Table of contents 1. WHY INVEST IN THE URUGUAYAN RETAIL INDUSTRY?... 2 2. ECONOMIC SIGNIFICANCE OF RETAIL IN URUGUAY... 3 2.1. DETERMINING FACTORS OF CONSUMPTION... 3 2.1.1. INCREASE IN HOUSEHOLD INCOME... 3 2.1.2. CULTURAL CHANGE AND POSITIVE EXPECTATIONS... 4 2.1.3. CONSUMER CREDIT... 5 2.2. CONSUMPTION GROWTH... 5 2.3. RETAIL PERFORMANCE... 6 2.3.1. SUPERMARKETS AND GROCERY RETAILERS... 6 2.3.2. NON-GROCERY RETAILERS... 8 2.4. EMPLOYMENT CREATION... 8 2.5. OUTLOOKS... 9 3. POSITIONING... 11 4. REGULATORY FRAMEWORK... 12 4.1. GENERAL INVESTMENT PROMOTION SCHEME (LAW 16,906)... 12 4.2. ELECTRONIC INVOICING... 12 4.3. LAW ON PROTECTION OF COMPETITION... 12 4.4. CONSUMER DEFENSE LAW... 13 4.5. BCU RISK DIVISION... 13 5. TOURISM AND TRADE... 13 6. SHOPPING CENTERS IN URUGUAY... 14 6.1. SHOPPING CENTERS IN OPERATION... 15 6.2. NEW SHOPPING CENTERS... 16 6.3. SHOPPING CENTERS UNDER CONSTRUCTION... 16 6.4. PROJECTS FOR NEW SHOPPING CENTERS... 18 7. MAJOR INVESTMENTS... 19 8. INSTITUTIONAL FRAMEWORK... 21 8.1. NATIONAL CHAMBER OF COMMERCE AND SERVICES (CNCS)... 21 8.2. CAMBADU... 21 8.3. FUECYS... 21 8.4. MINISTRY OF ECONOMY AND FINANCES - CONSUMER DEFENSE AREA... 21 8.5. COMMITTEE FOR PROMOTION AND DEFENSE OF COMPETITION... 21 8.6. URUGUAYAN ASSOCIATION OF SUPERMARKETS... 22 8.7. URUGUAYAN CONSUMER DEFENSE LEAGUE (LIUDECO)... 22 8.8. COMMERCIAL DEFENSE LEAGUE (LIDECO)... 22 8.9. CLEARING DE INFORMES... 22 8.10. BCU'S RISK EVALUATION SERVICE... 22 9. TRENDS AND CHALLENGES FOR THE INDUSTRY... 23 ANNEX 1 - TRADE AND INVESTMENT PROTECTION AGREEMENTS... 24 ANNEX 2 MEMBER UNIONS OF CNCS... 25 URUGUAY SYNTHESIS REPORT (2013)... 27 MAIN ECONOMIC INDICATORS 2008-2013... 27
1. Why invest in the Uruguayan Retail industry? It has a consolidated democratic system, in which the three major political parties have alternated in Government, always keeping their commitment to respecting the business climate and the rules of the game. Strong social stability, sound institutional framework, tax incentives for investors and enhanced corporate accountability. Uruguay has grown at an annual average rate of 5.7% between 2004 and 2013, which makes it one of the leading countries in terms of regional growth. Foreign investment has reached record levels, which enabled Uruguay to position itself as the second largest recipient of FDI measured in terms of GDP in 2013 in South America (5 % in terms of GDP). Economic growth has come along with a strong growth in employment and purchasing power of Uruguayan people, deriving in record sales in almost all retail industry sectors. The increase in household income was particularly significant in the interior of the country, where this industry has access to a wide range of opportunities. Uruguay has sales per square meter levels relatively high from a regional standpoint, which makes it an attractive country for investments in the sector. Uruguay is among the three best countries to invest in the retail industry, according to A.T. Kearney's 2014 Global Retail Development Index. Uruguay has the largest per capita consumption of the region, both in supermarkets and in stores and corner shops. Between 2012 and 2019 9 new shopping centers will set up in Uruguay. This is a sign of the strong dynamism of the commercial sector in an economy of 3.4 million inhabitants. Uruguay is one of the countries with the lowest delinquency rate in consumer credits of the region. Uruguayan consumers have experienced a cultural shift, adopting new standards of living and multiplying the wide range of goods they consume. Local businessmen lay emphasis on the versatility of Uruguayan labor, which is capable of fitting work schemes in very short periods of time. Over the past years, renowned clothing brands have set up in Uruguay: Forever 21, GAP, Valentino, Louis Vuitton, Carolina Herrera, Tommy Hilfiger and Zara introduced its Zara Home line. The industry is supported by a consolidated institutional framework including, but not limited to, the Chamber of Commerce and Services, Cambadu, the Uruguayan Association of Supermarkets and Fuecys (Uruguayan Federation of Commerce and Service Employees). 2
2. Economic significance of Retail in Uruguay 2.1. Determining factors of consumption The three main determining factors of retail consumption are driven by household income (employment-related and wages), the expectations on economic activity and credit. These three consumption essentials have aligned to explain that over the last years Uruguay has witnessed the largest increase in consumption ever. 2.1.1. Increase in household income Uruguayan economy has exhibited an outstanding performance over the last years, which consolidated eleven years of uninterrupted growth. This growth was beyond regional average, reaching an annual average of 5.7% between 2005 and 2013. Chart No. 2 - Actual wage (Var % per year) 8% 7% 6% 5% 4% 3% 2% 1% 0% 4.6% 4.4% 4.8% 3,5% 7.3% 4.0% 4.2% 3,3% 3.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Prepared by Uruguay XXI based on data furnished by INE. This income increase has considerably affected lower income households which, as shown in Chart No. 3, reported significant increases compared to 2004 and 2013. Chart No. 3 - Average income per person (Actual Var % 2004-2013) - Per decile 1 Within this context, Uruguay reported a strong increase in employment and wage levels (refer to Charts 1 & 2). These elements were combined to derive in an outstanding increase in household income. Chart No. 1 - Employment and unemployment rate in Uruguay (rolling years) 21 19 17 15 13 11 9 7 Unemployment Rate (left axis) Employment Rate (rigth axis) 5 45 1993,08 1996,08 1999,08 2002,08 2005,08 2008,08 2011,08 2014,08 Source: Prepared by Uruguay XXI based on data furnished by INE. 61 59 57 55 53 51 49 47 Source: PWC based on data furnished by ECH-INE. In the same line and although they started with lower levels, inland households registered more significant increases in actual income compared to Montevideo households. As shown in Chart 4, income in Montevideo was the second which grew less, whilst Maldonado, Salto, Río Negro and Paysandú registered the most important increases. 1 Total urban country. Grouping per deciles separates population in 10 groups with the same size in ascending order with respect to income, decile 1 being the group with the lowest income. 3
