In Amazon, Rain Forests Make Way for Shopping Malls (WSJ 13/5/10)
Until now, civilization’s march into the Amazon forest has followed a predictable pattern. Loggers make way for cattle ranches that make way for farms. The next step: Shopping malls.
Only a few decades ago, many scientists believed that the Amazon was barely habitable. Today, at least five Brazilian Amazon cities have populations over 300,000, a key threshold for attracting national retail chains. By the end of next year, four of the five biggest cities will have large American-style malls. Developers are considering projects in three others.
The latest mall project broke ground in March in Rio Branco, a once-isolated outpost near the spot where rain forest activist Chico Mendes was killed in 1988. Builders were encouraged by a successful new mall about 340 miles away in Porto Velho. Folks from Rio Branco were making the six-hour drive there to shop.
The proliferation of Amazon shopping malls marks an economic turning point for one of the world’s last frontiers. A modern consumer economy is taking root in a region that most people still imagine as dense jungle and piranha-infested rivers, checkered with deforested patches.
On Tuesday, Brazil’s government reported that retail sales in the Amazon’s Rondônia state, home of the Porto Velho mall, rose by 31.7% in the year ending in March, the second fastest rate in the country and twice the national average. In Acre state, where the Rio Branco mall is under way, sales rose 31.5%—the country’s third fastest rate.
The rise of the Amazon consumer underscores the scope of Brazil’s domestic economic boom. President Luiz Inácio Lula da Silva has showered the region with money in an effort to lift the standards of the poor and working classes. Poor families get cash subsidies. Businesses get subsidized loans from the federal Banco da Amazônia. Hydro-electric dam projects provide jobs and investments. City populations have grown as people move there to access jobs and government services.
The Amazon’s development also alters the game for environmentalists. Amazon city dwellers now have more clout to demand that roads, power plants and other projects be built in the region. That helps explain why Brazil’s ultra-green environmental minister was replaced in 2008 by one more open to development. Because the malls are being built on land that was deforested decades ago, environmentalists haven’t opposed the projects. Local environmentalists say their goal is to channel inevitable economic growth into activities that don’t require mowing down more trees.
“The arrival of shopping centers is part of a global trend,” said Jorge Viana, a former governor and leading environmentalist from Rio Branco. “Our biggest challenge is creating a model of sustainable economic development that includes the people who live in the forest.”
To be sure, the vast Amazon is still mostly forest and won’t become a strip mall any time soon. Since 1991, the population in Brazil’s Amazon forest biome rose 48% to 19.7 million, mostly in cities and towns, according to Conservation International, a Washington, D.C.-based environmental nonprofit. But that’s still extremely sparse considering that Amazonians occupy territory around the size of Western Europe.
Still, there’s enough spending power in the Amazon now to attract global investors. Canada’s Ivanhoe Cambridge, among the world’s biggest shopping mall builders, is a partner in the Porto Velho mall. U.S. pension funds invested in the Rio Branco project. In 2007, BRmalls, a Brazilian developer partly-owned by U.S. real-estate tycoon Sam Zell, bought a stake in the region’s oldest mall, Amazonas Shopping, in the urban hub of Manaus.
In Porto Velho, the new shopping center has changed everything from the landscape to the economics and social habits of the frontier town. The capital of a heavily deforested state, the population of the hardscrabble cattle and soy hub swelled after new roads brought hundreds of thousands of settlers to the region in the 1980s. Now, it’s booming. Construction workers and white collar engineers are pouring in to build two hydro-electric projects worth several billion dollars nearby.
A beige, boxy structure rising out of a neat black-top parking-lot, Porto Velho Shopping is a jarring contrast to the rest of town, still a chaotic jumble of shabby, cramped buildings and cracked pavement.
The mall is by far the largest well air-conditioned structure for hundreds of miles around, making it an oasis in the muggy heat. That’s enough to make it the state’s top entertainment destination.
“The mall is basically the only thing there is to do in the entire state,” said Aira Queiroz, an 18-year-old student who’d made the 125-mile trip from Ariquemes, the ranch town where she lives, to enjoy an ice cream and shop at the mall on a Saturday in April. “There’s definitely nothing to do in my town.”
Around her, mall scenes typical of the U.S. suburbs unfolded. The food court buzzed with chatter. A glass elevator climbed the atrium to deposit movie-goers at a five-theater Cineplex boasting a 3D screen. There were even Amazon mall rats. Teens, some with dyed-black hair swept precociously over one eye, roamed the aisles looking for something to do. Uniformed security guards kept a watchful eye.
For all its scenes of Americana, there are reminders that the mall is on the Amazon frontier. McDonald’s had no fries that day. The delivery truck was delayed somewhere on the 2,500-mile drive from São Paulo. The mall’s employee-of-the-month won for handling more responsibility after half her team contracted Dengue fever.
A pair of Indian girls on a mall excursion guided by missionaries stood still, pondering the escalator from a safe distance. The mall has the first escalator banks in the state, and many people were lining up to ride one for the first time. After a cautious approach, the girls clasped hands and went for it. One made it easily. The other was caught in a steadily widening split-stance before wobbling aboard.
The changes are not just social. The mall has put enormous competitive pressure on local retailers to improve service and lower prices, altering the way they do business.
Some 50 national chains, such as department store Lojas Americanas (meaning “American Stores,”) opened their first store in the state at the mall. The competition put some downtown shops out of business, and forced others to upgrade to survive.
