Establishing Retail Expansion Strategies in Latin America

By Jorge Lizan

Managing Director of Lizan Retail Advisors (LRA)

Expansion in Latin America comes with its nuances. Latin America and the Caribbean region is a collection of around 25 countries with a population close to 600 million. The region's 2013 GDP was $5.655 trillion and the GNI (gross national income) per capita $9,314, based on World Bank figures. Urban population accounts for 79 percent of the total.

Latin America is one of the regions of the world with the highest growth rates; the region is expected to grow by 2.9 percent in 2014 and 3.2 percent in 2015. At 13 percent in 2013, Paraguay is one of the world's highest growth countries.

In 2014, Latin America's economic powerhouses, Brazil and Mexico, are projected to grow 2.4 percent and 3.4 percent respectively. Mexico's reform agenda has fueled investor optimism, leading to a gain of 1.8 percent on last year's growth, whereas Brazil would be in the same position as last year.

Yet while the focus has long been on Brazil, Mexico and Chile, with their trade-driven industries and strong capital markets, the new rising stars are Colombia and Peru, which together with Mexico and Chile form the "Pacific Alliance" trade bloc.

But there are still many challenges when expanding in Latin America. In general, there is lack of information and clarity, and in some countries opening a business might take extra time and effort. Red tape is still prevalent in many countries, and rules changes can come up at any point in the most unexpected circumstances.

Prepared by the World Bank and its institution for the private sector, the International Finance Corporation (IFC), the report Doing Business 2014reported that many Latin American countries improved, resulting in fewer procedures to start a business, less paperwork, less waiting time, and ease of paying taxes, exporting goods and registering properties. Particularly noteworthy is Guatemala, which is among the 10 countries in the world that made the most reforms this year. Mexico is also among the top 50 countries in the world that made reforms to facilitate business activity. In Doing Business 2014, Chile once again led the region in ease of doing business.

Establishing the correct expansion strategy is key for the success of any foreign company in Latin America. The following is presented to provide some insights and to share experiences that might help retail companies expanding in the region avoid the most common mistakes.

Industry Background

Latin America's modern retail real estate industry is almost 50 years old. It has gone through different stages: The first modern malls in the region were developed in Brazil and Mexico in the mid '60s, and regional malls popped up all over Latin America in the '80s, especially in Colombia, Chile and Argentina.

Although international retailers have been present for decades in the region, a new wave of international brands entered the region during the '90s. In the 2000s global REITs and pension funds partnered with local developers shaping the modern Brazilian shopping center industry; the resulting companies are mostly Brazilian almost 10 years later. Also, U.S. REITs, insurance and real estate investment, development and management firms did the same in Mexico, funding local developers' pipelines.

Nowadays, the Latin American shopping center industry looks very different from the one we knew just few years back. A good part of the new developments are financed by local pension funds and the Latin American version of REITs. Most of the U.S. players active a decade ago left the region recently. Global retailers of all types have expanded in the region: There are few countries in Latin America where Wal-Mart is not present and a good share of Latin Americans get their groceries from the retail giant; Starbucks is booming almost everywhere, and people line up to shop in fast fashion behemoths such as Forever 21 and H&M.

Shopping centers are being developed everywhere in Latin America not only in the largest economies but recently in new upcoming markets such as Bolivia, Paraguay and the Dominican Republic. Brazil's growth keeps steady mostly as a result of the government's investment in infrastructure, and developers in Mexico keep expanding their projects pipeline to satisfy the FIBRAS' (Mexican REITs) acquisitions appetite. A trusted source recently said 120 new centers are currently being developed in Colombia, a country where there are around 180 existing shopping centers.

At the end of 2013 there were around 600 shopping centers in the six major Latin American markets, accounting for around 500 million square feet of GLA.

Challenges

But beyond all the opportunities the Latin American retail real estate industry presents, there are still challenges. There is little product to acquire in any Latin American country. In Mexico, the few properties in the market a few years back were already bought by the FIBRAS, so the best opportunities are in new developments. The industry in Colombia is still dominated by a condominium type of business model, making it really difficult to acquire any center and producing some centers with substandard tenant mix. Venezuela's government expropriated a soon-to-be-opened mall, and tax reforms in Chile are threatening the future of the shopping center in that country.

Business Etiquette in Latin America

There are some slight differences between the ways business is conducted in Latin America versus the rest of the world. Dress is important for making a good impression, Latin Americans are quite fashion conscious. It is important therefore to dress smartly and conservatively: suits and ties for men, business suits and dresses for women.

