Int'l expansion: Mexico is ripe, ready - Editorial

Discount Store News, Nov 4, 1991 by Tony Lisanti

Int'l Expansion: Mexico is Ripe, Ready

As a result of the collapse of Communism in Russia, the relaxation of the bureaucracy in Japan, a reunified Germany, the European Common Market, the Free Trade Agreement with Mexico and Canada, and other international developments, U.S. retailers and manufacturers are exploring new opportunities in countries where they never even imagined doing business before.

However, the reality of expanding to many Eastern European and Pacific Rim countries is still years away. Consider that: * Russia is too risky. Many U.S. firms, lured by vast growth potential, are still wary of the political and economic climate. While it would be great public relations to be the first retailer to enter Moscow as McDonald's proved, few U.S. chains can afford the risk; * Japan is too slow to change. Kudos to Toys "R" Us for its persistence in trying to enter Japan. (TRU's first unit will open Dec. 20). But in reality it's too difficult a process for most U.S. companies. The U.S. Trade Representative lobbied hard for change in Japan to let U.S. companies enter the country, but to little avail, and the focus has since shifted; * Canada is too expensive. With lingering recession and the high cost of doing business, many U.S. firms are not interested in Canadian expansion. Why bother? It's easier and less costly for a U.S. retailer to open stores along the U.S. border and attract Canadian shoppers than to open in Canada, as Target has proven. But expansion may pick up as the economy gets better. In fact, Sears and Price Club recently opened several units in Canada, and Kmart, with a longtime presence, is remodeling its stores. Can Wal-Mart be far behind?

There are several other countries, including East Germany and Poland, where the concept of discounting would be viable. But expansion remains risky and therefore several years away.

Perhaps the best opportunity for U.S. companies is Mexico. Few countries are as eager and as willing to do business as our neighbor south of the border.

In fact, two major U.S. retailers - Wal-Mart and Price Club - have already announced plans to enter the country. Woolworth repurchased its stake in its Mexican subsidiary and Oshman's opened the first of several stores. And Mexico's largest retailers are getting their act together, realizing the growth opportunity. Cifra, Mexico's largest retailer with more than $2 billion in sales, has joined forces with Wal-Mart. Comercial Mexicana and Grupo Gigante recently made initial public stock offers. And Comercial Mexicana has teamed up with Price Club. There's little doubt that the concept of discount retailing will proliferate in Mexico.

According to an interview in Business Week, Mexico's president Carlos Salinas de Gortari has "put the country on a fast track for a Free Trade Agreement with the U.S. and Canada."

Recognizing this opportunity, DSN and Deloitte & Touche are co-sponsoring a Mexican study tour Feb. 20 and 21, 1992.

"Retailers should not view a free trade agreement as a threat," said E. Dean Liles, a Dallas-based regional director of TRADE Retail and Distribution Services Group of Deloitte & Touche. "We are seeing a great deal of interest among our retail clients due to the many business opportunities that exist in the Mexican market. The timetable for action is now."

According to Lilian Corvington, a senior retail specialist from Deloitte & Touche's Mexico City office, "There are few shopping centers in Mexico, slow development of national specialty chains and very few category killers." She pointed out that the major retail activity is in Mexico City, and that the country has only 43 cities with more than five supermarkets, 48 cities with more than three department stores and 61 cities with more than three chains.

The two-day study tour will be held at the Westin Camino Real in Mexico City. The program will include store and factory tours as well as an overview of Mexican retailing, an economic outlook, a political overview, and an update on the Free Trade Agreement. For more details, complete the reservation form on page 27 and fax it to Tony Lisanti, (212) 756-5125.