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LANDLORDS ARE FIXING UP LATIN AMERICA’S OLD MALLS TO KEEP THEM COMPETITIVE

By María Bird Picó

There are benefits to being the first shopping center in a market, naturally. But there are drawbacks, too, and among them is the fact that, sooner or later, newer centers will arrive and start pulling away customers. Latin America’s mall boom has brought phenomenal pressure on the region’s existing malls in just this way. They are hitting back, though, by means of a wave of property upgrades.

“Competition is keener, and remodeling is no longer an option but a must,” said Fabián Sánchez, general director of Commercial Real Estate Advisors, a Mexico City–based real estate market consulting firm. “Old malls enjoy an established name and loyal clientele but face the challenge of retaining the flow of clients.”

They also need to be attractive to the ever growing numbers of local, regional and international retail chains, says Carlos Lecueder, president of Estudios Luis E. Lecueder, a Uruguay–based mall development and management firm. And, ironically, the more successful of the older malls have fewer vacancies for receiving these newer retailers, which then have to go into the younger centers. Falabella’s first store in Colombia, for instance, opened at the one–year–old Centro Comercial Santafé Bogotá, while Zara’s first Cali store is up at Jardín Plaza, one of Colombia’s newest malls.

Several malls in Mexico are undergoing renovations, including Mexico City’s biggest, the 14–year–old Centro Comercial Santa Fe, which is readying itself to play host to Saks Fifth Avenue’s first Latin America store. The mall is adding 446,600 square feet of retail space, for a total of 1.9 million square feet, and is building a skating rink and a movie complex.

Mexico City–based Grupo Gicsa is also in expansion mode, adding retail space to Forum Culiacán, in the Mexican state of Sinaloa, and to Las Plazas Outlet, in Mexico City’s Lerma area.

Peru’s Plaza San Miguel, Argentina’s Alto Palermo Shopping and Chile’s Mall Paseo Estación have all embarked on significant revamps, as have Uruguay’s and Colombia’s oldest malls, the 22–year–old Montevideo Shopping and the 35–year–old Centro Comercial Sandiego. It’s the same story in Brazil, with major upgrades in store for Shopping Ibirapuera and Shopping Market Place, both in São Paulo. Next year the 504–store Shopping Ibirapuera will add about 60 new stores, additional movie screens, a live theater and a 680–space parking lot.

“A shopping center’s biggest challenge is to be innovative, to maintain an up–to–date tenant mix and constantly reinvent itself,” said Juan José Martinucci, regional manager of shopping centers at Argentina–based APSA Centros Comerciales. APSA, for instance, is investing $6 million to spruce up the 17–year–old Alto Palermo Shopping, in Buenos Aires, and $3 million to improve Mendoza Shopping, a mall with some 15 years in Mendoza.

The older malls enjoy established names and enviable locations, having been built at a time when strategically located land was abundant. Yet a new mall can offset this strategic edge, sources say. “The strengths of new malls are a better design, better parking, and new retailing alternatives and tenant mixes,” said architect José Luís Quiroz, real estate development director at Grupo Gicsa.

To be competitive, older malls must look for new and superior retailing alternatives, Quiroz says. They must improve parking, design and architecture and make the malls striking enough to encourage people to spend more time. Gicsa’s experience has been that, on average, shopping center sales rise about 25 percent once remodeling is completed, Quiroz says.

The common thread through most of the expansions is an urgency to enhance the entertainment offerings. Indeed, entertainment is the reason most people go to a mall, says architect Gabriel González, citing a survey of Argentinean shoppers that revealed that 35 percent of the respondents visited malls to shop, 32 percent to eat, 19 percent to seek entertainment and 10 percent to shoot the breeze. González, a partner at the Argentinean firm Celateya/González Arquitectos, is working on the remodeling of three shopping centers in Buenos Aires.

“Older malls must adjust the space and offer accordingly,” said González. “Malls have to satisfy that 68 percent that goes to a mall for other reasons than to shop.’’

Furthermore, the public’s notion of entertainment encompasses more than just movie screens, a discotheque or a game area, González says. It requires the creation of a pleasant ambience with room for cultural and community activities.

The good news is that Latin America’s prosperity has opened the doors for improvements that were not feasible before. Over the past decade two malls have opened near El Salvador’s first mall, the 13–year–old Plaza Merliot, in Santa Tecla. But Plaza Merliot has improved its ambience through a $200,000 replacement of the terrazzo floor with porcelain tile and the removal of a dropped ceiling in favor of an attractive wooden one. This has enabled the 27,000–square–foot mall to hold its own, says its general manager, Mario Nuila. Visits have risen about 5 percent per year since the remodeling was completed in 2004, says Nuila.

“The market’s old hand needs to be constantly remodeling to be at the vanguard,” Nuila said.

But that is easier said than done, especially when an older mall’s owners are the retail occupants. Persuading them all to chip in and pay for a complete rehabilitation of the common area can be difficult, says Marcel Sholem, manager of Centro Comercial El Condado, a 409,000–square–foot mall in Quito, Ecuador, that opened this summer. Besides retailing, a food court and movie screens, El Condado will contain five automobile dealers and a stage that can be used for all types of artistic presentations. “It will be difficult for existing malls to replicate most of these features,” said Sholem. “Some are condominiums, and individual owners will never agree to changes of this magnitude.

But other malls in the market are taking up the challenge. Over the past three years, Quicentro Shopping has invested $10 million for additional parking and retail space and a retrofit of the facade. Mall El Jardín, also in Quito, has spent about $6 million over that same time period on upgrades that include two larger, panoramic elevators, a sprucing up of the common areas, and the expansion of the third level to accommodate a larger food court. And with the expansion of its second, the mall’s gross leasable area grew by 22,500 square feet, for a total of 290,000 square feet, says Laura Schettini, the 12–year–old mall’s administrator. Space constraints have forced the mall to do without such entertainment options as a cinema, says Schettini. But the new, 1,000–person food court has seen sales rise 42 percent. “A physical limitation forces us to be more creative to differentiate ourselves from the competition,” said Schettini. And such differentiation is the key to survival for old and new malls alike.