WASHINGTON — The battle for market share in Mexico among giant merchants is heating up.
U.S. retailers are slugging it out with each other in joint-venture arrangements with Mexican merchants, as well as with entrenched local stores. In the process, they’re lighting up Mexico’s retail scene, once a sleepy market of mom-and-pop stores and street vendors, where price wars and discounters were virtually unknown until just a few years ago.
Here are a few of the battles brewing:
- Comercial Mexicana, a chain of 110 stores, is launching its own version of megastores to combat Wal-Mart’s entry into the marketplace. It has also hooked up with the Price Club, which opened its first store in February 1992.
- Mexico’s largest retailer and discount pioneer, Cifra, and its American partner Wal-Mart, are planning to step up their joint venture expansion plans. The stores they currently run together include seven Club Aurrera/Sam’s Club warehouses; four Bodega Aurrera stores, which are lower-price discounters; two Almacenes Aurrera general merchandise stores; one Superama supermarket, and two new Wal-Mart Supercenters. Cifra has also injected $100 million into a joint venture on updated technology like point-of-sale systems, according to analysts.
- Grupo Gigante, Mexico’s largest operator of hypermarkets — with 150 units — recently took over the Blanco food and general merchandise chain. Gigante also has three supermarkets and 30 smaller discount stores, and according to analysts, is actively pursuing other acquisitions.
With its enviable demographics, Mexico’s opportunities are plentiful. The country’s population of 88 million is expected to rise to 103 million by the end of the decade. More than half the population is younger than 20 years old.
Retailers are also reveling in the fact that the working-age population is expected to climb to 68.3 percent by 2025 from 58.3 percent in 1989.
About 65 percent of Mexico’s retail sales now come from street vendors, but that is expected to diminish. Their contraband has lost appeal with Mexico’s lifting of import restrictions. These vendors also hawk their wares in single units and without warranties.
Mexico is also largely understored, with 550 square feet of retail space per 1,000 people, compared with 19,000 square feet in the U.S., according to Ira Kalish, Price Waterhouse retail consultant. Rod Harada, director of research for ValMex International, noted there is especially strong growth potential in stores aimed at the lower income bracket. He notes that as the Mexican economy develops, income per capita should increase accordingly, which will lead to an increase in spending by lower-income consumers.
“The outlook for chains that target medium and low-income consumers is very positive,” he said.
Analysts noted that the passage of the North American Free Trade Agreement will also be a boon to those who want to enter the market.
Already, companies have reaped success. In Mexico City’s affluent Polanco district, a Sam’s Club, part of Wal-Mart’s joint venture with Cifra, is reportedly generating higher sales per square foot than any other Sam’s Club, including those in the U.S. Sam’s declined to comment for this story.
Wal-Mart’s first supercenter opened in Mexico City on Sept. 28, followed by its second in Monterrey Nov. 30. As reported, the new Wal-Mart Supercenters should generate annual sales in excess of $120 million each.
Sacramento, Calif.-based Tower Records, the record and CD purveyor with 127 stores worldwide, opened its first unit in Mexico two months ago. The two-level, 15,000-square-foot store, which features some apparel and a coffee shop, is in the Zona Rosa district of Mexico City.
“It’s doing gangbusters,” said Tower president Russ Salomon, who plans to open several others in the area. He added that leather jackets, in particular, have been doing well.
Still, with the discount concept relatively new, there are problems.
U.S. retailers lament the lack of marketing information, burdensome permit requirements and pricy real estate, which rivals some New York rents. In Mexico City, for example, real estate leases for $53 per square foot compare with New York’s $40-per-square-foot average in parts of midtown.
“Strategic sites in certain cities are not available,” said Gabrielle Amante of Ernst & Young, New York. “They’ve already been taken up by Mexican retailers.”
Andrew Jassin, a partner in Marketing Management Group, a New York consulting firm, noted that bidding wars for strategic partners are also occurring.
“U.S. companies are realizing that it is impossible to do it alone,” he said.
Such knotty issues have been the main reason why 50-Off Stores, a San Antonio, Tex., chain with 115 stores in 13 states, decided to stall expansion plans south of the border.
“The more questions that get answered, the more questions seem to come up,” bemoaned Charles Siegel, the chain’s president and chief executive officer, who said he is hungry for marketing material.
He added that the only way to penetrate Mexico is though a joint venture, which he is aggressively pursuing. While there are a number of Mexican firms who are interested in potential partnerships, he said the problem is finding the right fit. He also noted that he is looking to expand along the northern border, in towns like Monterrey, close to the stores he currently operates.
“That’s something that I would feel most comfortable with right now,” he said.