Chart No. 4 - Average income per person (Actual Var % 2004-2013) - Per department 2 Chart No. 5 - Households with access to comfort elements (%) - Total Urban Country Source: PWC based on data furnished by ECH-INE. 2.1.2. Cultural change and positive expectations The favorable economic cycle has gone hand in hand with a cultural change in Uruguayan consumers. The increasing globalization associated to the strong development of technology, means of communication and marketing tools has resulted in a growing penetration of international brands and modern life standards in Uruguayan people. Local consumers - which in the 80s were prudent- incorporated new consumption habits associated to international brands in the 90s. This transformation reached its peak in the past years, when after a growth decade which registered household income improvement, Uruguayans have adopted new life standards and multiplied the range of goods which they have access to. As shown in Chart No. 5, according to the Household Survey (ECH, for its Spanish acronym) prepared by INE, the number of comfort elements which the Uruguayan households had access to registered a considerable growth in the last ten years, which proves the search for a better quality of life through the access of new goods and services. 80 70 60 50 40 30 20 10 0 47,6 17,1 40,5 66,8 58 55,2 20,7 13,5 2004 2013 28,3 37,3 None Cable TV Computer Internet Automobile or pickup Source: PWC based on data furnished by ECH-INE. This cultural change and the positive economic cycle have been related to the expectations of Uruguayan consumers, which have maintained positive forecasts for the future. This can be observed in Chart No. 6 which shows that Consumer Confidence Index 3 has remained, almost throughout the period, at "moderate optimism" and "plausible optimism" rank. In August 2014 (last available data), the index reported a 10.1% improvement compared to the same month of the previous year. Chart No. 6 - Consumer Confidence Index Source: Uruguay XXI based on Consultancy Teams and UCUDAL. 2 Towns of 5,000 or more inhabitants. 3 In Uruguay, the Consumer Confidence Index (CCI) is prepared by Consultancy Teams and the Department of Economy of the Universidad Católica del Uruguay (UCUDAL) university. 4
2.1.3. Consumer credit Another factor which leads to consumption increase has been related to credit expansion. Indeed, credit stock for consumption to families grew at an actual average rate of 13% annual in the last five years. As observed in Chart No. 7, this growth only registered downturns in the last months of 2009 due to the uncertainty caused by the international financial crisis. Furthermore, although in the last year and a half credit has slow down, it continues being more dynamic than the economy growth itself. In particular and in the very short term, in the first six months of 2014, a yearon-year average stock increase of 8% was observed. Chart No. 7 Consumer credit stock (Var % actual year-on-year) 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% Source: Uruguay XXI based on Central Bank of Uruguay's data. Within this context, total stock of consumer credit to families currently exceeds US$ 4,100 million (June 2014). Chart No. 8 - Consumer credit stock (US$ million) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Private banks State-owned banks Non-banking financial firms 0 Oct - 05 Nov-06 Dec 07 Jan - 09 Feb- 10 Mar- 11 Apr-12 May -13 Jun-14 Source: Uruguay XXI based on Central Bank of Uruguay's data. From the total loans to June 2014, US$ 2,877 million corresponded to banks, 70% of which belong to public institutions and the other 30% to private institutions. "Non-banking financial companies" 4 concentrated loans for a value of US$ 1,294 million 5. On the other hand, delinquency levels have lowered considerably in the same period. As observed in Chart No. 9, upon registering values close to 10% in 2005 (after the economic and financial crisis gone through our economy in 2002), delinquency recorded a strong decrease and its current values are close to 3%. Chart No. 9 - Delinquency 6 - Banking consumer credit Source: Uruguay XXI based on Central Bank of Uruguay's data. 2.2. Consumption growth The positive performance in the determining factors of private consumption mentioned above led to an expansion of this demand component at high rates in the last ten years (with the exception of 2009, when it retreated due to the international crisis). Particularly, between the second quarter of 2003 and the second quarter of 2014, private consumption grew at an annual average rate of 7.3% and reached its all-time record. 4 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% Jun-05 Junio 05: 10,4% Ene-06 Ago-06 Mar-07 Oct-07 May-08 Dic-08 Jul-09 Junio 14: 3,1% Cooperatives, Finance Houses, Consumer Loan Companies and other entities. 5 Source: Uruguay XXI based on data furnished by BCU and Deloitte. 6 Delinquency = Overdue credits/ Total credits. Feb-10 Sep-10 Abr-11 Nov-11 Jun-12 Ene-13 Ago-13 Mar-14 5
Chart No. 10 - Private consumption - Actual growth 2.3.1. Supermarkets and Grocery Retailers 15.0% 12.0% 9.0% 6.0% 3.0% 0.0% -3.0% 12.8% 10.7% 9.8% 9.1% 6.5% 7.1% 5.5% 5.3% 4.5% 1.7% -1.5% 2003 20042005 200620072008 20092010 20112012 2013 According to data furnished by Euromonitor, the supermarket and grocery retailer market in Uruguay is made up of a total of 27,808 stores. Sales of this retail stores amounted to US$ 8,300 million in 2013, which accounted for an 8% growth compared to the previous year. According to this consultancy firm, small stores represent 80% of the sector's sales, whilst the other 20% correspond to big surfaces. Source: Uruguay XXI based on Central Bank of Uruguay's data. It is worth mentioning that these values refer to the consumption of goods and services of the private sector in local markets (national and imported) and abroad. 2.3. Retail Performance The other side of this continuous increase in household income and in consumption has been a strong increase in the commercial activity and in sales. In this sense and as observed in Chart 11, the GDP of "Trade and repairs" sector registered outstanding growth rates after the crisis faced by our economy in 2002-2003. 20% 15% 10% Chart No. 11 - GDP of Trade and repairs (Actual growth) 10% 9% 9% 12% 19% 9% Among supermarkets, Grupo Disco Uruguay (Devoto, Disco and Geant) stands out, with approximately 39% of the market, followed by Ta-Ta S.A. (which purchased Multiahorro in 2013), with 37% of the market and Tienda Inglesa, with a share of 18% 7. In average, supermarkets' turnover distributes among them 85% of products (food, cosmetics and cleaning products) and the other 15% correspond to non-food products (textiles, household appliances, toys and bazaar, among others). This relation can vary depending on the format and size of the supermarket 8. On the other hand, according to the Trade Survey performed by the National Chamber of Commerce and Services (CNCS, for its Spanish acronym), supermarket and consumer cooperative sales also registered an outstanding performance in the past ten years (except for 2013), growing at an annual rate of 4%-5%. 5% 5% 4% 4% 0% -5% -3% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Uruguay XXI based on Central Bank of Uruguay's data. 7 Source: id Retail consultancy firm - Sales in 2013. 8 Presentation of Accountant Hugo Avegno, ASU Director 2014 Retail Seminar. 6
