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AFTER PAINFUL SLUMP, URUGUAY’S MALLS REBOUND

By María Bird Picó

Uruguay might be one of Latin America’s smallest countries, but developers there have decided it is time to expand the retail options as the country’s economy steadily shrugs off the recession of 1999-2002. “There’s no boom, but there’s a strengthening of all existing projects and maybe a project in a gestational stage,” said Carlos E. Lecueder, president of Estudios Luis E. Lecueder, a Montevideo, Uruguay-based mall development firm and the operator of six of Uruguay’s nine malls.

Uruguay is home to just 3.4 million people, in contrast with Brazil’s 188 million or Argentina’s 40 million. But this is not its only hurdle to economic growth. The population leans to an overabundance of citizens above prime earning age. The country’s median age of 32.7 is the highest in South America. In 2002 roughly 13 percent of Uruguay’s population was over 65, versus 6 percent for South America on the whole and 7 percent worldwide, according to the World Resources Institute, Washington.

Further, the country’s literacy rate is among the highest in Latin America, and an estimated 600,000 Uruguayans left during the 1970s and ’80s to seek work in Argentina, Brazil, the U.S. and Europe. Uruguay continues to lose many of its younger people to other countries, and it has a low birth rate and high life expectancies to boot.

But even beyond an aging trend, other aspects of the economy worry the business community. Being largely dependent on neighboring Argentina and Brazil, which together account for half of Uruguay’s exports, the Uruguayan economy suffered when those countries collapsed economically in the late 1990s. Between 1999 and 2002, Uruguay’s gross domestic product fell 20 percent. Meanwhile, the unemployment rate climbed to nearly 20 percent. Retail sales plunged 45 percent over the period. “It has been our worst financial crisis in the last 100 years,” said Marcelo Lombardi, general manager of the 61,340-square-foot Tres Cruces, one of four malls in the capital city of Montevideo. “Sales at Tres Cruces went down 50 percent. We are now back to pre-1998 sales levels.”

Now that the economy is picking up again, all four malls plus one shopping center are in expansion mode. The owners of Montevideo Shopping, Uruguay’s oldest mall, are spending $7 million on its expansion, the 15th since the center’s opening 22 years ago. Tres Cruces, in Montevideo’s bus terminal, is to be expanded by 64,570 square feet of gross leasable area (GLA), at a cost of $6 million. Work on an 86,100-square-foot addition to the 904,000-square-foot Punta Carretas Shopping is to commence at the end of this year, and Centro Comercial Parque Roosevelt, anchored by Géant Hypermarket, has also scheduled an expansion, though the details were not disclosed. “Uruguay is a safe country where investors are respected and the rules of the game are stable,” said Lecueder, whose Estudios Lecueder operates Montevideo Shopping; Tres Cruces; Colonia Shopping, which opened in the southwestern city of Colonia del Sacramento in December; and Portones Shopping. “But it’s a country with a small market, which slows down growth and diminishes the possibilities of going through a real boom. In a nutshell, slow but safe growth.”

Estudios Lecueder plans to build a new mall in Montevideo, and it is unlikely to be the only one to do so. (The firm declined to give details, citing land negotiations that were ongoing at press time.) “We can expect the undertaking of new shopping centers in the next years, but of a medium size, owing to Uruguay’s consumption and population potential,” said Mario J. Garbarino, president of Montevideo-based Garbarino-Lombardo & Associates, developer of Punta Carretas Shopping and of several hotels in Uruguay.

Like other malls, Tres Cruces used several marketing strategies to help stem the loss of sales during the recession. One of the most successful involved the discounting of the aggregate value tax that accounts for 18.7 percent of a product’s price. Whenever the mall held a promotion, the tenant would pay just half of that sales percentage under a rental agreement, says Lombardi. This promotion has proved so popular that last year it was offered three times during slow sales periods.

As the neighboring countries recovered, so did Uruguay, as evidenced by the return of foreign visitors to Punta del Este, an upscale summer vacation spot on Uruguay’s southern tip favored by many South Americans and Europeans. In 2005 Uruguay’s economy grew by 6.1 percent year on year, thanks to high prices on exports and a competitive Uruguayan peso.

