MEXICO CITY — President-elect Donald Trump’s anti-Mexico threats have spooked Mexicans to the point that retailers reported Christmas sales came in well below targets and trade could decline sharply next year.
“People are nervous and traffic has definitely declined,” said a salesperson at luxury department-store chain El Palacio de Hierro’s oldest store in Mexico City’s historic district.
To get people into the Christmas spirit, window displays were redressed to showcase retro-glamour styles evoking the 126-year-old building’s heyday.
That, however, didn’t seem to prop up sales as Mexican consumers fret about a possible recession next year, soaring inflation and the specter of rising unemployment. Wells Fargo said recently Latin America’s once high-flying number two economy could eke a 1.1 percent gain in real terms next year. Its projection followed the government’s own admission that gross domestic product could gain 1.7 percent from a loftier 2.5 percent earlier target, while ratings agencies have downgraded the country’s sovereign debt, sending the peso into a tailspin. All this comes from the “Trump effect” — the idea that the next U.S. president will make good on threats to upend the North American Free Trade Agreement, impose a 35 percent tariff on Mexican goods, expel three million immigrants (wiping out crucial remittance income flows) and ban U.S. companies from outsourcing operations to Mexico.
While some analysts say it’s too soon to tell, retailers are already suffering, at least according to sales staff working in different Mexico City stores.
The El Palacio sales clerk, for example, said holiday sales have fallen 10 to 20 percent below expectations, at least in the capital’s downtown store, one of 13 the luxury networks operated across Mexico.
El Palacio, known for offering “ludicrously generous” store-credit terms with up to 24-month installments, has also been curtailing them, said the salesman, amid reports that nervous banks could start trimming loans next year.
Another sales assistant in the Spanish Cortefiel brand corner agreed, adding that discounts are steeper than last year, as viewed by the ubiquitous 30, 40 and 50-percent sale signs hanging across the store.
Downstairs, in the beauty department, the mood was similarly grim, with one manager reporting sluggish turnover for the Buen Fin [Mexico’s Black Friday] and the run-up to Christmas.
“Usually we have to grow our sales by at least 40 percent over the previous year, but so far, they are only up 10 percent,” she said.
Meanwhile, stores at Mexico City’s new Madero shopping promenade, which has seen dozens of international brands like Zara, Forever 21 and most recently Old Navy open shop, were also offering large discounts with Forever 21 cutting winter coats by 80 percent.
At Old Navy, which in October opened a four-story flagship in the growing strip, one manager insisted trade is going well at the Gap Inc.-owned discounter’s 14th Mexican outlet.
“We met our 6-million peso Buen Fin target and we are 3 million short of our 11-million Christmas target,” she said, as customers scrambled to snap up the latest half-off items.
Analysts were mixed about next year’s outlook, saying things will become clearer when Trump, who has become Mexico’s most hated gringo, sweeps into the White House.
Carlos Hermosillo of securities firm Actinver predicted apparel and footwear sales could gain 6 to 7 percent from 9 percent last year, as Mexicans shun more expensive durable items like appliances and electronics.
“Sales will stay at good rhythm,” he said. “Salaries are up 4.5 percent and some chains, like Sears de Mexico, have remodeled stores that will draw more customers. Six to 7 percent sales growth with 1.5 percent GDP expansion is still feasible,” he said, especially as Mexico’s working and middle-class population continues to grow.
Veronica Uribe of Ve Por Mas brokerage said Hermosillo’s forecasts seemed high, predicting apparel sales could rise 4 to 5 percent or less depending on the severity of Trump’s policies.
One thing is for certain, however. The slumping peso (now worth half its 2013 value) will dent retailer’s bottom line because import costs will rise.
While some analysts hesitate to spell bad omens, retailers seem to already be bracing — and preparing — for a tougher 2017 with Trump in The White House.
And given Bank of Mexico’s outgoing Gov. Agustin Carstens’ latest warning that “Trump could be like a horror movie for Mexico,” it seems they could be right.