Why are luxury brands leaving Brazil?

With little fanfare, Italian luxury brand Versace shut down its last Brazilian store, in the upmarket Iguatemi shopping mall in São Paulo’s financial center. After Christmas, the company’s doors never opened again. Versace, however, didn’t make an official announcement, nor did it publish a statement explaining its reasons for leaving Latin America’s largest economy. But it is not difficult to imagine why they did.

Versace’s time in Brazil began in 2014, when it opened stores in several shopping malls in São Paulo, Rio de Janeiro, and Fortaleza. This coincided, however, with the beginning of the worst recession in Brazilian history. And as the economy got worse, Versace started closing store after store—until there were none left.

While the Versace case is emblematic—due to the company’s relative silence on the issue—it is by no means the only high-end company to pull the plug on Brazil. It is estimated that 25 percent of foreign luxury brands in Brazil have fled the country over the past three years. Kiehl’s—a cosmetics store controlled by L’Oréal—deactivated its online store at the end of March. Other players, such as Ralph Lauren (clothing), Kate Spade (accessories), Vacheron Constantin (watches), Ladurée (pastries), and Lush (cosmetics) have...