MEXICO'S MERCHANTS CHEERED BY ZEDILLO PRESIDENTIAL VICTORY
Byline: Regina Burdett
MEXICO CITY--For Mexican merchants, from designer to mass merchandisers, the election last week of ruling party candidate Ernesto Zedillo Ponce de León as the country's next president bodes well for bumpy business. "When there is calm, things have to get better, and I am certainly more optimistic than if the results had turned out differently," said Malele Reynaud, director of the Hermès store in Mexico City, the company's only boutique in Latin America. The store opened in December and is located along Mexico's most exclusive shopping district, Avenida Presidente Masaryk. Merchants on the Masaryk, as well as department stores and mass merchandisers, have seen sales stymied during the year-long presidential campaign. The campaign set off widespread consumer angst over possible national change, as the ruling PRI party faced its first stiff opposition since it gained power in 1929. To Mexican shoppers, the election added another uncertainty to a six-year inventory of national growing pains that have included joining the GATT, lifting protections for many industries, including textiles and apparel, and becoming a partner in the North American Free Trade Agreement. With the country still feeling a recessionary hangover, the government's latest retail sales index for May was down 2.5 percent against the year before. Although flagging, the month's sales decline was still far less than the 30.3 percent drop in October 1993, the largest drop of last year. For the first half of 1994, sales at Mexico's largest retail chain, Cifra SA de CV, operator of mass merchandise, food and warehouse stores and Wal-Mart Stores' Mexican joint venture partner, saw sales drop 3.7 percent to $2.049 billion against the first half of 1993. Sales at Liverpool department store dipped 4.9 percent in the period to $415.4 million, while Sears de Mexico's sales dropped 6.6 percent to $192.2 million. Sales at Salinas y Rocha, another national department store chain, declined 15.9 percent to $184.7 million. Some leading chains saw sales climb in the first half. Upscale specialty retailer El Palacio de Hierro had receipts rise 10.3 percent to $194.9 million. Grupo Gigante, a mass merchandiser, reported a sales gain of 10 percent to $1.21 billion. However, a new Smith Barney report on the state of Mexican retailing ascribes most of the individual retailer sales gains in the half to discounting and credit extension. With analysts forecasting that Mexico's gross domestic product will rebound this year with 2 to 2.5 percent growth against last year's 0.4 percent increase, which retailing segment will benefit? The Smith Barney report, issued this month, says general merchandisers and supermarkets should "experience larger and more rapid sales growth than retailers in other categories." This is based partly on expansion plans, and the growing popularity of these "low-priced providers," who are pursuing 85 percent of the 87 million low-income people. Department, specialty stores and high-end boutiques who cater to the remaining 15 percent of the population, will continue to be more vulnerable, despite expected post-election sales growth, analysts said. "Expansion and concentration on merchandising have become even more important," the Smith Barney report said of this retailing segment. It sees the entrances of J.C. Penney Co. and Dillard Department Stores into the market next year as a further threat to this group. These guidelines are also the focus of merchants on the Masaryk, who say they aren't just banking on post-election shopping to insure their future. Max Mara has had relatively flat sales at the Masaryk and three other Mexico City sites in the last six months. It will move forward with plans to market its Marella bridge line, priced 20 percent less than its Max Mara label, in department stores, said Marina Guzman, co-owner of the Mexican Max Mara franchise. The line was test-marketed last fall in a handful of High Life specialty stores. The Italian company will also step up the merchandising of its Marina Rinaldi large-size collection, which has already opened its own store on the Masaryk. Two more Max Maras, in León and Monterrey, are scheduled to open in 1995. With the election over, Christian Dior, now offering only men's wear, is weighing whether to remodel its Masaryk store to accommodate the women's ready-to-wear collection, said Liliana Franco, director of the boutique. She has noticed a trend toward more value-consciousness among shoppers. "What they are doing is checking what else is available in the market before they decide what to buy," she said. However, she is forecasting an increase of 20 to 30 percent in Christmas sales this year. "They just want more for their money." Michel Domit, president of Grupo Domit, also on the Masaryk, but with 39 locations around the country, has also noticed shoppers eyeing value. The chain sells men's wear and women's accessories to the mid and high-end market. Domit said that NAFTA is helping to keep his prices attractive with lower tariffs on imports from the U.S. He has also launched a nonclearance, off-price promotion--a concept relatively new to Mexico's better-price stores--in men's suits: If a customer donates an old suit to charity, Domit will deduct about $150 from the purchase of a new one. Suits in the store start at about $300. "I believe we are definitely on the right track, and if we keep going, we should be able to start seeing an improvement later next year," Domit said of the state of retailing and the economy. "However, just because Zedillo has won, doesn't mean that people are going to have more money in their pockets, as if by the wave of a wand."
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