SEARS: YOUNGER IMAGE IN MEXICO
Byline: Joanna Ramey
MEXICO CITY — Young and trendy aren’t words usually associated with Sears, Roebuck, but that’s exactly the image Sears de Mexico has been trying to cultivate for more than a year.
The transformation began when Sears sold its Mexican division to Grupo Carso, a mega-conglomerate known for turning around underperforming companies.
Like its U.S. counterpart, Sears de Mexico has been a fixture since its inception here in 1946, becoming known as a store where one can buy an affordable new dress or a washing machine, or get a car fixed.
But with Mexican nationals at the helm for the first time, the 46-unit Sears de Mexico has been under a fiscal and fashion microscope. The company decided that a youthful attitude was missing from the Mexican department store scene and set out to fill the void. The changes are just now becoming evident.
A renovated Sears in Plaza Satelite, located in a middle-class neighborhood off Mexico City’s traffic-clogged beltway, the Periferico, is one of the first stores with Grupo Carso-inspired merchandising concepts.
The store consists of different shop-in-shops where garments are displayed on blonde wood tables and shelves.
Junior apparel is a highlight, flanking one side of the main entrance next to the cosmetics department. Misses’ is on the other side of the beauty bar and across the aisle is a well-stocked designer women’s department.
There is an emphasis on CK Calvin Klein and other denim resources, including Sears’ own Canyon River Blues and Furor, a concept shop for jeans and related apparel for women and men with a high-tech ambience.
Other youth-oriented resources include Emanuelle, a Mexican brand featuring bell-bottoms and miniskirts. Key looks include athletic stripes on pants and shortalls, tight synthetic tops, halter dresses, Hush Puppies and platform shoes.
Sears hopes soon to carry Nautica, company officials said.
The idea is to differentiate Sears from Palacio de Hierro and Liverpool, Mexico’s two other major department stores. Palacio has traditionally gone after the upper end of the market, although it has boosted its moderately priced private label business since the devaluation of the peso in December 1994. Liverpool caters to the better-to-bridge customer.
Sears, which in the past has gone head-to-head with Liverpool, is betting on the middle-market shopper. It is also focusing on shoppers 15 to 30 years old, instead of the 25-to-50-year-old group, as in the past. Recent market studies have shown that younger Mexicans are more in tune with global fashion trends and have more disposable income.
“Taking things younger and less affluent is a smart move,” said Randy Harris, partner in Kormos, Harris & Associates of Toledo, Ohio, which follows Mexico’s retail trends. “Let Liverpool and Palacio slug it out for the small, upper market niche. Sears is onto something. They are well focused.”
“We’re giving a lot of importance to the use of color,” says Monica Aboumrad, manager of private label sales, who is overseeing production of a line of mix-and-match women’s sportswear in warm tones of blue, red, yellow and green. The line is being produced in Mexico and will be introduced this fall.
The idea is for shoppers to focus on colors they look best in, which should help sales, Aboumrad says. The new palette also gives the national chain a broader appeal, given the ethnic diversity of Mexico’s 92 million people.
But Aboumrad wants to avoid brown, which was last year’s color catastrophe.
“Brown was very hot internationally, but a lot of Mexicans just can’t wear it because their skin is dark,” she said. “We were stuck with a lot of brown because it wasn’t the right shade.”
When Grupo Carso bought Sears de Mexico last year for $115 million from Sears, Roebuck, which retains a 15 percent share, the chain was struggling in the wake of one of Mexico’s worst economic downturns.
For decades, Sears de Mexico had operated as a self-sustaining enterprise that managed to survive many economic ill winds. But the 1994 peso devaluation hit Sears particularly hard, coming during the chain’s multimillion-dollar capital improvement and remerchandising program aimed at enhancing its image with higher-priced imported apparel targeted to Mexico’s then-emerging middle class.
The Mexican business would have required an infusion of cash to reestablish itself, a move Arthur Martinez, chief executive officer of Sears U.S., said he couldn’t justify, given how little Mexican sales contributed to the corporate bottom line.
Martinez said he was ready to relinquish control of the Mexican business as soon as Grupo Carso executives made a bid. Wall Street analysts said Grupo Carso got a great deal for Sears de Mexico.
“While on a piece of paper it might have looked good, the complexities were there,” Martinez said. “We weren’t willing to support the business. It had always been autonomous.” Martinez said Sears de Mexico faced the difficulty of building and maintaining the mid-market customer base that Sears generally attracts in a “bipolar society that’s either discount or high-end.”
When Grupo Carso took over, the company slashed Sears’ staff by about one-third, reduced costs and began to rethink the merchandising strategy. Analysts said the changes, as well as an improving economy, have helped stem the company’s losses.
“We’re in very good shape,” said Eduardo Garcia, executive vice president of merchandising for Sears de Mexico.
Last year, the chain posted a slight operating profit of $1 million on $413 million in sales, compared to a $64 million operating loss in 1996 on $377 million in sales. In the first quarter of this year, the operating profit was $3 million on $95 million in sales, according to Mexican stock market figures.
By now, Grupo Carso had hoped to reissue Sears’ stock on the Mexican exchange. The plan was to bundle it with another Carso retail entity, the 150-unit Sanborns, a luxury goods and book chain, along with some valuable Sears de Mexico real estate and two music chains, Mix-Up and Disco Landia.
The company delayed the offering after the Asian economic crisis hit and has made no announcement as to when the initial public offering might be scheduled. Nor has Grupo Carso — whose chief, Carlos Domit, is one of Mexico’s top industrialists — said whether any of the IPO’s expected proceeds of $500 million might be reinvested in the Sears retail operation.
Sears plans to open two stores in Puebla, southeast of Mexico City, and a new unit in Cancun in 1999. The company is also considering other resort areas. Beyond that, officials are reluctant to discuss plans for the chain.
But retail analysts believe it could have a bright future.
“Sears is recovering and has better margins,” said John Chan, a Latin America retail analyst for Goldman Sachs. “The chain’s merchandising has been improving, the prices are better, the stores look better and operating expenses are lower.”