SAKS PUTS SLIGHT HOLD ON MEXICO DEBUT, REMAINS BULLISH ON MARKET’S PROSPECTS
Byline: Joanna Ramey
WASHINGTON — Faced with Mexico’s continuing economic turmoil and related construction delays, Saks Fifth Avenue has pushed back its debut in Mexico City until spring 1997.
The opening, Saks’ first in Mexico, originally had been planned for late fall 1996.
However, the retailer is still optimistic about the Mexican retail market and hopes eventually to open more stores there, according to Brian Kendrick, vice chairman and chief financial officer.
“We’ve got a lot of confidence in Mexico getting back on track,” said Kendrick in a telephone interview from his New York office. “They obviously have to go through a painful adjustment process.
“Things will settle down. We think the current financial measures being proposed by the Mexican government will bring financial stability,” he said. “Right now we plan to go in with a full-line store, all of Saks’ offerings. We think once we see the success of the Mexico City store, it will lead us into other formats and cities.”
Last October — just two months before a peso devaluation sent Mexico’s economy reeling — Saks confirmed its plans to open in Mexico City’s posh Polanco section, near the fashionable Masaryk shopping district and Pabellon Polanco mall.
The 165,000-square-foot store will have three floors and be part of a complex with a 10-story office building and a mall with 250 specialty stores covering 150,000 square feet.
The store will be leased from the complex’s owner, Angel Losada Gomez, a well-known Mexican business figure and chairman of Grupo Gigante SA de CV, a national supermarket and general merchandise store chain. The project is being designed by a prominent Mexican architect, Javier Sordo Modeleno, who designed Mexico City’s Museum of Contemporary Art.
None of the stores in the Saks complex, which is still in the early stages of construction, has been leased.
Although its store won’t open for two years, Saks is already taking an offensive position in its Mexico dealings. Kendrick has joined other retail executives over the last several months in traveling to Mexico to meet with government officials to seek changes in their demand for original country-of-origin documentation, which has made it difficult for foreign-made goods to cross the U.S. border into Mexico. Kendrick is confident changes will be made in this.
Saks also has assembled a team of Mexican retail employees picked from competitors to lay the groundwork for buying and importing merchandise.
“We want the consumers to be able to go into our store in Mexico City and be able to buy the same merchandise they can in one of our stores in the U.S. Our goal is also to be able to offer product that is not materially different in price,” Kendrick said. “We just have to learn how to do business in Mexico.”
Regarding the Mexican economy, Kendrick said that if Saks were to open this year, the store’s sales projections would have to be adjusted downward, given the fact that the economic crisis has constricted consumer spending, particularly in the realm of imported merchandise whose prices have skyrocketed with the peso’s devaluation.
Kendrick said the Saks store, while stocking some Mexican-made goods, will largely rely upon an array of designer and other high-end foreign-made apparel.
But Kendrick anticipates that in two years the Mexican economy will right itself, providing a much more solid ground for Saks to be launched. He declined to give sales projections, but acknowledged that even if the country’s economy is back on track, its success won’t come overnight. Saks, like other U.S. retailers staking their claim in Mexico, is banking on growth in the country’s middle class, which is now a minority of the country’s 90 million people.
Kendrick said there is a market for Saks in Mexico “over the long haul,” even with the competition from new retail entries and expansion of existing chains in the country.
“A rule of thumb in any foreign country is not to go in and expect a short-term return. We are not,” he said. “We think we can best represent our ilk of product in Mexico better than anyone else. Certainly the happenings the last six months have made retailing there potentially more uncertain, but we aren’t deterred. We plan on going in and in the long term it will be profitable.”