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MATURING MARKET

COLOMBIA’S GROWING AFFLUENCE IS SPAWNING SOPHISTICATED SHOPPING CENTERS

By María Bird Picó

Colombia’s economy is growing at its fastest rate in three decades, and the retail industry is rapidly expanding with it. All of this is providing much to celebrate at the 14th annual Shopping Centers Convention & Symposium, in Cartagena, Colombia.

The economy grew 6.8 percent last year, its healthiest rate since 1978, while retail sales jumped 14.1 percent over the previous year, said officials from Fenalco, Colombia’s retail trade group. The organization and ICSC co-sponsored the event, which took place April 23-24.

An estimated 60 shopping centers are in the design or construction stage and set to join the 300 or so malls already open across the country. During the past two years alone, 40 malls were built in Colombia, the second most populous country in South America after Brazil.

Colombia boasts a population of 42.6 million. “Colombians are investing because we see the possibility of recovering our investments during the next years,” said Guillermo Botero, president of Fenalco. “There is trust in the country, its institutions and our president, Álvaro Uribe. Thanks to his work style, during the past four years we have had economic growth, reduced unemployment and poverty and democratic security.”

Colombia’s political and economic stability is encouraging foreign investment. Falabella, the Chilean department store chain, has entered the market, as have Spanish retailers Mango and Zara. But though retail sales are strong and malls have a high occupancy rate, there is a risk of saturation, particularly in such cities as Medellín, where new malls are being built across the street from existing ones, sources say.

Another problem is that many developers still sell off malls piecemeal to their retail occupants instead of renting space to them. This has fueled the overdevelopment of centers in some areas, conference speakers said. “The business of a mall builder is to make money selling the locales to recover his investment and pull out,” said Oscar Piccardo, president of Argentina-based 1Por1 (pronounced uno por uno, Spanish for “one by one”), a marketing consultant firm that has advised malls in Colombia. “If they were to retain ownership of the mall and assume the risk, they would think the project over to make sure it’s successful. They do not learn from past mistakes, because others have to deal with the problems.”

Malls that are sold to their occupants are often poorly managed. Retailers spend too much time thinking of real estate matters instead of concentrating on selling. And mall administrators are more often involved in settling disputes than in running the mall, said Piccardo.

The condominium structure poses many problems, including a tenant mix based solely on the sale of space; unavailability of local investment opportunities for international funds; limited expansion opportunities for retailers; and malls that are harder to manage, says Ory Eshel, director of shopping center development at France’s Carrefour, which has about 30 stores in Colombia.

“Colombia has some world-class shopping centers, but its mall market must evolve toward a store-leasing model in order to develop investor-grade properties,” said Eshel. “[The current model] prevents the shopping center industry from maturing.”