7.0 6.0 5.0 4,0 3.0 2.0 1.0 0.0-1.0-2.0 Chart No. 12 - Variation in supermarket turnover (in volume) 9 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 According to data furnished by Nielsen consultancy firm, the share of sales of the traditional means of distribution grew by 3%, to the detriment of supermarkets and selfservice stores. Chart No. 13 - Share of sectors in 2013 sales (selected products) Traditional 37.3% Supermarkets 36.7% Source: prepared by Uruguay XXI based on data from CNCS. Based on data provided by the monthly Survey on Commercial Activity of Large Supermarkets 10, actual growth of sales in supermarkets which furnish data 11 represented 2.1% in the first six months of 2014. Said growth is explained by an increase of 1% and 6.2% in the sale of food and non-food products, respectively. The grocery retailers sector is characterized by a low elasticity in economic cycles, which entails a lower growth in the peak cycles, but also lower decreases when economy slows down. A trend of this segment in the last years is associated to the boost of nearby stores within a new social context. In fact, the increasing number of single-person households (associated to early independence from their parents and greater divorces) favors formats which provide purchasing agility, as well as the offer of products for direct consumption. The purchasing power growth of lower income sectors and inland households (where supermarkets are less developed) also favors the increase in sales of nearby stores. Self-service stores 26.0% Source: ASU based on Nielsen Consultancy Firm Lastly and based on data processed by the Entrepreneurial Development Unit of CAMBADU, the Food Retail Index which measures the sale volumes in retail stores had a great dynamism between 2009 and 2012, registering an annual average growth of 7.7%. Moreover, said increase has been slowing down in the last years (in 2013 it grew 1% and in the first six months of the year it recorded a slight decrease of 0.6%). 9 Note: between 2009 and 2013, consolidated figures of supermarket and consumer cooperative sales are included. 10 Presentation of Accountant Hugo Avegno, ASU Director 2014 Retail Seminar. 11 The supermarkets which provide monthly information for the survey are: Tienda Inglesa, Multi Ahorro, Ta-ta, El Dorado, Disco, Devoto and Geant. 7
Chart No. 14 - Food Retail Index Base 2010 = 100 12% 10% 8% 6% 4% 2% Chart No. 15 - Clothing and footwear sales (Var % in volume) 17.0 12.0 7.0 2.0 0% -2% 2010 2011 2012 2013 Jan -Jun 2014-3.0-8.0 Women clothes Men clothes Footwear 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Uruguay XXI based on data furnished by Cambadu. 2.3.2. Non-Grocery Retailers 12 Sales of the so-called non-grocery retailers accounted for US$ 4,200 million in 2013, according to the Euromonitor consultancy firm. This represents an increase of 7% compared to the previous year. Such sales correspond to a total of almost 10,000 stores. The most important companies of the sector are Chic Parisien (with 5.7% of sales), Motociclo (4.5%), Farmashop (2%), San Roque and Grandes Tiendas Montevideo (1.1% each). On the other hand, according to data furnished by CNCS, clothing sales are reporting a growing trend, although in the last periods, a slowdown was observed. Source: Uruguay XXI based on data from CNCS. Finally, one of the sectors with the greatest dynamism in the past years is the sale of household appliances. As shown in Chart No. 16, this sector has registered two-digit expansion rates. This is related to the national currency appreciation registered since imported goods prevail in this sector. Chart No. 16 - Sale of household appliances (Var % in volume) 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 45.4 s/d s/d 35.1 In supermarkets and cooperatives In household appliances stores 23.4 14.9 16.4 24.1 46.3 6.8 7.8 10.5 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Uruguay XXI based on data from CNCS. 2.4. Employment creation According to data furnished by the Social Welfare Bank (BPS, for its Spanish acronym), the Trade sector 13 employs more than 156,000 people in Uruguay (to December 2013), which accounts for nearly 10% of the total employees in the country. On the other hand, the main supermarkets in the country employ over 21,000 people 14, whilst capital 12 It includes clothing, health and beauty stores, household products, durable goods and other retailers. 13 All groups included in chapter 47 of the CIIU Classification Rev. 4 are included. 14 Source: Deloitte Survey (2014), to which Macromercado data is added. 8
city shopping centers employ over 10,000 employees. Table No. 1 - Personnel employed in shopping centers Personnel employed in Shopping centers of Montevideo Punta Carretas Shopping 2,000 Montevideo Shopping 2,500 Portones Shopping 1,700 Tres cruces 3,000 Nuevo Centro Shopping 1,000 TOTAL 10,200 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Chart No. 17 - GDP Growth - Uruguay 5,0% 7,5% 4,1% 7,2% 6,5% 2,4% 8,4% 7,3% 3,7% 4,4% 2,8%2,8% 3,0%3,3%3,5%3,5% Source: Uruguay XXI based on World Economic Outlook (IMF) October 2014. Source: Interview to managers - July-August 2014 With respect to the supermarket sector, labor represents almost 50% of total costs. In the last year, efforts have been made in order to improve productivity. While the number o employees increased by 100 people, supermarkets grew more than 10,000 m 2. In such sense, an improvement in productivity was observed in terms of actual sales on worked hours, which was 1.6% in these first six months of 2014 15. 2.5. Outlooks Uruguayan economy has accumulated eleven years of continuous economic growth. In line with the results of other emerging countries in 2013 and so far this year, a relative slowdown in the general economic growth and particularly, in the retail sector has been observed. This slowdown in the retail sector was also related in 2014 to the world cup (which competed with the visit to shopping centers in the allocation of leisure hours). Within this context, perspectives for the coming years are that Uruguayan economy will continue growing but at lower rates. The International Monetary Fund (IMF) forecasts economy expansion rates of around 3% for the coming years (see Chart No. 17). 