All the big headlines of late have been dedicated to Western companies that are venturing out of their home markets for the first time. But perhaps an even more interesting trend has to do with companies that already have sizeable portfolios across the globe, yet are still finding new markets ripe with opportunity. That’s because those companies probably know better than anyone where the best returns on investment can be found in today’s environment.
One such firm happens to be Sydney-based Westfield Group, which already operates malls and shopping centers in Australia, U.S., New Zealand and United Kingdom. In August 2011, Westfield made its first foray into Brazil, through a 50 percent stake in local shopping center developer Almeida Junior Shopping Centers S.A. Around the same time, it made an investment in a development site in Milan, Italy, to be followed by a second infusion of capital in 2013 when the project goes under construction.
In fact, Westfield has been selling its non-core assets in its established markets in order to be able to fund deals in new regions of the world. Retail Traffic sat down with the firm’s co-CEO Peter S. Lowy to talk about how Westfield came up with its expansion strategy and the challenges and opportunities that go with investing in emerging economies such as Brazil.
Retail Traffic: Westfield entered Italy and Brazil last year. Can you talk about the opportunities the company sees in those markets?
Peter Lowy: These are two very large economies but with different characteristics and therefore different opportunities for Westfield.
Italy is a stable “old world” economy, however we look at Milan as very much a site specific opportunity—with the capacity to build similar to our iconic centers in London, Sydney, San Francisco for example, in one of the best consumer demographics in the continent.
Brazil is a developing economy, with a high population, an emerging middle class and a low penetration of retail and shopping center space. We view this entry as a macro opportunity to be involved in an exciting growth market. However, the level of our investment represents “ a toe in the water” approach as we have put relatively small amounts of capital at risk as we learn the market and determine the capacity to invest more and grow over time.
RT: Are there additional countries where Westfield is considering establishing a presence?
Peter Lowy: We review many opportunities but are comfortable with our existing opportunities.
RT: Why did it take the firm so long to enter an established market in continental Europe even though it’s been a global operator for some time?
Peter Lowy: Westfield regularly reviews many opportunities. The two we completed last year presented us with, what we believe, to be the preferred entry into both the European continent and Brazil.
RT: How did you make a decision about which local firms to partner with?
Peter Lowy: In Milan, our partner has owned the development site for many years and has successfully progressed the various permit approvals and entitlements. We spent a lot of time negotiating the opportunity with our partner Grupo Stilo who shares our vision of building a world class iconic mall in Milan.
In Brazil, our local partner has built a sizeable business and a market leading position in the affluent southern Brazilian state of Santa Catarina. Almeida Junior shares many of our core philosophies in creating value through shopping center creation, development, leasing, management, marketing and long term ownership, and we felt that combining our global expertise with their deep local knowledge is the preferred path for our combined organization to grow.
RT: What have been the biggest challenges that you’ve faced so far in Italy and Brazil?
Peter Lowy: Entering into new markets always presents challenges—particularly with regard to language, culture, communication, time zone, relocating executives, and so on. However, we have faced foreign investment challenges before and the integration of our teams is proceeding and we are also making progress in learning the markets and moving forward with the opportunities.
RT: How does retail development in those countries differ from your experience in the U.S., U.K., Australia and New Zealand?
Peter Lowy: Obviously each market has its own nuances regarding retail development.
However, there are a number of key fundamentals which exist, and which we believe are essential to the viability of retail development. These fundamentals are: stable political and economic conditions, large middle class, deep local retailer base, a transparent and robust planning regime and a strong and fair/open legal system.
RT: What advice would you give other U.S. or Australia-based operators who are considering entering Latin America or Europe?
Peter Lowy: Having local expertise or the ability to develop your own localized expertise is an essential ingredient to investing in a foreign market. This is something that cannot be contracted away to someone else given the long term nature and size of the investments being made.