Consider the case of Divas, a clothing boutique run by Vilmarque João, a one-time appliance executive, and his wife. The business sprang from Mrs. João’s frustration at the lack of fashionable clothing shops in Porto Velho. She and her friends started pooling money a few years ago to fly designated shoppers to São Paulo to retrieve the latest styles.
Word got out. Soon, orders poured in from other women with the same complaints. The Joãos dropped appliances and opened a clothing store downtown where it thrived for six years. They moved to the mall when it opened, figuring business downtown would be sucked dry.
Suddenly, however, national clothing franchises with high-end jeans opened just steps away from Divas in the mall. To survive, the Joãos cut the price of Carmim brand jeans by 43% to 389 reals ($218). Competition for new styles meant paying to ship apparel overnight by air from São Paulo.
To keep up with national stores, Divas hired more sales people and spent more time training them. The Joãos’ lower prices and higher costs shrank their profit margin to 12% from 50% at their downtown store. But overall profits are still higher: Thousands of people, rather than hundreds, now pass their store daily. Mr. João suspects the mall environment has given a jolt to local consumerism.
“The mall is the only place in Porto Velho where all social classes are mingling in an open space, on equal footing,” said Mr. João. “The middle class gets a chance to see what the rich are wearing, and then wants to go out and buy it.”
The idea of building shopping malls in the Amazon isn’t new. Brazil’s 1964-1985 military government envisioned a network of bustling Amazon cities. They built roads to the forest and subsidized pioneers who would settle it.
It didn’t work out as planned. Expanses of forest were torched, but the rain forest land wasn’t as fertile as expected. Far flung towns like Porto Velho swelled with luckless settlers and became violent no-man’s lands.
But Amazonian economics are changing. By experimenting with fertilizers, grass types and other technologies, Amazon farmers and ranchers have learned how to wring more profits from the land. New roads have tethered together Amazon cities once isolated from each other, creating local markets. Roads now extend into neighboring countries like Peru, increasing commerce.
The first shopping mall in the Brazilian Amazon opened in 1991 in Manaus, a city of 1.7 million that has thrived as a manufacturing center because of a special status as duty-free zone. In April 2009, the 227-store Shopping Manauara opened nearby with jungle trees in the food court. The project was funded in part by Developers Diversified Realty Corp., a publicly traded U.S. real estate investment trust. At least two developer groups are considering additional mall projects for the city.
Most significantly, shopping malls are spreading to secondary Amazon cities like Porto Velho and Rio Branco where such investments were unthinkable a decade ago. One mall project is under way in Macapá, a state capital on the Amazon’s northern bank unreachable by road from the rest of the country. And a second group is considering a competing project. Mall developers have already acquired land in the river port city of Santarém, population 277,000, and in Marabá, a mining hub.
The Amazon’s consumer market reached critical mass so fast that it surprised even the experts. Five years ago when Dorival Regini, chief executive of a Rio de Janeiro-based mall developer LGR, began looking into Rio Branco, he had doubts.
In his mind, Rio Branco was synonymous with Dodge City—a lawless outpost on the Amazon frontier. The state was notorious as the place where the son of a cattle rancher murdered the rubber tapper and environmentalist Chico Mendes. Until the late-1990s, Hildebrando Pascoal, a strongman police chief-turned congressman, ran the state. He earned the nickname “chainsaw” for the way one of his enemies perished.
But data showing rising population and incomes warranted a closer look. So Mr. Regini dispatched an analyst, who was initially skeptical. “After he got there, he called and said, ‘I should stay a few more days; I think we can do this’,” Mr. Regini said.
Rio Branco had been tamed. “Chainsaw” was in jail. A group of green technocrats, mostly disciples of Chico Mendes, had won elected office in 1998. They pushed laws barring clear-cutting in the state’s remaining rain forest. In a bid to attract businesses to town as an economic alternative to ranching, they built parks, well-lit streets and a fancy pedestrian bridge over the river. Zoning laws went in, and much of the endemic corruption went out.
Another encouraging sign: a planned road from Rio Branco across the border into Peru and over the Andes to Pacific Coast ports. The road, now opened, may soon be an important transit point for import and export to China, locals hope.
LGR acquired a piece of land at the intersection of the new road to Peru and the highway that connects Rio Branco to the rest of Brazil. The 161-store Via Verde Shopping is slated to open in mid-2011.
The company is confident the project will work in a city where traffic jams now clog streets where there were few streetlights just a decade ago. LGR executives flying up to oversee the project had trouble finding enough rooms in local hotels. The company is now planning a hotel, too.
The mall is the state’s biggest private investment. But other firms are also eyeing Rio Branco. The Dutch warehouse club Makro opened near the mall site recently, and its French rival, Carrefour, is planning a store.
Building a mall in an Amazon city like Rio Branco presents unique challenges. Heavy rains fall almost half the year. During the dry season, workers must race to build the frame and roof so that work on the inside can continue during the rains. Missing the deadline could mean losing an entire year.
Everything from cement to iron bars, glass and fixtures costs more because it must be trucked in from hundreds, and in some cases thousands, of miles away. The clay Amazon soil has no stones. That means that gravel to make cement must be trucked in—along with other construction materials.
There are also unexpected snafus. When LGR engineers scouted locations for a bicycle park the company is building to meet city requirements for building improvements, they were surprised to find a family of Indians who’d come out of the forest camping on the spot. The Indians told them to leave. Later, federal Indian authorities arrived and provided housing for the group.
One aspect has been easy: Finding tenants. Space in the Rio Branco mall was almost totally rented out before it broke ground.