Darkness at Dawn

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\"RRThe closer you get to the Equator, the more dawn and dusk become switches rather than transitions. It’s dark, it’s light.

I’ve learned as a global traveler to keep the curtains open at night, my goal to be in bed shortly after sundown and up at first light. Recently, I had a corner room at a hotel with floor-to-ceiling windows on two sides. The view of Paulista and the rest of São Paulo turned on a little before six; the cell phone towers, the park below and the high-rise buildings looked like uneven stubble on the contours of a Brazilian chin.

I was picked up at 7:00 AM by my colleague, the CEO of a publicly traded shopping mall company, in his Land Rover and we headed across town to the private airport to catch our turbo-propped Sky Master. We were headed for Brasilia. The traffic was heavy, and as we inched our way around a traffic circle, I lowered the window on the passenger’s side to stick my hand out and help get us to the outside lane. The driver gasped and I realized the window was almost two inches thick. Bulletproof. I struggled to get the window back up. The stupid Yankee had comprised the moving security perimeter. It took two security guards at the airport to tease the window back to its original position.

\"iStock_000004003370Small\"The New Reality

Safety in many parts of the world is a preeminent concern. From India to Brazil, and Mexico to South Africa, one seminal offering of the local shopping mall is security. As you enter a mall parking lot anywhere across the Middle East, trunks are inspected, and someone looks under each car with a mirror. The mall cops are armed and real. Socializing that used to happen on the street or the public square now happens at the shopping mall. As a middle class grows, shopping malls have proliferated like weeds across the world In some Brazilian cities, shopping mall space will double in the next year. Developers are experimenting with new formats: from outlet malls on the edges of Brazil’s sprawling cities, to highly-focused shopping centers featuring luxury goods or home furnishings.

But it’s all a bubble. Not just in Brazil, but across the emerging BRIC world, the proliferation of malls is no longer about simply servicing new markets, but rather on figuring out how to steal someone else’s customer as well. The developers have been surfing on low-interest rates and first-world cash looking for emerging market returns; but the market is now overbuilt. Spreadsheets do not equal customers. The new, very elegant Village Mall in Rio was empty. At the new Igatemi Mall in Brasilia, almost a quarter of the mall was vacant. It isn’t that the money and people aren’t there; it’s that both the money and the consumer are getting smarter.

\"RRGlobal Shoppers

In our shrinking global economy, the emerging middle-class consumer is both cyber-savvy and traveling globally. The same Gucci handbag is significantly more expensive in Sao Paulo than it is in Miami due to import duties; so why buy it at home? From Ginza in Tokyo to Macy’s in Herald Square, the world’s emerging middle class is flocking to global shopping destinations. That impact is not just affecting the fortunes of Saks and Marc Jacobs, but also on less expensive players like Aldo and Woodbury Commons.

American merchants are curiously inept in effectively responding to the visiting tourist. With the possible exception of high-end jewelry icons such as Harry Winston, Bulgari and Tiffany who have recognized that market, why are the rest of us so clueless? Any good restaurant in London or Paris has menus in multiple languages; does Danny Meyer? More than 10 years ago, we established that if you pick an arbitrary dollar amount based on the merchant, it could be $500 or $1000, what we found was that a remarkable number of transactions in prime gateway cities were charged to offshore credit cards.

With Saks turning in poor second-quarter numbers, Macy’s Herald Square still in transition, and Nine West up for sale, one of the important gauges for the predictors of a chain’s potential is asking what are they doing now for the visiting tourist, and then looking at what they could be doing.

Living At Risk

Further, the emerging-market shopping mall bubble has a more frightening implication. Many of these markets are due for busts. China’s expansion is slowing. Its real estate market is overbuilt. Outside of Shanghai and its other large cities, you see empty buildings and unoccupied houses dotting the landscape. The pollution issues are getting worse, not better. An aging population base is pushing up wages and domestic demand is stagnant. As a nation of savers, all we need is one or two events in China to get purses and wallets slammed shut. Foreign investment in emerging markets is fading, and exchange rates are reflecting that disillusionment.

\"BotafogoRussia has been surfing on the energy industry and natural resources, but the global appetite for both has diminished. Petroleum and mining stocks are depressed. With little investment in infrastructure, a global slowdown has retail implications. The Russians that can, and many of Chinese that can, have prepared to flee – be it to London or Vancouver – knowing that economic and political trouble are possible near-term futures.

It goes without saying that economic and political troubles are forever intertwined. Russians that can’t afford to create offshore lives for themselves have learned that saving in rubles may not be in their best interests. What is different now than when Russia’s last economic crisis hit is people’s access to other currencies. Again, we can bet not whether that event happens, but when. Regardless, the wallet slams shut.

So many of the world’s merchants have prospered based on emerging market demand. So what happens when the Chinese, Brazilian, Mexican, Russian and Central Asian customers decide to just stay home? And what happens when their local governments try and control the outflow of consumer expenditures?

Senseless Red Taping

In Brazil, my example is more anecdotal. We landed our twin engine turbo prop and pulled up to the general aviation terminal at the main airport in Rio. The official that met us as we climbed down our narrow ladder from the plane informed us that we had to pass through customs in the international terminal. A transfer bus was on its way, even though our flight was within Brazil’s borders.

So instead of simply being on our way, we were taken to the other end of the airport and dropped off at a platform where the security guard asked to look at our documents and luggage. We explained we had just flown in from São Paulo, not from somewhere out of the country, and were visiting just for the day. We still had to show our documents and fill in a customs form.

Making matters worse, he pointed out that the escalator that led up a level to the airport exit was running in the wrong direction, and that he didn’t know how to reverse it. We had to wait.

An hour later the situation was explained. The previous day, a wealthy family had landed at the airport in their private jet coming in from some foreign location. They proceeded to transfer their luggage and shopping bags from their jet to their private helicopter for the short trip to their beachfront home, without going through customs the way everybody else would have. Some local official had blown the whistle, resulting in all flights landing at that airport being checked, even regional commuters.

Life Out of Balance

The veil of money is being redefined. It’s hard to be discretely rich much less prosperous anywhere, but in the developing world it’s impossible. If you are a maid in a wealthy home in Rio living in the favalas where the commute to work is two miserable hours each way and getting worse; or a People’s Liberation Army soldier stationed in Shanghai looking at a new airport knowing that in his home village, the local source of water is increasingly polluted; how bothered are you? With the inter-connectedness of our global markets, tourism and online communities, how sensitive are we really to the harsh realities of life in emerging economies? I submit it’s time we all wake up. Wallets, opinions, and tempers are changing the world’s balance, and just like dawn and dusk at the equator, we have little warning other than knowing it is inevitable.



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