Brazil retail market is the largest in Latin America. The south-American giant dethroned the United Kingdom as the world’s sixth largest economy
in 2011, according to the Centre for Economics and Business Research
in London. Brazil’s economic success is the result of policies that have dramatically improved per-capita GDP and delivered close to full employment
; the catalysts for growth of a population
close to 200 million in 2012, and whose affluent middle class has become the engine of consumption and is projected to reach 58 percent in 2014.
But Brazil’s roaring GDP years may be over for now. GDP in 2012 was a timid 2.5%, slightly below the 2.7% achieved in 2011 and much less robust than 2010’s 7.5% . The economy’s cooling down tapered off M & A activity in 2011 and the consensus remains similar for 2012. Brazil’s main macroeconomic concerns are inflation
and the strength of the real,
which make Brazilian exports and doing business in Brazil too expensive. To boost the flagging economy, the Brazilian government has devalued the real and has announced recently a $60bn stimulus package
aimed at infrastructure projects.
The accumulated economic gains, growing middle-class population and increased consumption have brought about enormous opportunities to Brazil retail market, which is estimated at $230 billion
. Although there is strong domestic and some international retailer presence in Brazil, the retail market is far from maturity. Brazil is the world’s third
largest cosmetics/toiletries market, the third
for computers, the fourth for cars
, and the fifth
for internet and mobile phone use. Brazilians spend 31 percent of their income dining out
. Brazil’s ascendancy as an economic power has attracted luxury brands
such as Gucci
, Louis Vuitton
, Salvatore Ferragamo
, Zegna, Armani
, Christian Dior
, Leroy Merlin
, as well as premium and mainstream brands such as Lacoste
, Tommy Hilfiger Timberland
. In the QSR universe, MC Donalds
, Burger King
, and several other global brands already call Brazil home.
The world’s heavy retail weights are increasing their stakes in Brazil’s market, but in order to do so they must be prepared to form alliances or face tough local competition and challenges. At the development level, General Growth Properties
is boosting its investment in Brazil’s Aliansce Shopping Centers, Simon Property Group
plans to develop outlet centers with local BR Malls, Westfield Group
, CBL & Associates Properties
and Kimco Realty
, are also active in Brazil through local partners. At the M&A level, Cencosud
recently acquired Prezunic
. But not all retail activity in Brazil is smooth sailing, Carrefour
announced a $722 million loss due to accounting adjustments in 2011 and Wal-Mart
is facing resistance from local associations to its aggressive pricing. On the flip side, Zara
has been achieving double-digit annual growth for more than a decade.
Retail development is gradually moving away from the traditional and saturated magnet centers of Sao Paolo and Rio to less dense areas in the North and Northeast. GLA penetration is 54/1000, a fraction when compared to 2,192/1000 in the U.S. In 2011 there were 430 shopping malls with a total GLA of 10.3 million square meters and 43 new projects in the works for 2012. 319 malls (75%) are located in the south and southeast, 59 (14%) in the northeast, 37 (9%), in the midwest, and 15 (2%) in the north. Total mall projections for 2015 is 500 and 137 million GLA. Shopping center sales represent 18% of Brazil’s total retail sales at an average of $6,315 per square meter. The North and North East are increasingly attracting investment and offer the greatest retail growth opportunities, although with lower per-capita incomes than the traditional power centers of Sao Paulo and Rio.
With a large and mostly urban population, surging retail sales, and significant investments planned for the upcoming Fifa’s 2014 World Cup and 2016 Olympics , Brazil is Latin America’s largest retail economy. Our view is that Brazil is a stable, pro-business market and one where retail opportunities still abound, albeit red tape , barriers to entry, and corruption remain a concern.
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