Byline: Joanna Ramey

WASHINGTON — It’s been a year since the Mexican peso plummeted and the country’s economy went into the tank. And the outlook for retailing shows no signs of improvement. Next year looks bleak, and industry observers are already prepared to write off most of 1997 as well.
The mood, if anything, is even more dismal than a year ago, right after the peso took its fall on Dec. 20. Then, analysts saw Mexico slogging through only one difficult year before righting itself by early 1996. The U.S. retailers, who had been moving into Mexico in ever-growing numbers, would then resume their march into the market to greet an expected boom in the Mexican middle class, it was thought.
That boom, though, is still off in the future, and when it comes, it will be a great deal more gradual than many optimists originally thought.
“Sales have hit bottom. The problem is, they’re not going to crawl out of this bottom very quickly,” said Susan Engel, Latin American retail analyst, Normura Securities.
Economists say consumer spending will be the last factor to respond to tough reforms that have created widespread unemployment and forced real wages to drastically decline in the face of rising inflation. As a result, retail sales among department stores and mass merchandisers as a group are expected to end 1995 down 15-35 percent against 1994.
To cope, stores have trimmed their inventories and payrolls to the bone and are braced for the long haul.
“Particularly in the apparel and general merchandise areas of the big supermarket chains,” observes Engel, “there is now a preponderance of empty shelves as well as apparel racks that seem to have miles between them.”
In many cases, expansion of existing retailers in Mexico and plans for new entries have come to a halt for 1996. While retailers remain eager to stake out new territory, they are waiting for clear changes in the economy’s vital signs.
“The economy will start stabilizing next year and there will be increases in consumer spending in 1997. A lot of people are saying that in 1998, sales will equal 1994, which means we will have lost four years,” said William Haviland, vice president of store planning and construction, Dillard Department Stores, who oversaw Mexican planning.
Dillard had planned to have six stores in Mexico by 1996.
“Three of the stores were started and they are now just sitting there. The developers are talking to us, but I doubt anything will get restarted in 1996,” Haviland said, forecasting that, under an optimistic scenario, construction could resume in 1997 with stores opening the next year.
Likewise for J.C. Penney. The chain managed to open two stores in Mexico in the spring; they were nearing completion when the economic crisis hit. When the North American Free Trade Agreement was launched Jan. 1, 1994, the chain had envisioned up to 12 stores opening in the near term. Now, their long-term plans call for adding four to the existing two.
“The actual development of those stores is contingent upon the resurgence of the economy there and the development of the retail shopping centers they are planned for,” a Penney’s spokesman said. “At this point, while we don’t have a fixed target for openings, it’s our expectation that nothing will happen that will enable those stores to open before 1998.”
As for the sales at the two stores already open, the spokesman said they had fallen short of store officials’ original expectations. As other stores in Mexico have done, Penney’s inventory strategy now emphasizes more Mexican-made merchandise or goods that qualify for trade benefits under the North American Free Trade Agreement, instead of a mix weighted heavily on imports whose prices are out of reach for most Mexicans.
A spokeswoman for Kmart Corp., which has four supercenters in Mexico City and had planned to roll out 35 to 40 additional stores in coming years, also has no plans for new construction in the coming year.
Saks Fifth Avenue, which this fall dropped plans for a posh store in Mexico City’s Polanco neighborhood, has no immediate intention to return.
“We really don’t have any new information,” a spokeswoman said.
“Zero” is how one executive close to the retail scene described the climate for retailing in Mexico.
“I think 1998 is the soonest there will be new stores opening,” said the executive, who wanted to remain anonymous. “But it all depends on what happens. Who knows, really? There are still a lot of uncertainties out there. There’s just not enough indicators yet to make a sound prediction.”
Wal-Mart Stores — which soon after the peso devaluation put on hold plans to open 25 stores over the next several years except for those under construction — did open two units in June, in the northern part of the country. The chain now has some 98 units in Mexico with its joint venture partner Cifra SA. They include Wal-Mart supercenters, Sam’s Clubs and various Cifra formats. An official noted in June that the chain was following a “prudent course” in its Mexican expansion. Company executives did not return phone calls seeking an update on plans.
Officials at Sears de MAxico, the largest department store chain in the country, could not be reached for comment either. Sears opened three stores in Mexico in the first half of 1995, all of them under construction before the economy’s collapse. As late as August, Sears officials said they expected to add five or six stores each year over four years. However, sources in the mall construction industry said the chain would be hard pressed to open any stores in 1996 given that no mall construction is under way. Sears now has 47 stores in Mexico.
As for other economic factors, Gary Hufbauer, senior fellow at the Institute for International Economics, expects inflation in Mexico next year will ebb to 20 percent on an annual basis, down from a peak of 50 percent in 1995. Gross Domestic Product, which should end 1995 about 7 percent below 1994, should see growth in 1996 of 3 or 4 percent..

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