15 Presentation of Accountant Hugo Avegno, ASU Director 2014 Retail Seminar. Data for supermarkets that provide monthly information for the survey. (see footnote No. 11). In this growth context, actual salaries would continue growing (although at lower rates), whilst employment levels would remain relatively stable (in historically high values). See Table No. 2. On the other hand, according to Euromonitor, sales of grocery retailers (stores that sell food, beverage and tobacco) are expected to grow at rates of approximately 3% per year between 2014 and 2018 16. Meanwhile, invoicing of nongrocery retailers would register an annual growth rate of 2% in the same period. Another element which predicts good perspectives for the next years is associated to the expectation of consumers on the future of their economy. Indeed, based on the data included in the study performed by the consultancy firm Opción Consultores (April 2014), 68% of those polled think their personal income will improve and 14% believe they will remain in the same levels. Moreover, 74% of consumers consider the economic situation of the country will improve or will remain unchanged. As mentioned before, good expectations are a determining factor for consumption, whereby prevalence of these forecasts would contribute to the good performance of the sector. Regarding consumer credit, according to data of the Monitor prepared by Pronto!, to June 2014, 23% of those polled stated to 16 CAMBADU expects an actual increase of 2% in grocery retailers and self-service stores for 2014. (Source - Diario El País - February 2014). 9
have intentions of having some kind of credit (loan or purchase order) in the near future. Even though this means a slight decrease compared to the record levels of March 2014, it is a considerably high value in the historic perspective (see chart). Chart No. 18 - People who intend to obtain some kind of credit in the future (%) 22% 20% 25% 14% 10% 20% 10% 19% 25% 26% 22% 23% Source: Monitor of Pronto! credit market - July 2014. Finally, it is worth mentioning the new law approved in Uruguay: the Financial Inclusion Law, which came into effect in August 2014. This law intends to foster the use of financial instruments of the population in general 17. This law entails, among other things, VAT exemption of up to 4% (2% after the first year) for the persons who purchase with debit card and 2% for the persons who buy with credit cards (1% after the first year). In addition, to reach these goals and achieve greater financial inclusion, it obliges companies to pay salaries, pensions and professional fees through bank accounts deposits or in e-money instruments. 17 Financial Inclusion Web Site: http://inclusionfinanciera.uy/. Financial Inclusion Law: http://inclusionfinanciera.uy/wp- content/uploads/2014/07/2014-04-ley-19.210- Inclusi%C3%B3n-Financiera.pdf 10
3. Positioning The strong growth of Uruguayan economy and the purchasing power of its population, together with the important political, economic and legal stability have positioned the country as one of the main destinations in the region for the most important retail companies of the world. Uruguay: "...political and economic stability have helped it become a solid retail oasis while some of its neighbors struggle." AT Kearney 2014 In particular and as shown in the following table, in 2014 Uruguay has been ranked among the three best destinations for the retail sector of the developing countries (and the second one in Latin America). On the other hand, Uruguay is the country with the highest level of consumption in grocery retailers and neighboring shops among thirteen Latin American markets studied. Specifically, Uruguayans spend US$ 643 per capita annually, above Venezuela (US$ 577) and Argentina (US$ 524), ranked in the second and third position, respectively. This positioning was associated to the strong growth experienced by Uruguay (57.1% from 2008 a to 2013) compared to other countries of the region 18. Uruguay: "a small gem, where high consumption levels are attractive to luxury brands." AT Kearney Uruguay is also the country with the highest consumption per capita in supermarkets in the same comparison, with a value of US$ 730 per capita annually. The second country is Chile, with significantly lower values (US$ 453 per capita annually). Supermarkets' turnover in Uruguay grew at a two-digit rate between 2008 and 2011, it being reduced to 7.1% and 9.5% in 2012 and 2013 respectively 19. 18 Source: Euromonitor in El País newspaper: http://www.elpais.com.uy/economia/noticias/uruguay os-son-que-mas-gastan.html 19 Idem. 11
4. Regulatory Framework 4.1. General Investment Promotion Scheme (Law 16,906) Law 16,906 (1998) declared of national interest the promotion and protection of domestic and foreign investments. For any investment projects submitted and promoted by the Executive Branch, between 20% and 100% of the invested amount is exempt from Corporate Income Tax (IRAE), depending on the type of project. The IRAE nationwide flat rate is 25%. Personal property included in fixed assets and civil works are exempt from the Net Wealth Tax, and the Value Added Tax is recovered from the purchase of materials for civil works. Moreover, the import of personal property included in fixed assets which have been declared not competitive with national industry is exempt from import taxes or duties, as declared by said law. This attractive promotion scheme has been widely used by businesspersons of the sector. According to information provided by the Investment Law Application Commission (COMAP), over 850 projects were promoted in the commercial sector, totalizing more than US$ 1,000 million between 2008 and 2013. 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 - Chart No. 19 - Projects promoted by COMAP - Trade Sector 2008 2009 2010 2011 2012 2013 Million USD (left axis) Number of projects (right axis) Source: Uruguay XXI based on data from UNASEP. 300 250 200 150 100 50 0 context where household income grew more strongly in said region than in the capital city. Finally, it is worth mentioning that Uruguay XXI has publish a report containing the labor rules of the "Supermarket" sector, prepared by Instituto Cuesta Duarte of the PIT CNT 20. 