By  on April 11, 1994

MEXICO CITY -- When Jim Ostrowski, president and chief executive officer of Sara Lee Knit Products' Latin American Group, is asked how his company is faring in Mexico, he talks about patience.

Sara Lee's brands have successfully invaded other foreign markets and Ostrowski has no doubt his group of products will do the same in Mexico. The U.S. brands that Ostrowski is responsible for include Hanes men's and boys' underwear, activewear and socks; Hanes Her Way women's and girls' underwear, activewear and socks, and Champion activewear.

But Mexico, which is drawing a lot of investment attention since the North American Free Trade Agreement went into effect Jan. 1, is a market that isn't understood overnight, Ostrowski warns.

"I think everyone is finding out very, very quickly the cost of business here is much higher than people imagine it to be. It's equal to or greater than any large city in the U.S," said Ostrowski, ticking off a list of hidden costs.

For example, Mexico's notoriously poor telecommunications system and dearth of trained technical workers to service high tech machines have prevented Ostrowski's office on the outskirts of Mexico City from hooking up by computer to its Hanes de Mexico headquarters downtown.

The unreliable postal service, another Mexican business headache, necessitates that all bill payments be hand-delivered. And if the peso should be devalued -- which still happens, although not as much as in the past -- then companies can take a hit, as Sara Lee did this year when overnight the peso dropped 10 percent in value against the dollar.

"You have to have patience in developing this market. The way they do business is different," he said. "It's an evolving country, which isn't a derogatory statement."

Ostrowski said one retail headache is that, in general, chains don't have central warehouses for bulk deliveries. In addition, individual stores in a company are allowed to negotiate shelf space for products independently. Likewise, a merchandise manager may place an order one month, then cancel the next and start up again at a later date.

"Stores can say, 'I have too much underwear inventory,' and cancel an order, even though they may be sold out of Hanes," Ostrowski said. Sara Lee's products are sold in about 1,000 stores that are part of chains and 1,000 outlets representing a range of businesses.Ostrowski's perch is above a Rinbros factory. Rinbros is Mexico's leading manufacturer of men's and boys' underwear and socks, which Sara Lee bought last year along with the country's number two pantyhose maker, Mallorca. Rinbros also falls under Ostrowski's domain.

The acquisitions were quintessential Sara Lee: Get a foothold in a foreign country through local brands, then use the established distribution channel to introduce your own labels.

With the leverage provided by Rinbros, Ostrowski said he's confident he'll be able to develop the Hanes underwear brand in Mexico faster than it took in the U.S.

Sara Lee has been selling its Hanes and Hanes Her Way underwear and activewear for two years in Mexico, competing against a multitude of brands, a position that Ostrowski said is similar to what was going on in the U.S. 15 years ago. Then, Hanes's men's and boys' underwear and its leading competitor, Fruit of the Loom, had a combined U.S. men's and boys' underwear market share of 45 to 50 percent, which competed against an array of other brands.

Now, the two knitwear powers have 70 percent of the market. Likewise, Hanes Her Way panty business in the U.S. now claims a 24 percent market share, where 10 years ago no one brand had more than from 2 to 3 percent.

As Sara Lee has done in the U.S. and other countries, Hanes has been bombarding the Mexican TV airwaves with its all-in-one "mega-brand" advertising featuring all Hanes lines. Its products have 50 percent brand recognition, according to company studies, and sales doubled during Hanes's second year on the market.

Whenever possible, Hanes men's and boys' underwear are positioned to adjoin the Rinbros lines. Rinbros is viewed as the premium brand priced from 5 to 10 percent above Hanes at wholesale.

Meanwhile, the company counts on Hanes Her Way receiving a "halo" effect of recognition by women already familiar with Hanes pantyhose, which has sold in Mexico for several years, Ostrowski noted.

While he won't reveal figures, Ostrowski forecasts steady growth in Mexico for Hanes knit products. More demand will be generated as U.S. retailers and strong Hanes customers, like Wal-Mart and Kmart, open more stores, and as Mexico's mass market retailers open more stores.

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