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NEW LATIN AMERICAN MALLS NOT JUST FOR THE WELL-HEELED

By María Bird Picó

In Latin America, as in the rest of the world, it is the swankiest malls that grab the attention. But retail developers in many parts of the region are increasingly building malls for the middle and lower classes.

Developers in Brazil, Colombia, El Salvador, Guatemala, Peru and Venezuela are realizing that there is a largely untapped market that, by sheer volume alone, presents a bigger opportunity than do the region’s super-rich.

“The reality is that 80 percent of our people belong to the low and middle class,” said Alfredo Cohen, vice president of Constructora Sambil, which owns the Sambil shopping centers in Venezuela. “Selling only to the high-earning classes is silly.”

Even in Puerto Rico, which has the highest per capita income in Latin America, the newest shopping centers are open-air projects whose principal market comprises the lower and middle classes. They typically have a supermarket, a drugstore and such discount tenants as Tiendas Capri and Pitusa.

Rich man, poor man
Latin America remains a region with staggering gulfs between a small concentration of very rich people and huge masses living in poverty. A 2002 report by the Economic Commission for Latin America and the Caribbean says 44 percent of the region’s population is poor. A World Bank report in 2003 indicates that the richest tenth of the population in Latin America earns 48 percent of total income. (In industrialized countries, the top tenth receives 29.1 percent.)

For all this, there are opportunities lower down the economic ladder. During the past decade, the economies of Latin America and the Caribbean grew, thanks to higher prices for commodities, a sharp increase in exports, a rise in foreign investment and the implementation of sound economic policies, all of which have generated disposable income.

Retail developers also benefit from the fact that Latin America is the most urbanized region in the developing world, with 75 percent of its population living in and around the cities. Consequently, urban malls can serve huge numbers of people, with volume making up for lower household income levels.

“It’s a large-volume, high-consumption market,” said Jesús Acosta Castellanos, director of shopping centers for Grupo Acosta Verde, in Monterrey, Mexico. His company has 10 mass-market shopping centers in Mexico’s north and is developing two others. The company’s three-year-old Sendero Centro Comercial, in Monterrey, has nearly 592,000 square feet (55,000 square meters) of gross leasable space and is the top-performing mall in the city, according to Acosta, though he declined to provide figures. Grupo Acosta Verde has identified at least 25 other cities in Mexico not served by a shopping center tailored to the so-called ‘C’ and ‘D’ consumer categories. (In Mexico, a class-C household income ranges between $1,500 and $2,000 a month. The corresponding income for a class-D family is between $800 and $1,500, according to Acosta. Class-A families earn at least $8,000 a month.)

Other developers are hunting the same prey. Even with the impressive growth of retailing, Mexico still only has 0.969 square feet of retail space per inhabitant. New York City-based O’Connor Capital Partners and Promotora y Desarrolladora de Centros Comerciales, (a subsidiary of Mexico-based Consorcio Ara, a major developer of affordable housing), have teamed up to develop 10 shopping centers aimed at low- and middle-income consumers there.

Central America, too, has a ready market for such development, judging by the experiences of one company. El Salvador-based Grupo Roble says its four mass-market Unicentros shopping centers in El Salvador are thriving. Each Unicentros consists of a mall anchored by a supermarket, a food court and movie theaters, complemented by an open-air center with service outlets such as banks.

“We want to take our Unicentros to the rest of Central America,” said Javier Gasteazoro, director of Grupo Roble. “We believe there is a market for them.” Unlike their wealthier brethren, who can hop on planes for shopping trips to the United States, the lower classes typically cannot travel to such an extent, and are therefore a captive audience for local shopping centers, says Constructora Sambil’s Cohen.

In Venezuela, shopping centers have become popular among consumers of all economic stripes, especially during recent periods of economic and political strife, Cohen says, because they offer venues that are safe and comfortable compared to the chaos of the street. And with just one shopping center per 90,000 inhabitants, there is plenty of scope for growth in that country, he says.

To satiate some of that demand, Sambil, which owns a chain of four malls that caters to all social classes, is building Sambil San Cristobal, a 484,300-square-foot mall in the Andean region of Venezuela, slated to open next year.

For its part, Colombia is witnessing a shopping center boom. Ciro Aurelio Plata, president of Asocentros, Colombia’s shopping center association, estimates that one-third of the new properties is aimed at the ‘C’ and ‘D’ classes. But in reality, the number might be higher because, except for a handful of elite malls, shopping centers try to capture as wide an income spread as possible. That includes the center he manages, Unicentro, a 543,480-square-foot mall in Cali originally built for upper-crust consumers. “We will die of hunger otherwise,” Plata quipped.

In Venezuela, the Sambil shopping centers also appeal to all social classes. Sambil Caracas, for instance, can be accessed by subway, but it also has a 1,000-vehicle parking lot for the more affluent shoppers. Such anchors as El Tijerazo, a fashion and home-goods department store, offer high quality at a competitive price, a combination that appeals as much to the higher earners as to the lower ones, Cohen says. Sambil Caracas lures about 3 million shoppers a month.

Six years ago Organización NSM developed Centro Comercial El Recreo, a 355,150-square-foot mall originally intended for ‘A’ and ‘B’ consumers, on the outskirts of Caracas. But Venezuela’s economic crisis, together with the mall’s location in a commercial neighborhood, has attracted patrons of every class. The recent addition of a 140,000-square-foot wing, Galería El Recreo, contains tenants that cater to ‘B’ and ‘C’ customers, says Eduardo Simón, Organización NSM’s president.

“In Venezuela, the ‘C’ sector mushroomed in recent years as the middle class was severely affected with the economic crisis,” said Simón.

In the rest of Latin America, there could be opportunity down the road as retail markets grow and mature. Uruguay is still recovering from an economic crisis that hit it between 2000 and 2003, when retail sales plummeted 45 percent, says Carlos Lecueder, director of Estudio Luis E. Lecueder, a Uruguay-based shopping center consulting and management firm. The retail industry there is recovering, but there are no new shopping center projects in sight, he says.

In neighboring Argentina, a recent shopping center construction boom has yet to include any projects aimed specifically at the low and middle markets. The ‘C’ and ‘D’ sectors were the most afflicted by the country’s financial crisis, which rendered thousands of citizens officially poor practically overnight.

“This segment of the population has yet to fully recover from the crisis,” said Florencia Aguilar, director of research at the Buenos Aires office of Cushman & Wakefield Healey & Baker.

“Consumer credit is still very limited, so many of these consumers shop from street vendors,” Aguilar said.

But with Argentina’s economic fortunes on the rise, perhaps it is only a matter of time before malls there find the common touch too. That, according to developers elsewhere in the region, is where the money is.