4.2. Electronic Invoicing Decree 324/011, ruling until December 31, 2014, promotes investment in the incorporation of electronic invoices by companies, with exemption of Corporate Income Tax of up to 70% of the amount effectively invested during 10 periods as from the first investment executed. Also, a Wealth Tax exemption can be applied during the useful life of goods. Given the important existing development of the electronic platform in the objective stores, there are significant incentives for the implementation cost to be relatively low. According to the statements made by the Uruguayan Tax Authority (DGI), the electronic invoice system shall be a parameter to consider at the time of measuring the evasion risk of the taxpayer next year. This way, DGI shall be more efficient in its control. 4.3. Law on Protection of Competition Since 2007 Uruguay has the Promotion and Defense of Competition Law in place 21 (Law 18,159) which sets forth that every market shall be ruled by the free competition, except for the limitations established by law due to reasons of general interest. This legal framework intends to foster the welfare of consumers and companies, thus promoting the economic efficiency and guaranteeing freedom and equality for having access to products of the market. It is worth mentioning that one of the aspects valued by the Investment Law to be eligible to tax exemptions is the location of the project in the interior of the country. This aspect has been widely used for the promotion of Retail sector projects, within a 20 To have access to it, it can be send via e-mail (info@uruguayxxi.gub.uy). 21 Access the law by clicking here: http://www.parlamento.gub.uy/leyes/accesotextoley.asp?ley=18159&anchor= 12
4.4. Consumer Defense Law The Law on Consumer Defense 22 (Law 17,250) was approved in 2000 and provides for the framework within which the consumption relations should be developed. This framework is characterized by the incorporation of the best practices in terms of defense of consumers' rights, while it provides important guarantees for the development of activities related to the provision of goods and services. 4.5. BCU Risk Division The BCU has implemented a Risk Division for the purposes of monitoring and guaranteeing the correct performance of the financial system. It is an integrated system that consolidates the information provided by brokerage firms, Credit Management Companies and Finance Service Companies, in relation to direct and contingent loans that these have granted to natural and legal persons or to other institutions within the financial sector as well as to corporate groups which the debtors make up. Website: http://www.bcu.gub.uy/servicios- Financieros- SSF/Paginas/Central_Riesgos.aspx 5. Tourism and Trade The touristic and commercial sectors have traditionally been strategic allies. The strong development reported by the receptive tourism in Uruguay in the past years have had important repercussions on local stores. By way of example, in the last 3 years, the number of visitors has reached historical levels, totalizing almost 3 million. This entailed a significant growth compared to the previous years, when visitors did not exceed 2.5 million. This growth in the number of visitors went hand in hand with an increase in the expenditure thereof, which had important impacts on the commercial sector. Although the main attraction of the country is focused on Punta del Este, Uruguay has several and varied touristic options only meters away from each other. Chart No. 20 - Number of tourists received (million people) and total expenditure (in millions of US$) 2,500 2,000 1,500 1,000 Total expenditure (left axis) Number of tourists (right axis) 3.0 2.5 2.0 1.5 1.0 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 0.5 0.0 Source: Uruguay XXI based on data furnished by BCU. Uruguay has a strong institutional framework supporting tourism and attractive sector-related investment promotion rules 23. 22 Access the law by clicking here: http://www.consumidor.gub.uy/informacion/index.ph p?indexid=56 23 For further information on investment opportunities in the touristic sector, click here: http://www.uruguayxxi.gub.uy/wp- content/uploads/2011/11/sector-turismo-uruguay- XXI-Febrero-2014.pdf 13
6. Shopping Centers in Uruguay The following map of Uruguay shows the location of the shopping centers in operation, together with those under construction. Figure 1 - Shopping centers under construction and in operation in Uruguay
6.1. Shopping Centers in operation Table No. 4 - Shopping centers in operation - Uruguay Colonia Shopping http://www.coloniashopping.com.uy/ Costa Urbana Shopping http://www.costaurbana.com.uy/ Florida Shopping Mercedes Terminal Shopping Montevideo Shopping www.mercedesshopping.com.uy http://www.montevideoshopping.com.uy/ Nuevocentro Shopping http://www.nuevocentroshopping.com.uy/ Portones Shopping http://www.portones.com.uy/ Punta Carretas Shopping http://www.puntacarretas.com.uy/ Punta Shopping http://www.puntashopping.com.uy/ Salto Shopping Terminal http://www.saltoshopping.com.uy/ Terminal Shopping Tres Cruces http://www.trescruces.com.uy/ Expansions in shopping centers Many shopping centers with several years in the market have began expansion projects with the purpose of continuing with the expansion and improvement of the range of services they provide to visitors. Montevideo Shopping Center is planning the incorporation of a new level on the existing one, with an area of 2,306 m 2 and another parking of 3,193 m 2 underground. At the same time, it projects a new underground parking for 100 vehicles. This work will cost around US$ 4 million 24. The expansion to be concluded soon for the opening of the Forever 21 store is expansion number 21 since Montevideo Shopping opened its doors in 1985. In this period, several expansions were performed going from 75 shops to 204 and from one cinema to eleven cinemas. of third parties. This way, the number of commercial square meters were practically doubled and the number of established stores increased by 60% 25. Punta Carretas Shopping center began in January 2014 a new expansion project, which construction works are expected to conclude by the end of 2016. Total investment amounts to US$ 80 million approximately and will entail the incorporation of 55,000 m2. 35 new shop premises, one hypermarket, office towers, one hotel and new parking levels will be created 26. Shopping centers in the interior of the country also went through expansion processes. Terminal Shopping Tres Cruces underwent an expansion between 2011 and 2013, which entailed the construction of 29,000 m 2, incorporating 50 new stores. Total investment amounted to US$ 43 million between direct investment and decoration 24 Source: El País newspaper. http://www.elpais.com.uy/informacion/montevideoshopping-crece-piso-aumenta.html 25 Source: Terminal Shopping Tres Cruces and Estudio Luis E. Lecueder. 26 Source: Punta Carretas Shopping. 15
