SEARS SAYS IT'LL STICK WITH MEXICO AGENDA

Byline: Joanna Ramey

WASHINGTON--Sears, Roebuck is keeping the faith--and market share--in Mexico.
Despite the country's economic crisis, Sears de Mexico will proceed with its expansion plans, as officials vow not to repeat mistakes made during the country's last two financial downturns in the Eighties. In those previous periods, the chain hunkered down and wound up losing market share.
"In this economic situation, there are certain things you do, but you don't cut costs that will risk being well positioned when things are better," said Bob Moran, chief financial officer of the 47-store chain, which is slated to open four more stores by the end of the year. The chain's expansion blueprint calls for opening five or six stores each year over the next four years.
Mexico's newspapers have kept close watch on the chain, one of the country's largest employers with about 12,000 workers. An article in the April 4 Mexico City daily La Reforma indicated that Sears might delay expansion to cut costs, a report Moran said was incorrect.
"What was printed the other day was a misquote," he said in a telephone interview from his offices in Mexico City. "We believe in Mexico not only for today but also for the medium and long term, and our expansion program is on target."
The issue of market share is even more acute than it was during the crises of 1982 and 1987 since Sears de Mexico--now the only national full-line department store--is staring at a field of new competition from the U.S., starting with the opening on May 3 of two J.C. Penney units, one in Monterrey and the other in nearby Leun.
Dillard Department Stores plans a fall opening in Monterrey, in the same mall as Penney's and a Sears store that opened earlier this year. Saks Fifth Avenue, although occupying a high-end niche, is viewed as a rival in certain areas since Sears Mexico, unlike its U.S. parent, is up-market. Saks will move into Mexico with a store in Mexico City in spring 1997.
"We have a case study," Moran said, pointing to Sears' track record in the other crises, particularly in 1982. "After the devaluation and the crisis that hit then...we basically cut off all investment and all costs. We instituted mandatory cost decreases in terms of operations. What we ended up doing was not operating the store intelligently. We lost market share."
Sears' decision to move ahead with its expansion plans comes at a time when most of Mexico's mass merchandise chains have put the brakes on.
For example, Wal-Mart Stores and its partner Cifra SA de CV, the Mexican king of mass merchandising, have not opened store planned this year. there are about 22 Sam's Clubs and 11 Wal-Mart Supercenters in Mexico.
In periods like this, analysts say, retailers will make more money on interest by banking capital intended for new store construction, inventory and operation.
Laura Forte, a Latin American retail analyst for Smith Barney, questioned whether it would be better for Sears to delay its openings.
"Given everything that is happening and the expected further deterioration of consumer purchasing power, now isn't the time to go ahead with an aggressive expansion policy," she said.
However, Susan Engel, who follows Latin America retail for Nomura Securities, said Sears should continue expanding, given the length of time needed to develop a store, to be poised for the expected turnaround in the Mexican economy.
"They are looking at this as risking short-term gain in cash versus the long-term gain of building market share," she said,
"It's a sort of keep-up-with-the-Joneses or get-ahead-of-the-Joneses strategy that Sears is pursuing," Engel said. "Commitments have been made and to the extent that developments are going in, if you don't go in now, you may not be able to get in."
Since the early Eighties, Sears de Mexico has almost doubled its fleet of stores. In the last year it has completely remerchandised and restructured under the direction of its new chief executive officer, Warren Flick, a key figure in the renaissance of the chain's U.S. parent.
Mexico's Dec. 20 devaluation of the peso and subsequent crash of its economy came as the new Sears de Mexico was being relaunched.
Like other retailers in Mexico, Sears is fine-tuning its cost-cutting strategy to weather the crisis; Moran would not speculate about it duration. He said Sears wants to maintain a high profile with customers by offering value-priced goods, which means cutting back on imports to 20-25 percent of the inventory mix, down from the precrisis level of 42 percent.
"The perception we want to give is quality to the customer, based on their dwindling income," he said. "We still want to maintain the image that we are a store to shop at. But at this time of crisis, you will see a switch to basics."
Moran declined to forecast Sears' sales for 1995, but said they would not be "out of line" with Nomura Securities' projection: Mexican department store sales, as a group, would decline 25 percent for the year against 1994. Sears de Mexico's 1994 sales were $353.7 million, down from 1993's sales of $411.3 million.
Now just more than three months into the crisis, Moran said the full impact of a more than 60 percent loss in the peso's value, an increase of five percentage points to 15 percent in the value-added tax, a surge in inflation and a government-permitted wage increase of only 12 percent is beginning to be felt.
"A lot of things are coming into play right now," he said, noting how store officials forecast the gap between disposable income and inflation to be even greater than the government anticipates. "We don't buy into the government's estimate of 42 percent [inflation this year]. We think it will be more like 60 percent."--Fairchild News Service

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