FEATURES


and funding opportunities for additional ventures. Helping this wave was a move by the Brazilian stock market3 to adopt advanced, safe and accurate procedures and mechanisms to ensure protect investors' capital against deviations and irregularities that could affect these companies. In other words, investors in the Brazil’s shopping-center and retail industries can trust in the stock market, especially because the entity responsible for the regulation and organization of the market shares, CVM (Comissão de Valores Mobiliários),4 has proven to be one of the main symbols of economic stability in Brazil. A third avenue for the Brazilian industry to access


international capital was through a joint venture, which was a significant factor spurring growth over the last decade. For instance, companies such as General Growth Properties, Cadillac Fairview, Ivanhoe Cambridge, DDR and Westfield have partnered with local entrepreneurs. Therefore, it is not happenstance that this market has


grown so much in recent years, but a direct result of the waves of capital infusion.


Retailers Battered by rapidly-changing technology and consumer


whims, with uncertain and erratic sales, Brazilian retailers operate in a highly competitive environment while still being largely concentrated in their original home markets in the country. This heavy retail (and shopping center) concentration


exists in the South and Southeast regions (as seen in Table 4-1) mainly because these areas have historically been highly developed in terms of industrialization and services. In addition, Brazil’s inadequate transportation


infrastructure makes it difficult to transfer goods, increasing freight costs and requiring a sophisticated logistics system. Consequently, products become more expensive for consumers. As a result, consumer-goods production and warehouse


distribution remain near their core southern markets of Rio de Janeiro and São Paulo. Thus, it is not surprising that Brazil’s President Dilma Rousseff announced in late February 2013 that Brazil needed greater investment in its transportation infrastructure, which she was making a government priority as a key element to boost the economy. This initiative builds on the government’s 2012


Table 4-1 Regional Breakdown: Brazilian Shopping Centers Region North Northeast


Central West Southeast South Total


Number of Shopping Centers


18 60 41


254 82


Share of Total


4.0%


13.2 9.0


55.8 18.0


455 100.0


Gross Leasable Area (Square Meters)


400,211


1,660,728 859,200


6,586,741 1,660,242


11,167,122


Note: The above regions are broken down into the following areas: North: Acre, Amazonas, Roraima, Rondonia, Amapa, Para, Tocantins; Northeast: Maranhao, Piaui, Ceara, Rio Grande do Norte, Paraiba, Pernambuco, Alagoas, Sergipe, Bahia; Central West: Mato Grosso, Goias, and Mato Grosso do Soul; Southeast: Espirito Santo, Minas Gerais, Rio de Janeiro, Sao Paulo; South: Parana, Santa Catarina, and Rio Grande do Sul. Source: ABRASCE (Brazilian Association of Shopping Centers)


plan to attract private financing to build or improve roads, railways, seaports and airports. Another challenge for retailers in Brazil is the widely


used practice of key money. For each new lease contract with a term longer than 60 months, the retailer must bear the cost. Although key money is not burdensome for anchors, it can average between US$1,000 to US$1,200 per square meter for non-anchor tenants. Despite these difficulties, the index volume of retail sales in Brazil was up a strong 8.4% in 2012.5


Franchises Brazil currently has nearly 106,000 franchise


establishments,6 a number much lower, for example, than in the United States, which in 2012 reached approximately 746,800 units.7 Using franchise history in the U.S. as a yardstick, Brazilian expansion and creation of new franchising units is a near certainty in the short and medium term. With many consumer markets underserved around the


world, not only national but international franchises can benefit from the Brazilian market. Franchise development in Brazil is simple. Applicants


need not comply with specific regulations. Moreover, the terms to be negotiated between franchisors and franchisees are based on specific trading conditions. However, market entrants must be aware of issues


3 BM&FBOVESPA is a Brazilian company, created in 2008, through the integration of the São Paulo Stock Exchange (Bolsa de Valores de São Paulo)


and the Brazilian Mercantile & Futures Exchange (Bolsa de Mercadorias e Futuros). 4 www.cvm.gov.br . 5 IBGE (Brazilian Institute of Geography and Statistics). 6 ABF (Brazilian Association of Franchising). 7 “Slow, Steady Growth To Continue for Franchise Businesses in 2013” (December 20, 2012 press release), International Franchise Association, retrieved March 14, 2013.


INTERNATIONAL COUNCIL OF SHOPPING CENTERS 20 2 RETAIL PROPERTY INSIGHTS VOL. 20, NO. 1, 2013


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