Also, the correct physical contact is essential to build trust and respect with others. Men usually shake hands when they meet and before they depart each other's company. A hug is often shared between friends. In social situations, a light kiss on the cheek (only one) is acceptable; women will always hug and kiss each other on the cheek. Latin Americans have a smaller sense of personal space than people from other cultures. Expect your conversational partner to stand close to you and look you in the eyes, and be prepared for casual touching.

Titles are important in Latin America. When dealing with someone with an academic degree in a formal situation, is important to refer to them by their title. In Mexico, the most common title is "licenciado" as it is "doctor" in Colombia.

Although it has dramatically improved, the concept of time in Latin America is something to take into account; punctuality is not rigid, and a 30-minute delay should not be a surprise. However, more punctuality is expected for business matters.

Compared to other cultures, Latin Americans may be more comfortable with physical contact; public displays of affection are generally fine. People in Latin America are very warm and friendly; expect social conversation before getting down to business. This is a calculated process aimed at getting to know you personally. People tend to be more interested in the person than in the representative of a corporation. Rarely can any business be accomplished without at least sharing a meal with your Latin American counterparts. Expect to be offered wine or liquor, even in a business lunch.

Face-to-face meetings are preferred over telephone or email, and negotiations and decisions will most likely take longer than in your home country. Deadlines are seen as flexible and fluid. Negotiations will include a fair amount of bargaining, so don't give your best offer first.

Industry Best Practices

Latin America's shopping center industry is at different stages of development, from Mexico and Brazil where it is mature and sophisticated to the nascent Bolivia. There are different rates of best practices absorption and assimilation in each country. For all type of industry players it is critical to conduct the necessary research and to follow market development strategic planning protocols.

The following are some examples of successful best practices in the Latin America shopping center industry:

Investors and Developers: Global REIT's such as Kimco, CBL, Simon and DDR, and pension funds such as Cadillac Fairview and Ivanhoe Cambridge have partnered with local developers to fund their projects. Debt providers such as GE Capital and insurance companies such as MetLife and Prudential also finance projects throughout the region. Private equity funds such as Blackstone and Starwood Capital are also funding shopping centers in different countries, and some new country-specific investment funds are being launched. European developers such as Sonae Sierra from Portugal also have a successful operation in Brazil, where they are partnering with Germany's ECE.

Latin American developers, such as Parque Arauco, Mall Plaza and Cencosud, mostly from Chile, have successfully expanded abroad into Argentina, Peru and Colombia, and recently some Central American developers such as Spectrum and Grupo Roble are also entering Colombia. In most cases, they are somehow partnering with local landowners and building companies.

Retailers: Global retailers have been present in the region from the mid '60s; KFC was one of the first retail brands entering in Mexico almost 50 years ago. Global hypermarket chains such as Carrefour entered in the '80s and Wal-Mart in the '90s. They usually partnered with local grocery store chains. Price clubs, home centers and specialty retailers such as Office Depot, Home Depot and Costco followed suit, usually operated by local JV partners.

Food franchises started entering the region with corporate and franchise stores in the mid '80s, and now they are mostly operated by multi-brand and master franchise giants such as Premium Restaurants, Taco Holding, Alsea and Arcos Dorados. Starbucks has privileged regional JV partners such as Alsea, Delosi and Franquicias Americanas.

Fashion brands have chosen groups from Panama for their regional expansion such as Grupo David and the Harari family, and local operators such as Grupo Axo in Mexico, Phoenix in Venezuela and the Caribbean, and Grupo Uribe in Colombia just to mention few.

Department stores from abroad have preferred JV partnerships. That's the case with Saks Fifth Avenue and Sears, which are operated in Mexico by Carso. Department stores from Chile, such as Falabella and Ripley, have successfully crossed borders, too.

The new wave of retail brands entering Latin America, such as Forever 21, is using a mixed approach, in some markets they are opening corporate stores and in others franchising. H&M, for instance, is expanding with corporate stores only.

Real Estate Service Companies: The sector's global companies such as CBRE, Cushman & Wakefield, JLL and Colliers have been present in the region for about 20 years. They came first through local franchises or affiliates, but now have full-service offices, which are part of these companies' global networks. Some players have recently arrived such as Coldwell Banker Commercial, Newmark Grubb Knight Frank and DTZ.

