Latin America | 23 Jan 2013
Changing demographics in Peru, combined with increased spending power, have triggered a massive expansion in the retail sector as businesses move to meet growing customer demand for modern shopping centres and international brand names.
The number of malls in Peru shot up to 45 at the beginning of 2012 from just eight in 2000, Gonzalo Ansola, president of Peru’s Association of Shopping Centres (ACCEP), told OBG. Ansola said he expected the figure to have reached 52 by the end of 2012, rising to between 80 and 100 by 2015.
However, while the sector holds plenty of potential for expansion, businesses face a number of deep-seated challenges to growth, led by land shortages in Lima and the dominant presence of informal retail.
Enthusiasm for a more modern retail experience stems in part from the emergence of Peru’s fast-growing middle class and sizeable younger population. The country has a median age of around 26, which, combined with falling unemployment and rising incomes, earned it 10th spot on A T Kearney’s Global Retail Development Index study. The index ranks the top 30 developing countries for retail expansion worldwide.
Rafael Dasso, CEO of Real Plaza, which operates malls throughout the country for Intergroup, is optimistic the industry has plenty of room to grow. “The penetration of malls in the market is still relatively low in Peru compared to neighbouring countries like Chile and Colombia,” he told OBG.
This optimism is supported by reports indicating that Peru’s ratio of malls to shoppers is significantly lower than the regional average. Peru has 1.3 shopping centres per 1m people, while the average for Latin America is 2.1. Analysts have predicted record sales of $5.3bn for the retail sector in 2012, buoyed by the number of new mall developers entering the market. However, while a number of projects are under development in Lima, the industry’s growth in the capital is being tested by soaring land prices. The mall segment also faces the added challenge of having to compete for land with residential developers who are spearheading Peru’s attempts to plug the huge housing deficit.
According to Dasso, the situation has prompted mall developers to extend their reach outside the capital where markets remained largely untapped by modern retail developments and land prices are more competitive. Figures show that from the 14 malls earmarked to open during 2013, seven will be in cities not served by a shopping centre. Cheaper land prices, including greenfield opportunities, are also allowing developers to tap into the exceptional economic growth taking place in regional capitals and cities. Carlos Hoehne, general manager of the Peruvian fast-food restaurant Bembo’s, told OBG that regional expansion was creating a new breed of consumers for retailers to target. “This is a whole new class of people that simply want a place to spend their money,” he said.
However, while development outside Lima presents exciting growth opportunities and high demand, retailers may need to allow time for consumers with more traditional shopping habits to adapt to the mall model. Industry players will be aware that many shoppers who are more accustomed to traditional, open-air markets and informal corner stores, known as bodegas, will need to make considerable adjustments to their shopping practices as they explore the more formal set-up of a mall.
But while the retail market may require time to mature, the industry is still on target for an impressive performance in 2013. Total sales are forecast to rise to between $6.2bn and $6.4bn, or by 19%, over the year, with strong spending power among the younger generation and middle classes set to keep the sector on track.