Table No. 5 - Expansion in shopping centers of the interior of the country Shopping center Feature Salto Mercedes Colonia Conclusion Nov-14 Nov-13 Nov-14 Investment (million US$) 3 2.1 0.6 built m 2 1,200 800 200 New stores 5 5 1 Source: Uruguay XXI based on data provided by the Accountant Marcelo Lombardi General Manager of Terminal Shopping Tres Cruces. 6.2. New Shopping Centers Centro Comercial Costa Urbana The shopping center Costa Urbana was inaugurated in 2012 and is the first shopping center with these features in Ciudad de la Costa. Located in Kilometer 21 of Avenida Giannatassio allows that its more than 120,000 inhabitants can have access to an important variety of services and stores without having to travel to the capital city. The shopping center has the peculiarity of grouping a large part of the public entity offices, in addition to cinemas, a supermarket and other shop premises. The construction works of the new shopping entailed an investment of US$ 50 million and provide work to approximately 1,000 employees during same. Website: http://www.costaurbana.com.uy/ Nuevo Centro Shopping In October 2013, the last shopping center in Montevideo was inaugurated, located in the geographical center of the city. It has three floors of 69,000 m2 of construction (25,000 m2 of which are stores), which houses 130 commercial premises and parking for 1,000 vehicles. Investment amounted to US$ 60 million, in addition to US$ 40 million from the stores, which represents a total of US$ 100 million. and a Cartoon Network themed park - the first in the country. The "anchor" premises of Nuevocentro is Géant Hypermarket, which opened its first branch in Montevideo. It also has the socalled "mini anchors", which have more than 200 m2. Some of them are Arredo, Daniel Cassin, Rockford, Divino, Farmashop, Indian Emporium, Hering, La Cancha, Mosca, Motociclo, Multiahorro Hogar, Nike, Parisien, Reebok, Sport & Casual, Stadium, Tiendas Montevideo, Toto, Samsung Store, Lolita and Macri. The shopping center is expected to have between 800 thousand and one million visitors per month. It will also include a series of important services such as an outpatient clinic of Asociación Española, a telecenter of Antel, one beauty center and one financial service sector, where the main credit companies will be present, in addition to one branch of Banco República and one branch of Banco Comercial. Together with the shopping center, the project contemplates the construction of two 22 floor Housing Towers with 440 apartments. The investment of both towers fluctuates between US$ 50 and US$ 60 million. Nuevocentro would be the first project of Uruguay to combine a shopping center with a housing project. Website: http://www.nuevocentroshopping.com.uy/ 6.3. Shopping Centers under construction Melancia Rivera Mall & Free Shops Shopping 27 In the next months (November 2014), an important shopping center is expected to be inaugurated in the department of Rivera. It will house 70 stores, one parking for 1,000 vehicles and the free-shops Neutral and Wissa will operate there in a space of 3,000 The shopping center includes a food court for 600 people, 5 state-of-the-art cinemas 27 Source: El Observador newspaper. http://www.elobservador.com.uy/noticia/245068/rive ra-busca-potenciarse-con-la-ayuda-de-melancia/ 16
m2 each. It is expected to employ 1,000 workers. This important project, in addition to the shopping center, includes the construction of a 60 room hotel, an open neighborhood, one condominium and a gas station. The construction work plan contemplates four consecutive stages expected to conclude in six years. Upon the authorization of the shopping center, one terminal and one hotel will be built, then the green neighborhood and finally the condominium will be created. Total investment amounts to US$ 120 million and, in addition to Swiss capitals, it is financed by Christophersen group. The construction work will be financed as follows: 70% with its own funds and the remaining 30% with bank credit. Website: www.melanciamall.com Shopping Oh! La Barra The shopping center located in La Barra, seaside resort next to Punta del Este, is expected to open next December 1st, 2014. In a first stage, it will operate on a seasonal basis (until April 30, 2015), even though its developers expect it to open all the year in the future. Investment amounts to US$ 25 million approximately in an area of 12,000 m2. More than thirty firms have already confirmed their presence in the seaside resort shopping center. vehicles. The anchor stores of this shopping center will be three free-shops and the supermarket chain Ta-Ta. The largest freeshop will be Duty Free Américas, which will have 4,000 m2 and will employ 200 people. Totally, the shopping center will employ 700 workers directly. At the time of construction, there will be 1,000 workers working there. Together with the shopping center, a 60 room hotel will be built. Shopping Las Piedras 30 This undertaking, located in Parque Artigas, Las Piedras, will have 40,000 m2 of construction and 100 business premises. To July 2014, over 70% of these premises were sold. The shopping center will include a parking for 600 vehicles, five cinemas and one food court. It is expected to receive 500,000 visitors per month and the supermarket Ta-Ta, with a surface of 2,000 m2, will be the anchor store. The group Garbarino-Lombardo is in charge of developing the shopping center at a premise of over 15,000 m2 available. Together with this project, this group will be responsible for the improvement of the sport facilities, currently used by Club Atlético Juventud, for its 1st division matches. Construction works will begin by the end of 2014 and will be inaugurated in the first four month period of 2017. Once the construction works conclude, the developer is planning to build a hotel in the block neighboring the shopping center 28. Shopping Río Branco 29 The first shopping center of Río Branco will begin its construction works in February 2015 and will entail an investment of US$ 40 million. The shopping center will house 40 business premises and a parking for 700 28 Source: El País newspaper. http://www.elpais.com.uy/economia/noticias/abriranshopping-barra-costo-us.html 29 Source: El País newspaper. http://www.elpais.com.uy/economia/noticias/shoppin g-rio-branco-millones.html Shopping en Paysandú en 2016 31 Recently, a public work concession agreement was entered into between the studio Luis E. Lecueder (through the company Retwir SA) and the City 30 Source: El País newspaper. http://www.elpais.com.uy/informacion/millonariainversion-shopping-piedras.html http://www.elpais.com.uy/economia/gentenegocios/piedras-shopping-localescomercializados.html 31 Source: El País newspaper. http://www.elpais.com.uy/economia/gentenegocios/comenzaran-obras-terminal-omnibusshopping.html Information furnished by Marcelo Lombardi General Manager of Terminal Shopping Tres Cruces. 17
