50-OFF PUTS FREEZE ON MEXICO GROWTH
Byline: Joanna Ramey and Joyce Barrett
WASHINGTON — Southwest discount chain 50-Off Inc. is joining Wal-Mart Stores in bowing to Mexico’s economic crisis and calling off plans for Mexican stores this year. However, several key retailers said they are continuing their expansion programs there without change.
The 111-unit 50-Off chain, based in San Antonio, had planned to enter Mexico this year with five stores that would be opened under a franchise deal with a Mexican developer. On Thursday, a spokeswoman for the chain said those plans had been put on hold.
“We’re waiting to see what’s going to happen, at least short term,” she said. Her comment echoed statements from Wal-Mart earlier this week, which, as reported, said it was setting aside its plans to open 25 stores in Mexico this year. Wal-Mart, which has been in Mexico since 1992, currently has 70 locations there in a partnership with Mexican retailer Cifra SA de CV.
In contrast, executives at Dillard de México, the Mexican arm of Dillard Department Stores; Sears de México, majority-owned by Sears, Roebuck, and Kmart Corp. all said they were going ahead with Mexican plans. Earlier this week, J.C. Penney Co. and Saks Fifth Avenue also reported they were sticking with plans to enter Mexico.
William Haviland, president of Dillard de México, whose stores will open in a joint venture with the Wal-Mart/Cifra partnership, said: “We have not changed our perspective on Mexico.” He noted the only variable that might delay the October opening of Dillard’s first Mexican store is how developers and construction companies are affected by the economic crisis. Interest rates have escalated to 60-75 percent from 15-16 percent since December, and with other constrictions on the economy, construction costs have escalated, which could prompt slowdowns on projects.
Sears de México, with 45 stores, is also eyeing the construction situation, but still counting on opening three stores this year. “We plan to open stores as long as the developers build malls,” said Jorge Alanis, financial director.
To its advantage, Kmart already has two of the three stores it plans to open this year almost finished, and they are poised to open in March. Although watching the situation carefully, a Kmart spokeswoman said, the company hasn’t revised plans. Kmart entered the Mexican market last year, opening two stores with its joint-venture partner, Liverpool, a Mexican department store.
The 50-Off spokeswoman noted its Mexico freeze was based largely on a substantial drop in sales at its 10 border stores since Dec. 20, when the Mexican economy started to unravel peso devaluation.
Meanwhile, on Capitol Hill here, House Democrats were negotiating conditions Thursday on the bill to give Mexico a $40 billion loan guarantee. The Republican draft of the bill currently includes a provision sought by retailers that would ease the flow of merchandise from their warehouses to their stores in Mexico. Whether the provision will be in the final bill, however, is as uncertain as the chances for the bill itself.
Rep. Jim Leach (R., Iowa), chairman of the House Banking Committee and chief GOP architect of the draft, confirmed it included the language advocated by the National Retail Federation, but could not say whether it would remain in the final package.
The provision would change Mexico’s certificate of origin rule, which demands original documents on goods shipped into Mexico. This has been a major headache for U.S. retailers attempting to ship foreign-made merchandise from U.S. warehouses to their Mexican stores, since the original paperwork is taken by U.S. Customs.