Consultants: Consultants such as architectural and project management firms have successfully open offices to service their Latin American clients in countries such as Brazil, Mexico, Chile and Colombia. They have also oftentimes partnered with local firms.

Tools & Resources

For any successful expansion strategy in Latin America it is important to take advantage of and rely on the existing resources in the region: national trade and investment offices, bilateral chambers of commerce, the AmCham in each country, trade associations, etc. The following is a non-limiting list of existing resources:

Trade and Investment Offices:

Trade and investment entities in each country are a great resource for anybody doing business in Latin America.

Mexico Promexico: http://promexico.gob.mx<http://promexico.gob.mx/>

Brazil ApexBrasil: http://www2.apexbrasil.com.br/en

Colombia Proexport: http://www.proexport.com.co<http://www.proexport.com.co/>

Chile Prochile: http://www.prochile.gob.cl<http://www.prochile.gob.cl/>

Peru PromPerú: http://www.promperu.gob.pe<http://www.promperu.gob.pe/>

Trade Associations:

There are local shopping center, franchise and retailer associations in the majority of the countries.

Mexican Real Estate Developers Assoc. (ADI) http://www.adi.org.mx<http://www.adi.org.mx/>

Mexican Retailers Association (ANTAD) http://www.antad.net<http://www.antad.net/>

Mexican Franchise Association (AMF) http://franquiciasdemexico.org<http://franquiciasdemexico.org/>

Colombian Shopping Center Association (ACECOLOMBIA)http://www.acecolombia.org<http://www.acecolombia.org/>

Colombian Retailers Association (FENALCO) http://www.fenalco.com.co<http://www.fenalco.com.co/>

Venezuelan Shopping Centers Chamber (CAVECECO) http://www.cavececo.org<http://www.cavececo.org/>

Peruvian Shopping Centers Association (ACCEP) http://www.accep.org.pe<http://www.accep.org.pe/>

Chilean Shopping Centers Chamber (CChCC)http://www.camaracentroscomerciales.cl<http://www.camaracentroscomerciales.cl/>

Argentinean Shopping Centers Chamber (CASC) http://casc.org.ar<http://casc.org.ar/>

Brazilian Shopping Center Association (ABRASCE)http://www.portaldoshopping.com.br<http://www.portaldoshopping.com.br/>

Brazilian Franchising Association (ABF) http://www.portaldofranchising.com.br<http://www.portaldofranchising.com.br/>

Industry Events in Latin America

These are some of the most important events recommended to attend in the Latin American region:
· RECon Latin America http://reconlatinamerica.icsc.org/2014RLA/
· Caribbean Conference icsc.org/2014CAC<http://www.icsc.org/2014CAC>
· Congreso Internacional de Shopping Centers http://5congreso.casc.org.ar<http://5congreso.casc.org.ar/>
· EPICCA http://www.acecolombia.org/ace_wordpress/?page_id=2086
· Congresso Internacional de Shopping Centers e Conferência das Américas http://www.portaldoshopping.com.br/evento/13º-congresso-internacional-de-shopping-centers-2014/
· The Real Estate Show http://therealestateshow.mx/2015/
· ULI Latin America Annual Conference http://mexico.uli.org/event/2013-uli-mexico-latin-american-annual-conference/
· Real Estate Investment World Latin Americahttp://www.terrapinn.com/2014/real-estate-investment-world-latin-america/index.stm
· Latin Markets http://www.latinmarkets.org<http://www.latinmarkets.org/>

In summary, for any retail real estate player expanding in Latin America it is important to follow some basic but important rules, to take into account differences between doing business in Latin America and other regions and the differences among each Latin American country, and to take advantage of the local expertise and knowledge. Some general recommendations would be:
· Do your research.
· Partner with someone locally.
· Mind cultural and business differences.
· Don't assume anything.
· Never underestimate them.
· Be patient.
· Enjoy the experience.

Jorge Lizan is Managing Director of Lizan Retail Advisors (LRA), a Retail Real Estate advisory firm headquartered in New York City. This article is a contribution to the ICSC's best practices book.

Copyright © 2014 Lizan Retail Advisors (LRA), All rights reserved.

