This article originally featured in The Market Mogul. I’m an author there! Check it out: http://themarketmogul.com/brazilian-shopping-malls/?hvid=4HwCkU
The Brazilian house of representatives archived on August 2, 2017, an investigation that could possibly impeach President Temer. The main accusation is passive corruption in a scandal involving Joesley Batista, CEO of the JBS conglomerate. For a matter of fact, many brands that Brazilians consume daily are part of Joesley’s conglomerate.
Let’s take a quick look in Brazil:
- Former President Dilma was impeached in 2016;
- Actual President Temer could be investigated and impeached;
- President of the house of representatives – Rodrigo Maia, who would become President if Temer was impeached – could also be investigated and impeached;
- There are almost 70,000 homicides per year in the country – and nobody talks about it;
- 15 million people are unemployed.
Hopefully, the economy started to react after important decisions made by Temer administration. Inflation was reduced from 11% to 4%, federal expenses were legally reduced for the next 25 years and Real valorized.
Now, how to profit in such chaotic scenario?
While global retail industry struggles to keep up yearly revenues, Brazilian shopping malls are still growing. To be honest, it’s one of the best medium term investments to consider in your portfolio.
BRMalls (BRML3) is a holding company that manages 44 malls in Brazil and it’s the biggest mall-conglomerate in the country. BRML3 has a market capitalization of around R$ 12 billion and, through chart analysis, the stock has great potential after it crosses the R$ 18.00 historical resistance.
Multiplan (MULT3) has high standards for their malls. Multiplan manages 18 high-quality malls and has big ventures in real estate and corporate offices – many of them integrated to their malls.
Why malls are so important in Brazil
In the United States, shopping malls were conceived to be big shopping locations. Malls play a bigger role in Brazil: stores, services, entertainment, restaurants, family leisure and safety were assembled in the single destination – the mall.
Most movie theaters in the country are inside shopping malls – a movie theater on the street corner would be a rarity. Also, premium gyms are establishing business inside malls to join this atmosphere.
E-commerce is a big threat to the shopping center industry in the US and also will be in Brazil – but not at this moment. The country lacks efficient logistical infrastructure which makes shipping costs higher and higher. E-commerces are growing, but they’re far from obtaining the same market space that online retailers in America have obtained so far.
There’s also a big social circumstance: people have nowhere to go other than malls. Most facilities are located in safer neighborhoods and are privately secured by guards and thousands of cameras. So, instead of taking your family on a Sunday to the local park, you would probably take them to a mall. There, your kids will play and eat their junk food, your wife will relax and get a new dress and you can do groceries in a Wal-Mart or Carrefour integrated to the mall. Don’t forget to fill your car up in the Ipiranga gas station next to the exit.
The footprint of Brazilian shopping malls is a very positive indicator – malls are constructed in strategic locations. Most cities in Brazil lack urban planning and efficient public transportation, so mall incorporators like BRMalls and Multiplan manage facilities in key areas in the city, making high-quality malls next to their customers.
Malls footprint in America may reduce 20 or 30% in the next few years. It has got a great chance to be like the movement of car dealerships in the US: the decrease of dealers has concentrated the demand in strong dealerships. This movement could also happen to American shopping malls.
How malls are performing
While Brazilian economy retreated 3.8% and 3.6% in 2015 and 2016, respectively, malls have outperformed the market showing returns of inflation (which was 11% in 2015) plus 4% of gains. On the other hand, new mall inaugurations reduced, concentrating the demand in existing shopping malls which tend to be stronger, innovative and better managed.
Also, stores are creating a blueprint for survival and profiting. According to IBOPE, 8% of mall stores are empty. This number is a lot higher for malls inaugurated after 2013 – 45% of their stores are vacant.
BRMalls and Multiplan
Those are administrators with highest performances. Why? While new malls were almost collapsing, Multiplan had only 1% increase of vacant stores in their locations – 1.5% for BRMalls. When a store closes in a high-end shopping mall, another store will soon be installed in the vacant place.
Multiplan owns the high-end shopping malls in Brazil, most of them located in rich and safe neighborhoods.
BRMalls has grown by acquisitions and development of new ventures till 2013 when the group decided to sell companies that are unrelated to their main focus. Also, the group is enhancing the quality of their malls by applying a new quality pattern and selling malls that are not fit. Following this line, BRMalls will only manage high-end malls soon.