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LIFESTYLE CENTERS GAIN ACCEPTANCE IN LATIN AMERICA

By María Bird Picó

Lifestyle centers are steadily becoming part of Latin America’s growing retail landscape, despite some initial hesitation on the part of retailers and lenders.

Paseo Quilín, scheduled to open in November — after press time — is the second lifestyle center to open in Santiago, Chile. The first, CencoSud’s Portal La Dehesa, opened two years ago in the Lo Barnechea neighborhood of Santiago. Behind these inaugurations, however, lies a story of persistence on the part of the developers, who have strived to persuade retailers of the value of the format.

For Paseo Quilín, the task was arduous not only because of the relative novelty of lifestyle centers, but also because there is competition from a flurry of new conventional malls that are opening in Chile. Retailers are left wondering why they should favor a new formula over a proven one.

“The retailers’ decision would be easier if Paseo Quilín were a traditional mall,” said Carlos Basch, general manager of Parque Cousiño Macul, the Santiago-based development firm building Paseo Quilín. “But surveys and focus groups show consumers treasure this type of retail center. They say they are tired of the traditional offer.”

Dan Poag and Terry McEwen, who coined the term “lifestyle center” in the United States, faced similar issues in the 1980s when they peddled this new type of anchorless, open-air center featuring specialty retailers, restaurants and cafés in environs enhanced by sophisticated architecture and landscaping. But time proved them right. Nowadays there are even lifestyle centers in U.S. cities with harsh weather.

“When Poag & McEwen during the mid-’80s were developing the first lifestyle centers, like Saddle Creek in Tennessee, no one wanted to know about it,” said Michael Baker, a national retail adviser at UrbisJHD, an Australian retail advisory firm. “Poag & McEwen are now almost like folk heroes in the industry.” Baker, a retail consultant to Paseo Quilín, says it is normal to encounter skepticism before a format has been tested. And it is not just retailers who are suspicious; lenders and developers are too.

“Everyone sits back and says, ‘You go first,’ ” he said. “Gradually, however, as the new kinds of projects take hold and show signs of success, everyone jumps on the bandwagon.”

Paseo Quilín’s primary market will be just around the corner, because it is part of an ambitious mixed-use project called Parque Cousiño Macul, under construction in the southeast section of Santiago by Empresas Cousiño Macul, owner of the 149-year-old Chilean winery that carries the same name. When the entire project is completed in 10 years, Parque Cousiño Macul will boast 8,000 housing units, a shopping center, schools, restaurants and movie theaters, sprawled across 642 acres.

A boost to the area will be the opening this winter of a subway station, part of a new subway line extending to this growing area of Santiago.

The first stage of Paseo Quilín will consist of 65 stores totaling 70,000 square feet of retail space and a six-story building with medical offices measuring an additional 70,000 square feet. Already open a few steps away are an Easy home-improvement store, a Líder supermarket and a Mega Johnson small department store. If the first phase is successful, a second will break ground in two years to add 60 more stores, some movie screens and a food court, says Basch.

At press time, Paseo Quilín was 40 percent leased, but Basch said he was anticipating a 60 percent occupancy rate by the opening date.

“There is a lot of competition now in Chile to attract a limited number of retailers in the market,” said Basch. “They are being chased by these new malls.” Basch is optimistic that once Paseo Quilín is up and running, retailers will come aboard, and the center will be fully leased by early next year. This is not just wishful thinking, observers say. Chilean retailers are conservative when it comes to leasing, and it is rare that a shopping center opens fully leased, as is the case in other parts of Latin America, says retail consultant Renato Figueroa, partner of the Santiago-based FigueroaRoig & Associados, which has offices also in Perú, Uruguay, Guatemala and El Salvador.

“The majority of our malls open with a 60 to 70 percent occupancy rate,” said Figueroa. “Most retailers like to wait until the mall opens and then go in even if it costs more.”

He says he believes lifestyle centers will take off in Chile because they are an alternative to traditional closed-off malls, pointing to the cynicism that initially met Portal La Dehesa.

Carlos Madina, general manager of CencoSud’s shopping centers in Chile, says the leasing of Portal La Dehesa’s first stage went well. It was the second stage, a second level opened six months later, that had them sweating when the leasing took longer than anticipated. “It was a growth of 100 percent in a relatively short period of time,” said Madina. But Portal La Dehesa is doing so well now, he says, that CencoSud is adding two department stores.The first, Falabella, was set to open last month at press time. A Ripleys department store is to follow next year.

Department stores are not the typical lifestyle center anchor, but there is no reason they should be left out, developers say. This is particularly so in Chile, where department store chains are popular and enjoy strong sales growth. For that matter, departments stores are showing up increasingly in U.S. lifestyle centers, albeit shrunken in size.

Chilean lifestyle centers might not be as posh as their U.S. counterparts; the upscale tenants of the original U.S. lifestyle centers enjoy an affluent consumer base, but disposable income in such countries as Chile is more limited, says Baker.

“But I think if you put moderately priced tenants in an outdoor center, and if it is a well-designed center, then why shouldn’t it succeed in Chile particularly, if it has some largish anchors like in Paseo Quilín?” Baker asked.

Weatherwise, Santiago seems to be the perfect host for a lifestyle center, with few rainy days per year and a mild winter. The Lo Barnechea sector is one of the colder ones, but Madina says the residents in the surrounding upscale neighborhoods are very used to the outdoors and enjoy shopping at Portal La Dehesa, which boasts 269,000 square feet of retail space.

When the two department stores, a Jumbo supermarket and an Easy home improvement store are added, the total retail area will come to about 700,000 square feet. At press time a 32,300-square-foot medical center on the third level was slated to open in October. The high-end store mix is targeted to the wealthy residents of La Dehesa, one of Santiago’s most exclusive areas. Tenants include Benetton, Naútica and Polo. Paseo Quilín, on the other hand, surrounded by a waterscape and foliage, is in a less affluent area, though the developer is confident that its fortunes will be helped by the completion of the ambitious Parque Cousiño Macul.

“Paseo Quilín’s location is good, because it is an emerging sector whose members want to access higher-quality goods,” said Figueroa. The center will cater to the 50,000 homes within a five-minute drive. Studies show that the market has 217,000 families, 20 percent of which are headed by high-earners. An additional 7,000 homes — 1,000 are already built — will come to the market over the next decade, as part of the company’s housing development project, says Basch.

Among the tenants that have signed up are a bank, a drugstore, an optical shop and clothing and shoe stores. Food tenants include KFC and McDonald’s. There will also be a children’s entertainment area.

Once the retailers have signed up, it will be the consumers’ turn to give their verdict, which executives surely hope will mirror that of the approving U.S. public.