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Uma nova tendência da Justiça do Trabalho deve amenizar a situação de inúmeros ex-sócios que têm bens comprometidos para o pagamento de dívidas das empresas nas quais tiveram participação. Julgados dos Tribunais Regionais do Trabalho (TRTs) e até do Tribunal Superior do Trabalho (TST) têm aplicado o Código Civil para limitar a responsabilidade do ex-sócio aos fatos ocorridos no período em que ainda estava na companhia. Pelo entendimento, a responsabilidade só se estenderia a processos iniciados até dois anos após a averbação, na junta comercial, da saída da sociedade. Outras decisões só chamam o ex-sócio ao processo quando há a comprovação de conduta ilícita em sua gestão.

A 7ª Turma do TST, por exemplo, aplicou por unanimidade o Código Civil a um caso recente. Apesar disso, não foi favorável ao ex-sócio de uma transportadora, por não poder rever provas. O acórdão do TRT de São Paulo não indicou a data de averbação de retirada do sócio da empresa na junta comercial.

O antigo sócio alegava ter deixado a sociedade no dia 25 de setembro de 2001. Argumentou que, de acordo com os artigos 1.003 e 1.032 do Código Civil, o sócio somente teria responsabilidade pelas obrigações sociais até dois anos após ser averbada a resolução da sociedade. Ou seja, somente até 25 de setembro de 2003. Como a ação foi ajuizada em 4 de outubro de 2004, alegou que não poderia ser cobrado pelo débito.

Os ministros do TST, apesar de admitirem a aplicação do Código Civil, não reformaram a decisão contrária ao ex-sócio. O relator do processo, Pedro Paulo Manus, porém, concluiu que "à luz do Código Civil, o sócio retirante, quando procede à regular averbação de sua retirada na junta comercial, apenas pode ser responsabilizado pelos débitos relativos ao período em que foi sócio e desde que seja acionado no decurso dos dois anos seguintes à referida averbação". Para completar, indicou outros julgados do próprio TST nesse sentido.

Segundo o advogado Pedro Gomes Miranda e Moreira, do Celso Cordeiro de Almeida e Silva Advogados, tem sido muito comum a Justiça do Trabalho atribuir responsabilidade ao sócio da empresa quando a companhia não tem bens suficientes para garantir o crédito trabalhista. "Os ex-sócios ficam com seu patrimônio exposto a responder por essas dívidas", diz.

Moreira atua em um caso semelhante no TRT paulista, no qual o sócio averbou sua retirada da sociedade em 1999 e está respondendo por uma execução trabalhista iniciada em 2008. "Foram penhoradas participações societárias dele em outras empresas para pagar uma dívida de cerca de R$ 200 mil", afirma o advogado. Para ele, essa limitação da responsabilidade do sócio, que vem ganhando corpo no Judiciário, traz importantes precedentes. Moreira diz que, como a legislação trabalhista é omissa com relação ao assunto, é possível aplicar o Código Civil.

O TRT da 10ª Região, que abrange o Distrito Federal e o Tocantins, ao citar decisões do TST, determinou recentemente o cancelamento da penhora do automóvel de um ex-sócio de uma pizzaria, que estava sendo executada por um antigo funcionário.

Em outro julgado, a 6ª Turma do TRT paulista foi além. Os desembargadores entenderam que a responsabilidade desses ex-sócios não decorre automaticamente e que pressupõe a existência de indícios de fraude na retirada da sociedade para que haja a condenação. A decisão ainda ressalta a condição de que a ação tenha sido ajuizada no prazo de dois anos após a averbação da alteração societária. Assim, excluíram a responsabilidade de um ex-sócio que se retirou da sociedade três anos antes do ajuizamento da ação e há anos sofria com a constrição de seus bens.

Segundo o voto do relator, desembargador Rafael Pugliese Ribeiro, se a retirada do sócio não se deu com objetivo de desvirtuar, impedir ou fraudar a aplicação da legislação trabalhista, o ex-sócio não poderia responder pessoalmente pelos créditos trabalhistas.

Para os advogados Simone Rocha, do Homero Costa Advocacia e Cauã Resende, do JCMB Advogados e Consultores, essas decisões, apesar de ainda serem minoria, trazem uma nova perspectiva. Simone afirma já ter obtido decisão favorável na qual o juiz condenou seu cliente a pagar apenas as parcelas da condenação pelo período em que respondia pela companhia. Para tentar excluir a responsabilidade de um sócio por dívidas trabalhistas, Resende ressalta ser essencial estar em dia com o registro de retirada de sócios na junta comercial para que se possa contar o prazo de dois anos, previsto no Código Civil. "Empresas mais informais se esquecem de registrar essas alterações."

Adriana Aguiar - De São Paulo