Further evidence of this economic ebullience is on display at Montevideo’s malls, which are packed with shoppers these days. Besides having an old-world architectural charm and tranquility, Montevideo is one of Latin America’s safest cities. Each of Montevideo’s malls has carved a niche in a competitive market — the city has only 1.35 million residents, and the malls are within a 10 minute-drive of each other.

Tres Cruces is a mixed-use project often cited as an example of a successful Latin America public-private venture. Owned by Gralado, a joint venture set up in 1992 by some Uruguayan bus companies, Estudios Lecueder and other investors, the company holds a 30-year concession to operate the Montevideo bus terminal and a 50-year concession for the mall. The terminal is for trips that are at least 60 kilometers (about 37 miles) away or to Argentina, Brazil, Chile and Paraguay. The 125 stores sit on the ground level of the three-level structure, as does a food court that generates 21 percent of the mall’s sales. “The combination of a bus terminal and a mall is ideal, since they complement each other quite well,” said Lombardi. “The bus terminal acts like an anchor that generates sales for the stores and the food court.”

Some 9 million passengers stop at Tres Cruces per year, and the mall receives roughly 15 million visitors yearly, mainly from the terminal. It is not surprising, then, that Tres Cruces enjoys what some say are probably Uruguay’s highest sales per square foot: about $71.50. Last year Tres Cruces posted $52 million in sales, up 18 percent from 2005. (This excludes revenues from the bus terminal.) The expansion will involve the near-doubling of its Ta-Ta supermarket, to about 20,450 square feet.

Montevideo Shopping boasts some 431,100 square feet of GLA and is adding about 37,555 square feet to open in July. The mall has also become a popular entertainment center, with its 12-lane bowling alley, skating rink, multiscreen cinema, theater, indoor karting and casino. The entertainment options were added during periods of slow economic growth.

Twenty-nine new retail spaces are being added to the mall, for a total of 205, along with 400 parking spaces, for a total of 2,051. About 1 million people visit every month, says architect Oscar J. Corlazzoli, Montevideo Shopping’s general coordinator. Among the new tenants are The Coffee Store; El Shopping de los Niños, a children’s entertainment concept; and Women’secret, a Spanish lingerie retailer, says Corlazzoli.

Not far from Montevideo Shopping is the 452,000-square-foot Punta Carretas Shopping, a 13-year-old, high-end mall in a building that had been Montevideo’s main prison. The prison gained worldwide notoriety in 1971 when about 100 Tupamaros (members of an urban guerrilla organization) escaped. At the end of 1990, the building was vacated and the government called for private bids. The facility is doing a much better job of keeping shoppers in than it had with prisoners. The mall has a 560-foot-long skylight, 180 shops, five anchors, a 700-seat food court and a 10-screen cinema.

Punta Carretas Shopping suffered during the economic contraction, but not as much as the other malls, thanks to its more-well-heeled clientele, says Julio Durlachet, retail manager at Punta Carretas. Last year Punta Carretas enjoyed a 10 percent sales increase over the year before, and these sales are already higher than those of 1998, says Garbarino. “A new investment in infrastructure and new square meters are now needed to continue growing,” he said. The expansion will include relocating the Disco supermarket and extending the mall’s first level. The mall is connected to a 26-story Sheraton Hotel and receives 1 million shoppers monthly.

On Montevideo’s east side, the most residential sector, Estudios Lecueder runs the 300,240-square-foot Portones Shopping. Since its 1994 opening, the two-story, 131-tenant mall has been expanded three times and is visited by half a million people per month.

The country’s newest mall is Colonia Shopping, an addition to Colonia del Sacramento, a city founded by the Portuguese in 1680 and designated a World Heritage Site by UNESCO. The 34,440-square-foot mall has 30 tenants and is anchored by a 13,990-square-foot Ta-Ta.

Its operator is happy. “The first month shows an interesting level of sales that confirms projections made during the planning of the project,” said Lecueder. “The mall targets the city population, the small nearby cities and tourists that visit the region.”

The country’s other shopping center executives are no doubt watching this progress with great interest.