Appeared In
Special Issue
WWD Milestones issue 09/30/2013

El Palacio de Hierro’s in-store home goods division is taking some bold steps to maintain solid sales in the face of a downtick in the Mexican economy.

This story first appeared in the September 30, 2013 issue of WWD. Subscribe Today.

“We plan to grow around 12 percent, but we had expected a higher increase this year,” the division’s director, Rodrigo Flores, acknowledged. He said first-half sales fell after a surprise slip in the nation’s economy sapped consumption.

Mexico’s government recently revised forecasts that had called for growth of 3.2 percent in gross domestic product in 2013 to 1.8 percent, following a slower-than-expected second-quarter expansion.

So to battle the falloff, Flores said the retailer is deploying a major and unprecedented marketing and sales campaign. Profit margins, he said, should remain at 3 percent, thanks to operating efficiencies.

The marketing initiative will focus on promoting the key elements of the business — furniture, whites and kitchenware — which make up the bulk of sales.

In a first for the division, Flores’ team will launch a social media publicity effort on Facebook, Twitter and other platforms that will feature videos on how El Palacio’s home products can fit consumers’ lifestyle needs.

As part of the move, top-selling brands such as Vera Wang, Mexican furniture label Boal and British brands Wedgwood and Royal Albert will be promoted, Flores said.

To further boost sales, El Palacio will deploy an aggressive discounting effort with prices slashed as much as 50 percent, compared with around 25 percent in past years, he added. It will also publish a larger sales catalogue and introduce home-decor option packages at reduced prices.

The unit will also have introduced six to seven exclusive brands by the end of this year, matching a similar number in recent years, Flores said. One notable launch will be Finnish home accessories brand Marimekko.

In addition, El Palacio will open two new corners of its top-selling Italian furniture brand Natuzzi, for a total of nine by the end of the year.

According to Flores, the unit’s top-selling labels include Parker House, Spring Air, Natuzzi and Boal, for which it also runs corners.

El Palacio de Hierro sells a wide range of upmarket homeware and decorative items in all 12 of its department stores across Mexico. However, the division’s retailing sections vary from store to store. For example, El Palacio’s downtown Mexico City store is about 13,000 square feet, while the newer Santa Fe outpost boasts about 54,000 square feet for a broader shopping experience.

El Palacio has sold home products since it opened its first department store in the downtown area of the nation’s capital. Since then, the chain has gradually expanded its offer to include Mexico’s most exclusive brands.

Driven by Mexico’s growing middle and upper classes, the retailer has made an effort to stock more lifestyle-inspired products for young consumers.

“People are much more informed [about interior design and products] than ever before, and they are demanding brands that fit their lifestyle,” Flores said, adding that during El Palacio’s earlier days, there was a stronger focus on selling luxury homeware to older, more affluent customers.

“In the past, upscale home decor was mainly reserved for the elite,” Flores said. But with Mexico’s rising numbers of moneyed professionals, that is no longer the case, he said.

To meet these consumers’ demands, El Palacio’s newest store — Interlomas — boasts a more contemporary environment with home goods stocked under three main lifestyle themes: contemporary, classic (à la French Provincial) and classic modern.

Flores expects the Interlomas marketing concept to be replicated in other El Palacio units when they are refurbished in the next five to seven years.

The executive said El Palacio competes mainly with Zara Home and the home division of its larger competitor, Mexican department store chain Liverpool, which targets a more mass-market customer.

Unlike these chains, El Palacio has a “more exclusive” and pricier product mix, Flores noted. However, he said the division has been working to bring more affordable, designer-oriented furniture to better compete with these retailers.

“We are introducing designer [style] at accessible prices,” Flores said, adding that while it intends to remain an upmarket homeware retailer, El Palacio will introduce more midprice aspirational home goods to bolster sales in the next five years.

“We want to attract the professional thirtysomething segment and younger adults that have more decor mobility [meaning they redecorate more often],” he explained. “A 60-year-old customer is less likely to renovate her home often, but the 30- to 45-year-old professionals are in the most productive period of their lives.

“Their numbers are growing, so we are directing our efforts to attract this segment.”

El Palacio’s department store homeware business differentiates itself from the chain’s Casa Palacio freestanding units by selling conceptual and lifestyle furniture for middle-, upper-class and wealthy Mexicans. In turn, the two Casa Palacio stores market haute couture furniture, stocking the country’s priciest brands. They also offer a fully integrated interior-design service.