MEXICO CITY (FNS) -- Food retailers operating in Mexico are scurrying to rebound from the effects of this nation's peso devaluation last December.
The drop of more than 40% in the currency's value and the fast climb in interest rates have led retailers here and throughout the country to rechart their courses in the middle of a growth binge.
The effects include the following:
Price/Costco opted not to sell off its
stake in Mexican operations and Wal-Mart's 1995 expansion was put on hold.
U.S.-based warehouse clubs operating in Mexico are expected to take hard hits because they emphasize imported items, which are soaring in price.
Bargain-priced mass merchandise-supermarket formats are expected to add market share as consumers abandon higher-priced food stores.
Retailers are having a tough time gauging consumer demand and deciding what level of reorders are needed.
"I think the most difficult job in Mexico now is being a merchant," said Susan Engel, a Latin America retail analyst for Nomura Securities, New York.
The performance gap between mass merchandise-supermarket stores and department stores will be large, according to Nomura Securities. As a group, department stores, such as Sears de Mexico, El Palacio de Hierro and Liverpool, should decline 10% to 20% in volume, Nomura estimated. This figure even takes into account the return of Mexican consumers who are curbing their shopping trips to the United States, which is now more expensive to peso-holding shoppers. Mass merchandisers, like the well-capitalized stable of stores owned by Mexico's retail giant Cifra and its joint-venture partner Wal-Mart Stores, should post volume declines of about 5%.
A large part of this drop can be pinned on an expected slide in warehouse club sales -- principally Wal-Mart's Sam's Club and Price/Costco, whose joint-venture partner is Controladora Comercial Mexicana. About 50% of the clubs' merchandise is imported, which will be more difficult to substitute with domestic-made goods of equal quality. Furthermore, club sales will take a bigger hit since their operating costs are already so low that expenses can't be trimmed, according to Nomura.
In January, Price/Costco dropped plans to sell its 11-store membership warehouse operation to Controladora. The joint venture also will delay store openings set for later in 1995, according to reports.
Expected losses in market share by club operators could be picked up by mass merchandise-supermarket formats. These retailers may be more appealing to bargain-hungry customers.
"When the economy turns sour, consumers become more value-conscious," said Alberto Montagne, a Mexico retail analyst for Lehman Bros., New York. With sales dampening, retailers with little dollar-denominated debt will also be well positioned to weather the crisis, analysts noted, listing national market leader Cifra in this category. Cifra and its partner Wal-Mart have put 1995 expansion plans on hold to open additional Sam's Club and Wal-Mart supercenter units. That means the cost of construction or waiting for new stores to realize their potential won't have a drain on their bottom line.
