Renting a store in a Brazilian shopping center might be more convenient than searching for a point of sale on the high street. This article will show what is needed to find a store in a mall and the main costs involved.
Brazilians love to shop in shopping centers. Or at least this is what it looks like based on the sector’s recent development and numbers. Brazil currently has the highest number of malls in Latin America. According to Abrasce — the Brazilian Association of Shopping Centres — Brazil currently has more than 500 malls, as well as various strip centers and commercial centers that are not part of this classification.
It is expected that this number will increase to at least 530 in 2014. With a total of more than 87,000 stores located in these establishments, Abrasive estimates that a revenue of BRL 129.22 billion was reached in 2013.
In such a popular market, the search for a point of sale in a shopping center is intense. In some states, the vacancy rate is inferior to 2%, and the competition is even higher in more traditional centers, where the investment is less risky.
But what must be considered when thinking about renting a store in a shopping center? In Brazil, rent is not the only concern for doing business in the retail sector, other factors must also be considered.
Anyone interested in renting a store in a shopping center in Brazil needs to sit down and calculate if it is possible to afford all the costs involved in the process.
It is important to highlight that all the values and percentages below are rough estimates, as there are a lot of factors that can affect these numbers, such as the location of the mall, area where the store is located and size of the store.
The rent charged for a store in a shopping center in Brazil is usually more expensive than what is observed with a store on the high street. On average, the amount is 30% higher. Also, the rental costs of a store in a mall in Brazil are variable: it is composed of a fixed fee and a percentage based on the monthly sales.
According to a study made by the property management company Cushman & Wakefield, the average rental costs for a store in a Brazilian mall was BRL 151.18 per square meter at the beginning of 2014. In the southeastern region, though, this average was BRL 162.77. These figures may not be completely reliable, as it is a national average and also includes smaller shopping centers.
This is a controversial point. When someone acquires or rents a store in a shopping center in Brazil, luvas — which literally can be translated as “gloves” — are charged. Luvas is basically the initial amount that must be paid upon agreement by the renter to the leaser. This fee corresponds to the value of the point of sale: the tenant must pay it in order to benefit from that spot.
It is only legal to charge luvas if the renter has the preference to renew its contract and if the contract has a minimum extension of five years — which is the case with shopping center stores, as shown below. The leaser cannot charge luvas again during the renewal process.
This is the largest fee to be paid by renters, and small investors often have a hard time dealing with it. It varies according to the size of the store and the other factors previously listed, but for a store of 40 square meters, for example, the amount charged can range from BRL 100,000 to BRL 1 million.
The occupation cost is the name given to the combination of the promotion fund, the condominium fee, and the already mentioned rent. Specialists claim that the costs below should not compromise more than 15% of the store’s monthly sales in order to avoid financial losses.
The promotion fund is a fee charged by the shopping center administration, related to the disclosure and advertising of the establishment. Whilst the condominium fee is related to regular expenses, such as water, electricity and maintenance of the mall.
The Property Tax for Urban Land, known as IPTU, is also a concern to store owners in malls. The shopping center company must pay for this tax, but since the property is very large and the charged fee is really high, the costs are passed onto the store owners. The IPTU aliquot varies from city to city, but the price is set based on the size of the store.
The rental contract of stores in shopping centers is very complex. They not only involve general Brazilian laws and rules for rentals but also follow specifications imposed by the shopping center administration and by the store owners association.
There are no specific regulations for the contracts in this market, so the rental contracts are somehow seen as an agreement between the parties mentioned above. There are, though, some peculiarities prescribed by law:
- The rent charged varies according to the store’s monthly sales, as already mentioned.
- It is obligatory for the individual to join the store owners association.
- The contract must have an initial duration of five years, being renewable.
- The store owner agrees not to keep another store within a certain radius.
- In some months — more specifically May, June, and December — the rent charged might be doubled due to holidays and special dates, during which it attracts more customers. This increment is legally explained by the variable rent mentioned before.
- The store cannot be closed by the store owner for more than 30 days.
Consider a Franchise
Due to all the costs and complex procedures that involve renting a store, some people prefer to become a franchisee of an existing brand. Although the revenue and profit can be smaller for the individual investing in the business, this option has some advantages, especially for those that do not have large amounts of capital to invest.
Due to their size, influence, and capital, franchisors have more bargaining power than individuals. They can also deal directly with heavy costs, like the luvas, for example. And since these companies already have a formatted business model, unexpected situations become rarer.
Business hours, for example, are not clearly defined and vary from state to state. Usually, the shopping center administration is responsible for this. In many Brazilian malls, the stores are open from 10:00 to 22:00, except on Sunday, when the opening hours are from 14:00 to 20:00.
Choose Your Location Wisely
If you are looking to rent a store in a Brazilian mall, it is essential you choose the right location. It is important to consider that the southeastern region is the most consolidated market but also the most saturated.
Prices in the southeastern region are higher than in the rest of the country, but the shopping centre industry is much more developed. Other areas, like the Brazilian northeast, are growing fast and are seen as promising markets, but the risks are marginally higher. As a rule of thumb, although more expensive, capital cities and metropolis are safer targets for investments.
Once you decide which mall you are interested in, make sure the chosen point of sale is adequate and suitable to your needs. Every shopping centre has dead corners, with lower prices but also less customers.