Brazils Long Term Growth - Walmarts PerspectivePlease see our interview with Jamey Barbour, Development Director for Walmart Brazil. Asthe largest retail organisation in the US, the company needs very little introduction - wediscuss the companys 15 year history in the country, opportunities, risks, marketidiosyncrasies as well as future plans.1) Most of our readers would know of the immense success that Wal-Mart has had in the US- when did the company first arrive in Brazil and what were the initial reasons of choosinghere (as opposed to other large countries)?Wal-Mart first arrived in Brazil in 1995 with the opening of our first Sams Club in S??oCaetano do Sul in the greater metropolitan area of S??o Paulo. To be honest, I wasn??t inBrazil at the time and cannot give you the reasons behind our decision to enter the Brazilianmarket. However, I believe Brazil had the 5th largest population in 1995 with a little over 161million inhabitants and also a strong retail segment with a promise of growth.2) Can you talk about your role in the organization and a bit about your experience?Well, in my current capacity I am leading a group of Project Managers responsible to deliverour expansion plan in Brazil. We have more than 103 projects we are actively managing. Myprevious role was as the regional director of development responsible for the north east.There, I fell in love with the real estate industry and passionately led a great team of realestate managers, architects and construction managers to accelerate our expansion plans inthe region. We proudly managed more than US$600 Million in corporate real estate dealsduring a two year period. Prior to moving to Brazil, I worked in China, South Korea, Germany,Puerto Rico and in the US as a project manager.3) What do you see as the main strengths and opportunities of a country like Brazil -particularly from an investment perspective?There are a lot. One is the expected increase in the middle class: between 2005 and 2009the D/E income profile classes fell from 93 million to 67 million, whilst the C income profileincreased from 63 million to 93 million and the A/B income profile class increased from 26.5million to just over 30 million. As an investor, the economic and political stability is just asimportant as a growing middle class. There appears to be confidence that whenever thepolitical leadership changes hand, the economy will remain stable. The country is rich incommodities which has been the catapult of nationwide growth for the last 7 years. Strictbanking regulations have served as a shield against the global financial crisis; Brazil was oneof the last countries to be impacted by the crises and one of the first to exit.4) And, conversely, what are Brazils weaknesses and threats?
Brazil, like any other country, has its problems and issues. Infrastructure, or the lack there of,is a huge threat to the economy. A qualified work force, especially in the north east, is also aweakness. From a real estate point of view, the licensing process is notoriously bureaucraticand, if not planned correctly, developers and ultimately investors returns could be effectedsignificantly. With growth comes risk. Inflation seems to be popping up again. The cost ofconstruction materials, land appreciations and the cost of labor will impact prices. To combatthis, the government has raised the SELIC rate. This will lead to more expensive credit andcould keep some prospective buyers out of the market. Also, even though the government isinvesting heavily to improve infrastructure, the country is still far below other leadingdeveloping countries - such as China - in logistic costs. The high cost of logistics practicallyruins any competitive advantage Brazil has to offer and continues, in my opinion, to be a dragon the GDP. Another red flag is on the level of corporate debt by leading real estatedevelopers. According to recent figures, corporate balance sheet debt has increase from21% to 46%. As these developers focus on the low margin projects such as "Minha Casa,Minha Vida", these high debt rates could come back to haunt them in a down turn. We arealready seeing companies such as JHSF & Helbor turn away from the government housingprograms. As with typical Brazilian culture, the government social programs that I mentionedabove (PAC 1 & 2) continue to be executed behind schedule. The world cup preparations,which must have 8 stadiums ready by 2013 to hold the Confederation Cup, have not evenstarted. Overall, I believe anyone who wants to be a player in international real estate, musthave a position in Brazil. Confidence is high and so is the countrys future. However, Iwouldnt put all my money in Brazil just yet. Keep some cash on hand, research, watch themarket and keep an eye out for genuine opportunities.5) Has Wal-Marts approach needed to be adapted to work in the Brazilian market - and, ifso, how?Looking at our retail operations we have learned a lot over the past 15 years. One of our firststores in the S??o Paulo metro market was designed to have a roof capacity to withstand 2feet of snow! Needless to say this was quickly corrected. As for real estate, we had to adaptto several methods which are not normal business practices in other countries. It is a knownfact that Wal-Mart grew in the US by expanding in smaller rural cities such as Danville,Virginia - which happens to be my home town. In Brazil, this is completely opposite. Thedemographics do not support large investments in smaller marketplaces. This forces us tofocus on large metro markets such as S??o Paulo, Rio de Janeiro, Porto Alegre, etc. Also,US customers do not use public transportation as much as Brazilian customers and are morelikely to drive 7 to 8 miles to shop. In Brazil, this is not the case as convenience is extremelyimportant to the success of a store. These types of habits leads us build even closer to thecustomer. However, as you can imagine, it??s hard to build a 20,000m?? store with gradeparking in the middle of S??o Paulo; these types of properties either do not exist or areexpensive. We have therefore adapted by adjusting our product and building smallerhypermarket stores. In some cases we have mezzanines, which is not a regular practice inthe US. We have also learned to offer different formats which we are not accustomed to
operate in the US - such as the Soft Discount. Our Todo Dia Brand is a format that was builtbased on the business model from one of our acquisitions. It is a brand we are extremelyexcited about and has great promise. If there is a lesson in all of this is to be flexible andlearn from the market. Maybe you offer a great product in Europe or Asia but chances are itmay not work well in the Brazilian market; at least in its current form. To make it morecomplicated, Brazil is a complex market with strong regional and cultural differences. Rightdown to the finer details, companies must be regionally sensitive with the products it offers.6) Can you give us a brief outline of Wal-Marts future intentions in the country?To grow in a way that is sustainable. Brazil is one of our most important markets - if not THEmost important. Brazil has been a good experience for the company and we continue tobelieve in its potential to grow above international rates.7) The north east has become an area where many overseas investors have focused. Whatare your thoughts on this part of the country - are these areas where Wal-Mart envisagegreat expansion?As the previous regional director responsible for the north east, I got to know up close whatpotential the region has to offer. Most of the foreign investment in the NE seems to be in thearea of tourism. With a yearly average temperature of 25?? who can blame them. This sectordoesnt necessarily drive our business, but we watch the non-retail segments closely ifnothing more than to take a measurement of land costs. Furthermore, there has been anincrease focus from national players in the NE, especially in segment of housing. Cyrela, thecountrys largest developer, has several key joint ventures with local construction companiessuch as Andrade Mendon??a in Salvador. We are paying extra attention to thesedevelopments. After all, we must go where our customers are living and working. As forWalmart, even though we are the market leader in the north east as a whole, we still havelots of ground to cover in specific markets. We have plans to grow aggressively in the northeast over the next five years.Do remember us for the services like,World cup 2014World Cup 2014 ticketsWorld cup ticketsWorld Cup PackagesBrazil World Cup 2014ConfederationsCup 2013 TicketsConfederationsCup 2013 PackagesBrazil HoneymoonTickets to BrazilBrazil Resorts
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