Music merchandisers mull record club issue at NARM - compact disc pricing; 1996 National Association of Record Merchandisers convention - includes related article

Discount Store News, April 15, 1996

MEXICO CITY - "Visit Us and See the Future Today" read the banner over the main entrance of a Price Club warehouse store in Mexico City. The invitation marked the March 1 opening of the first Centro de Tecnologia, or Technology Center, an in-store offering of leading computers, software and peripherals.

Price Club de Mexico representatives are optimistic that the pilot project will be successful in spite of Mexico's continuing economic crisis, which has left millions out of work and driven thousands of companies to ruin.

Not only do they expect the economy to turn around, but they believe that they are getting a head start over the competition by giving consumers products that are in high demand but are hard to find in Mexico.

"It is very difficult to find cutting-edge items at the moment. They are difficult to find or difficult to find at a good price," said Jeff Zook, international purchaser for PriceCostco. "You'll pay two to three times more than you ought to."

He explained that when Mexican consumers want to buy the newest in computers and technology, many order the merchandise and have it sent to friends or relatives at the border, or make a special trip to the United States themselves. Zook wants to do the job for them, bringing the merchandise to Mexican customers at a good price.

And if all goes well, the test Technology Center concept should be up and running in 11 of the 13 Price Clubs in Mexico within six months, he said.

In the first days of operation, Zook was still waiting for the last few products to arrive from the warehouse to store shelves. And he expected the in-store Internet demo to be operating in about another week.

"This is completely different from what you will find from any Price Club location anywhere in the world," Zook explained. The Technology Center will offer technical support, and the sales staff will have technology training to better assist customers.

Software is displayed to attract both the wholesale and retail client, featuring titles that are currently popular in the United States. Hits like LucasArts' The Dig or Rebel Assault Il are offered in Spanish. Microsoft Golf and Music Central are offered in English only.

Customers can now access product and promotional information in Spanish by way of PriceCostco's Web site (http://www.pricecostco.com.).

What remains to be seen is whether or not cash-strapped Mexicans will be able to afford the new merchandise. In Mexico's second year of economic crisis since the peso devalued to less than half of its former value, consumers have watched their buying power evaporate in the face of soaring inflation.

The sticker price for a Compaq Presario 7152 is just under 20,000 pesos, about $2,600 (U.S.), an amount roughly equal to 10 months of secretarial wages. Before the 15% sales tax is added, Price Club de Mexico also tacks on a 2.5% surcharge to purchases made with a credit card.

Price Club de Mexico sales have shifted from large-ticket durable goods to foods in the last year, but Zook remains confident that his timing is right. "There is a need and a want for cutting-edge technology," he said.

Zook believes that the Mexican market for computers and technology is not so different from the United States, even though it is smaller. He points to the popularity of the Internet here, growing at about 30% per month.

The Technology Center caters to the young but sophisticated market with products, price, support and promotions. "We are very confident it will work, but we have to prove the concept," Zook said. Also in the works is to incorporate high-end audio/video merchandise and to offer product shopping on the Web site.

Price Club de Mexico buys locally from suppliers Apple, Hewlett Packard, IBM and Compaq, as well as distributors Merisel and Ingram Micro. What cannot be sourced here is imported directly, about 10% to 15% in products like software and CD-ROM bundle packages.

Under the rules of the North American Free Trade Agreement (NAFTA), Zook explained, software, internal memory and peripherals are now exempt from import duties. Computers are still subject to an 8% to 12% import tax, eventually expected to disappear as trade tariffs are gradually eliminated under the treaty.