Government of Paysandú (IP) to build a shopping center an a bus station in this department. The project's total investment, to be located in the plot where the former oil factory Cousa was established, is estimated in US$ 24 million with the construction of 16,000 m2. It will comprise 15 platforms for transportation services, one shopping center with 45 stores and 200 parking lots. The company Ta-Ta will be installed with a supermarket of 2,600 m2 (it will be a relocation from its store located in Av. República Argentina). Other companies who already confirmed its installation are: Multiahorro Hogar, Toto, Stadium and Los 4 Ases. The shopping center is expected to be fully operational by the second half of 2016. 6.4. Projects for New Shopping Centers Second shopping center in Rivera by 2016 The project has an associated investment of US$ 40 million for the construction of the shopping center and other US$ 10 million for the construction of a 100 room hotel. It will include 75 stores, one Disco supermarket with a surface of 6,000 m2 and one Duty Free Americas with 3,500 m2. The project to build Rivera Shopping (Garbarino-Lombardo Group) includes, among its distinctive features, a water park which will be another attraction point for a touristic city which captures public from Uruguay and Brazil. The plot of land where the shopping center will be placed will be near the stadium Atilio Paiva Olivera, in the extension of Avenida Sarandí. It will comprise 65 stores and some of the companies which already confirmed their establishment are Motociclo, Lolita, Freddo and Havanna. Another characteristic of the project is that a good part of its structure will be open. In total, an US$ 80 million investment is expected. The term estimated for the construction is 18 months. The beginning of the construction works is delayed since the Departmental Council of Rivera, upon approving the project of the Marchesano group to build a shopping center (Melancia/Rivera Mall & Freeshop) in this city, also established an exclusion area that was granted until the end of the government term in June 2015. New outlet shopping center in 2015 32 Since the end of 2012, an investment project for the construction of an Outlet shopping center in Malvín, in the corner of Avenida Italia and Mariscala, is being assessed. The project, developed by the Studio Luis E. Lecueder, comprises a shopping center with more than 50 stores, which will essentially sell products from previous seasons. The shopping center will have a surface of 9,000 m2, three floors and a big underground parking, entailing and investment of nearly US$ 30 million. In addition to the shopping center, the project includes the construction of three housing towers and one additional building which could be destined to offices or a hotel. Construction works will begin in the second half of 2015. Between 2012 and 2019, Uruguay will have 9 new shopping centers. This reflects the important dynamism of the commercial sector in an economy of only 3.4 million inhabitants. 32 Source: El Observador newspaper. http://www.elobservador.com.uy/noticia/273114/zon as-de-outlet-una-tendencia-que-gana-terreno-enmontevideo/ http://www.elobservador.com.uy/noticia/239601/estu dio-lecueder-construira-el-primer-shopping-deoutlets/ 18
7. Major Investments Although the retail sector in Uruguay has received significant investments in the last years, foreign stores still have a relatively low share in shopping centers (around 15%, including international brands operating under a franchise agreement). Therefore, there is still an interesting space for the arrival of new international players to the sector, which incorporate new practices and business models to the Uruguayan market. The main companies or foreign brands which arrived to Uruguay in the past years are presented below. Falabella opens Sodimac The Chilean company Falabella announced its entry into the Uruguayan market with the opening of two stores of its SODIMAC chain in Montevideo. One of the stores, which construction works already began, will be located in Av. Giannattasio (next to Geant), while the other one whill be located in Sayago (Montevideo). This will involve an initial investment of US$ 40 million. This project is in addition to the abovementioned acquisitions by the Chilean company Linzor Capital Partners and places the Trans- Andean country as an important origin of foreign capital. Also, there are plans to open at least two stores in Punta del Este 33. Zara Home The Spanish multinational company Inditex opened its first Zara Home store in Uruguay in a surface of 400 m2. This way, the Uruguayan market turned into one of the four countries of the region to establish a store of this line of products. The opening of the store at Montevideo Shopping Center took place simultaneously with an important expansion of its store in said shopping center, which turned it into the largest Zara store of Latin America. This Zara store is one of the most important stores in the region as regards invoicing and 33 Source: FDI, AT Kearney and El País newspaper. http://www.elpais.com.uy/economia/gentenegocios/avanzan-obras-gigante-chilenosodimac.html sales and is also the largest store in the country with 1,600 m2 of store and 400 m2 of deposit in the upper floor 34. Furthermore, the chain is planning to expand its store located at the Punta Carretas Shopping Center. New clothing brands In November 2014, the US clothing brand Forever 21 will open its doors in a new floor already being refurbished at Montevideo Shopping Center. The store will have a surface of 1,900 m2 and will be the only one occupying that space at the shopping center. This new space will be part of the expansion plans the brand is expecting to perform in Latin America since last year. Neutral Group opened a new store of the international brand GAP in Montevideo Shopping Center, in addition to the already opened store at the Punta Carretas Shopping Center. The new Gap store has a surface of 725 m2 and offers collections of Gap, GapKids and babygap. The British shoe brand Clarks is present in Uruguay since 2012 and it recently inaugurated its first exclusive store at Montevideo Shopping Center 35. In the beginning of 2014, the famous international brand of luxury accessories Fahoma arrived to Uruguay, opening a store in Punta Carretas Shopping Center. Today, the company has two stores in Madrid and works with exclusive designers and brands such as Anton Heunies (Madrid), Monies (Copenhage), Poggi (Paris) or Leetal Kalmanson (Tel-Aviv). 34 Source: El País newspaper. http://www.elpais.com.uy/el-empresario/zara-homeabrira-uruguay-primera.html 35 Source: El País newspaper. http://www.elpais.com.uy/economia/gentenegocios/clarks-inaugura-primera-tiendaexclusiva.html 19
