In this installment of ‘PropTalk: Insights from Real Estate Experts,’ we speak to Eduardo Pérez Marchant, the CEO Parque Arauco S.A with a portfolio across Latin America in Chile, Peru and Colombia. In 2018 and 2019 he was named CEO of Parque Arauco Colombia and CEO of Parque Arauco Internacional (Peru and Colombia), respectively.
Before joining Parque Arauco, Eduardo was a university professor and held various positions for McKinsey & Company, Falabella and Banco Santander, among other companies. As a leader in LATAM and CEO of one of the largest real estate companies in the region, he has a unique perspective on the growing influence of technology across retail and mixed-use properties there. Additionally, he recently served on the Board of Directors and Advisory Board for PropTech Chile, which serves as an accelerator for promoting startups in the sector and linking real estate companies with the solutions of the future.
NextRivet: During your time as General Manager, and now CEO, at Parque Arauco, what has been a key change that you have seen regarding consumer lifestyles and consumer dynamics?
One relevant change I have seen in Latin América is demographics. The demographic pyramid is very different in developed countries such as the United States vs developing countries such as Chile, Perú and Colombia. In developed countries the demographic pyramid looks like an inverted pyramid and in developing countries it looks like a block, implying that in developing countries we have a much higher percentage of the population in early stages of their lives and this has important implications in a higher consumption. But demographics continue evolving and we believe that long term our demographic pyramid will also look like an inverted pyramid.
A second relevant trend in our region is urbanization. The younger generations are leaving the countryside and arriving to the large cities and our sector is benefiting from this change in lifestyles. Moreover, the cities are growing much more vertically than horizontally, and our properties also benefit from this change in consumer preferences.
Another relevant change in dynamics is related to the development of the middle-income segment. In the low-income segment, the consumption basket is basically housing, food, transport, and others. The middle-income segment has the budget to buy some of the products and services we provide in our properties. In Chile, Perú and Colombia the lower income statement is decreasing, and the middle-income statement is increasing, which creates interesting opportunities to our sector.
Finally, I have seen a Latin American consumer changing preferences toward global brands. Last month I had the opportunity of visiting two large Westfield properties in London. The large majority of the brands have not arrived to Chile, Perú and Colombia. In fact, in Latin América we have less than 20% of the top global brands. At the beginning of this year, we opened the first Tesla store in Latin América in one of our properties and we had a huge interest in visiting the Tesla store. This new brands with attractive value propositions to our end customers have allowed us and will continue to allow us to keep our retail spaces fresh and renewed.
Parque Arauco has been one of the industry leaders in terms of leveraging technology to innovate for shoppers and retailers. Can you describe why you feel Proptech is so important and some of the initiatives you’re most proud of?
Two relevant and strategic innovation projects where we leverage the use of technology are “Arauco Plus” and “Arauco Pick-Up & Delivery”.
“Arauco Plus” is our Web App where our end customers can find the store they are looking for, find their car, pay the parking, use an IA integrated chatbot, and know the services that each of our properties offer. This Web App will gradually incorporate other functionalities.
“Arauco Pick-Up & Delivery” is a highly sophisticated solution from a technology point of view, where we offer our tenants and end customers two services: curbside pick-up and one hour delivery services. We integrate with the “Order Management System” (OMS) of our tenants and if a product the tenant sell in their own online portal is available in a store located in our property, we go to the store, take the product and put in in a temporal “Warehouse Management System” (WMS), and we make the product available for curbside pick-up or alternatively we transfer the product to a last mile delivery company by integrating with their “Transport Management System” (TMS). Our “Arauco Pick-Up & Delivery” creates value to our tenants because it strengthens the service they provide by offering a faster delivery and a curbside pick-up solution. Furthermore, this solution allows our tenants to generate value not only because of in-store sales, but also because of the rol the physical store has in the online value chain.
Having previously spent the last two years as a Director at PropTech Chile working with tech startups, what notable attributes do you look for while selecting which proptech companies to work with on Parque Arauco’s portfolio?
In Parque Arauco we recently did a very interesting “Venture Client” initiative in Chile, Peru and Colombia that we named “Parque Arauco Startup Challenge”. We defined two challenges related to customer experience and sustainability/efficiency, and we had more than 100 Statups from all across the world applying to the program. We did a Demo Day with 20 of them from 11 countries and a Pitch Day with 10 of them from 4 countries. We selected four and we are currently working in several pilot programs in the three countries. The next step is to roll-out the successful initiatives all across our portfolio.
The tech Startups we are working with are highly innovative, they have a young teams with a clear vision about the future, and they have a high passion in what they do. We have had a great experience working with startups such as KSI Vision, Bluetek, Bluebox Air and Skeleton.
How have you managed the increasing demand for e-commerce and the changing role of the shopping center while developing real estate? How do you ensure the physical space works together with digital retail?
The increasing demand for e-commerce implies threats but also opportunities to our retail real estate sector. We face this change in consumer preferences by actively managing our commercial mix, decreasing the relevance of the categories where the end customer prefer to shop online, such as home appliances, and increasing the relevance of the categories where the end customer prefer to shop in-store, such as gastronomy. We also face this change in preferences by improving the in-store customer experience, reducing as much as possible frictions in the client journey and making the visit to our retail spaces fun and social, as opposed to cold and lonely online shopping experience. Finally, we are working in several omnichannel initiatives such as “Arauco Pick-Up & Delivery” and “Dark Stores” in areas with a low alternative cost, where we make our properties participate in the last mile supply chain of products purchased online.
It is clear that increasing sustainability and carbon reduction are primary goals of Parque Arauco. What role do you see technology playing in achieving these goals?
Last year we committed to carbon reductions goals by the highest standard: Science Based Targets. Several of the projects we plan to do in order to achieve our goal are related to technology. For example, we are building photovoltaic panel projects in top of some of our assets in Chile, Perú and Colombia. Other example is that we use sensors in common areas to take decisions regarding light and temperature based on data, and we measure the energy consumption in common areas with much more detail than before ir order to take better decisions. A final example is that the technology has improved the energy consumption of our air conditioning equipment, vertical transport equipment and lighting equipment, and we are gradually changing several of this equipment in order to reduce our carbon footprint.
What do you think makes Latin America a unique region for retail real estate? What are some of the misperceptions about retail in the region and what do you see as the greatest opportunities?
People tend to think that the supply-demand balance in countries such as the United States and countries such as Chile, Perú and Colombia are similar, but indeed they are very different.
From a supply point of view, in Latin América the retail real state sector is much less penetrated. The United States has more than 2.000 m2 of GLA per habitant. Chile has less than 300 m2 per habitant, Colombia less than 200 m2 and Perú less than 100 m2 per habitant. From a demand point of view, the dynamics are also very different. In Latin América the consumption will grow more because of demographics trends, development of the middle-class trends and urbanization trends, between others. The eCommerce penetration is much lower and there are some structural differences that justify a lower eCommerce penetration than developed countries in the future. As a result, in Chile, Perú and Colombia the in-store GLA is not decreasing as it is in countries such as the United States, but it is increasing.
In our portfolio, which is a high-quality portfolio with great assets in Chile, Perú and Colombia, our tenant sales are increasing two digits, which is something you rarely see in a developed country such as the United States.
Last question, what keeps you up at night?
My two year old daughter.