM. However, it is too broad to paint the picture, so further breakdown is required.

Anyone familiar with Latin American culture knows there is a big draw toward elitism and social belonging that is much more prominent in cultural behavior than in the US or other Western countries. This also has a deep root in passive racism and discrimination, but that is another post.

What I mean by the high and high-to-mid socio-economic class in Lima, defining it as most Limeños would, I'm referring to the k-12 schools they attend and the neighborhoods in the city where they reside.


In Lima, this group is represented by the 2% of schools that belong to that socio-economic stratum and live in residential areas such as San Isidro, parts of La Molina, parts of Surco, Miraflores, parts of San Borja, parts of Barranco, and parts of Chorrillos.


Overall, there is no skepticism whether or not this group will be a direct consumer of our brand. This group is associated with wealth, social favoritism, and a tendency to show their status via material gain.

The question lies within the other 2 groups we are targetting, and this is where most of our discoveries have been.


When defining the middle class of Lima, we are grouping them by neighborhoods to simplify understanding. These are Lince, Magdalena, Pueblo Libre, Jesús María, Breña, the "not so nice" parts of the neighborhoods mentioned before, San Miguel, Surquillo, Ate, and Salamanca.

The middle-lower class is also defined by areas such as Santa Anita, Los Olivos, La Victoria, the San Juan(es), and other areas on the outskirts of the city. It's fair to point out that within these neighborhoods, there are multiple levels of income. And there are families in poverty and below poverty status. These are not groups we believe Atelier can reach.

(I'm not including Callao as I'm only mentioning Lima for now).


Breaking down this segmentation into generational and behavioral changes


We all know neighborhood segmentation is not enough to define behavior, but to most Peruvians, this segmentation starts painting the picture.



The middle class

What we have learned within the raw middle-class group is that they are the ones driving sales for most of our affiliated brands regularly.

Traditionally, the Limeña middle class has been characterized by entrepreneurial behavior, resourcefulness in income-making, and historically lesser motivation to "keep up with the Joneses". This has allowed them to accumulate buying power for at least 2 generations.


Now, Millennials and Gen-Zers within this group have a higher education level than their parents. They have attended universities alongside the Limeña higher class -- and are currently the expected economic force of the country for the next 15 years.


Unlike their parents, these younger generations are more interested in status and indulge in purchases that show their level of education and affinity to social causes or views of the world.

This particular group is more independent than other socio-economic groups as they have migrated away from their parents' homes and become fully self-sufficient at a much younger age than other groups.


This is an important behavioral change.

For the longest time, young adults were expected to live at home with their parents until they got married. In recent years, society has detached from that concept as an important piece of a person's formation. Marriage is coming later in life and is not as culturally pressing as it used to be. As a result, more and more young middle-class individuals are moving into places that need to be furnished, increasing in frequency and volume.

We know this to be true as 60% of our affiliated brands report that most of their volume in sales is delivered to these areas (the ones defined in the middle-class segmentation) within the city.


We also know that the brands we work with that have a stronger branding position in sustainability or social responsibility, receive most of their orders from these social groups.


Affordable Housing

Another important change in the economic fabric has been the increase in affordable housing.

The middle and middle-lower economic classes have access to a concept that millennials around the globe fantasize about -- owning property. It is no secret that real estate value has increased exponentially compared to income.


However, social government programs developed in the last 15 years have given access to these social groups to apartment units with comfortable paying terms. This is driving most young families in the middle and mid-low-income sectors to move away from the family hub and into their own homes.

One of our biggest partners invested in Atelier as a result of this phenomenon. They realized the change in behavior in their customers after 30 years of being in the market. This changed their production style, their channels of distribution, and logistics in delivery.

TL;DR: The middle class is driving most sales in this sector due to a generational shift in behavior and a consistent growth in buying power with opportunities to own a home.



Changes in purchasing behaviors that apply to all economic sectors


Another important change we have witnessed that applies to all socio-economic sectors is the digitalization of commerce.

This is a given, and we've all seen it happen around the world for the last 20 years.

However, the most relevant change that applies to Atelier is how COVID-19 created a new set of habits and purchasing behaviors that were going to take much longer to be adopted in LATAM.


COVID-19 and its effects on E-Commerce

During the pandemic years, commerce was forced to operate online. Most consumers in our target group started relying on apps and e-commerce for all purchases. And while things have leveled out in recent years, the habit of purchasing and discovering products online has been crystallized.

What we have learned is that millennials and Gen-Zers are less likely to go to a physical store for product discovery in this particular industry. Their priority is reducing commuting time and if they don't need to leave their homes to find what they like, they won't. They will only visit a physical store if they need extra convincing at the moment of the purchase or if they are indecisive between 2 products.

This is happening because younger family units have 2 working adults in the relationship. Millennials are known to work overtime and/or have more than one job/source of income. Traffic in most cities takes extra time from their days and visiting a furniture or decor store is not something they are willing to do unless it's absolutely necessary.

They will most likely rely on word of mouth, reviews, or quality photos to make a purchase rather than spend the time to visit a store.



New business owners are millennials

We learned this not only from our customer interviews but also from testimonials of the brand owners we have in Atelier. Some of these brands that have been operating for 20 years are now being run by the children of the initial owners. These new managers, also millennials, know that their group of friends is very unlikely to visit their stores.


They have seen a decline in foot traffic in general and are turning to e-commerce solutions as an alternative -- because they know that is how they shop themselves.

What I'm explaining here, is a subtle but powerful shift in consumer behavior that will only increase with time. This is why the solution that Atelier provides is so crucial at this time.

TL;DR: Millennials and Gen-Zers, regardless of socio-economic group- are less likely to visit brick-and-mortar stores, making it crucial for these brands to transition into the digital space.


Wrapping Up


In conclusion, based on all the data shared above, not only is the younger generation middle class able to adopt a platform like Atelier, but they are already looking for this type of solution. This is 48 million possible consumers in the region, a potential $14 billion market.

While this study may apply only to Lima, some behavioral changes are already happening throughout the world. Millennials are known to resonate with one another across the globe because we are the first generation that had to deal with a very real paradigm shift.


None of the rules that applied to our parents or even people only 10 years older than us apply to us anymore. This is a whole generation worldwide that is operating in a completely different way than anyone before us ever did.

So yes, as Atelier starts expanding into other cities and countries, we will have to study the cultural nuances to this level in each territory but there will be some concepts that will remain universal.

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