Calle 20, Punta del Este The famous street Calle 20 of Punta del Este - main seaside resort of Uruguay - has become known as the Fashion Road of Uruguay. More than 40 international brands and highly important stores are located in this seven block street. Celebrities and tourists visiting the stores located in this street have turned it into a real fashion and luxury reference at regional level. International brands such as Valentino, Louis Vuitton, Carolina Herrera, Tommy Hilfiger, Desigual, the department store Fifth Ave. (with Versace, Michael Kors, Cavali and Emporio Armani products), Agua Bendita and Fendi, among others, have established in this open shopping area 36. Website: www.calle20.net/ On the other hand, the Group Disco Uruguay, made up of the supermarkets Disco, Devoto and Geant, acquired in 2013 the chain "La Cabaña", ranked ninth among the supermarket chains of Uruguay. This Group absorbed 40% of the country's supermarkets' turnover, which positions it as the largest group of the segment. Macro Mercado opens its seventh premises in Rivera The wholesale supermarket chain Macro Mercado is planning to open its seventh premises in the department of Rivera. This will be the largest business premises of the chain, totaling over 10,000 m2. Its purpose is to supply the North of the country, as well as the Brazil-Uruguay boundary (Santana- Livramento). Lego Toy Shop The world-famous toy brand Lego opened its first official store in Uruguay last August. The 35 m2 surface store is located in the second floor of Montevideo Shopping Center. Products of this prestigious Danish company are present in 130 countries. The company provides employment to 10,000 people around the globe and in the first six months of 2013, it registered a turnover of US$ 1,800 million 37. New Ownership of Supermarkets One of the most important investments in the sector was led by the supermarket chain Tata, which acquired in 2013 the chain Multi ahorro (including Multi Ahorro Hogar and Multi Ahorro Express). This turns Tata into the second largest supermarket chain of the country and allows it to reach almost 30% of the supermarkets' turnover of the country. The company will include almost 100 stores and 6,000 employees distributed among the 19 departments of the country. 36 Source: El Observador newspaper. http://www.elobservador.com.uy/noticia/269043/ellujo-en-las-siete-cuadras-de-la-calle-20/ 37 Source: El País newspaper. http://www.elpais.com.uy/el-empresario/furor-legogana-metros-cuadrados.html 20
8. Institutional framework The retail industry has been traditionally supported by an institutional framework. Several benchmark institutes have operated as permanent partners at international and domestic level to the government and other relevant stakeholders. 8.1. National Chamber of Commerce and Services (CNCS) 38 Since 1867 the National Chamber of Commerce and Services of Uruguay has been dealing with and spreading what businessmen think, their concerns, needs and standpoints. The Chamber brings businessmen from a wide range of activities together. Currently it is made up of 15,000 member companies, directly and indirectly, and more than 120 Sector- and Regionalbased Unions throughout the country. Due to the diverse nature of its members, the Chamber does not echo the interests of a sector in particular, but the interests of the corporate private sector in general, as stated in its mission: "Ensure the general interest of Trade and Services and of the private sector of the Uruguayan Economy, defending the principles of freedom in the broadest sense within the framework of the Rule of Law." Its activity is governed by 4 main principles: freedom, fair competition, ethics and training. Annex 2 lists the member unions of CNCS. Website: www.cncs.com.uy/ 8.2. CAMBADU The Uruguayan Retailers, Bar, Self-Service Shop and Related Operators Center(CAMBADU) is an trade association founded in 1982 made up of 3,000 members. Its purpose is the representation, defense and promotion of food retailing. Website: www.cambadu.com.uy 38 Source: CNCS. 8.3. FUECYS The Uruguayan Federation of Commerce and Service Employees (FUECYS) brings employees in the retail industry together. The number of the Federation's members has significantly increased over the past years due to the recent inclusion of supermarket employees. While in 2005 it had 5,000 members, this figure has currently increased to more than 30,000. It is worth noting that given the good open dialogue between businessmen and workers, it has been one of the first ones to approve the resolutions of Wage Boards. Website: http://www.fuecys.org/ 8.4. Ministry of Economy and Finances - Consumer Defense Area The Consumer Defense Area was created by Law 17,250. It is the National Authority assigned to monitor compliance with the provisions it issues and reports to the Ministry of Economy and Finances (MEF) General Business Administration. Website: http://www.consumidor.gub.uy/ The Consumer Defense Area has developed the Consumer Price Information System (SIPC), which contains historical daily prices of the main products included in Uruguayan family spending. These prices are taken from more than 350 supermarkets and selfservice shops throughout the country and 11 food neighborhood-based markets in Montevideo, regulated by area and rates. Website: http://www.precios.uy 8.5. Committee for Promotion and Defense of Competition This Committee has operated within the MEF, on a decentralized basis, since 2009. It is made up of three members appointed by resolution of the Council of Ministers of the Executive Branch. It is mainly intended to ensure compliance with the purposes of the Law on Promotion and Defense of Competition. Therefore, it is empowered to 21