Sears Roebuck de México, S.A. de C.V.

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Sears Roebuck de México, S.A. de C.V.

San Luis Potosí 214
06700 Mexico D.F.
Mexico
(525) 227-7500
Fax: (525) 584-9692 or 574-2268

Public Subsidiary of Grupo Carso
Incorporated: 1945
Employees: 50,122
Sales: 2.18 billi6on pesos (US$320.6 million) (1995)
SICs: 5311 Department Stores

Sears Roebuck de México, S.A. de C.V. was, in the mid-1990s, the only national full-line department-store chain in Mexico. A more upscale version than the U.S. Sears, it was long a subsidiary of the parent Chicago-based Sears, Roebuck & Co., which revolutionized merchandising in Latin America. The Mexican conglomerate Grupo Carso bought a majority share of the enterprise in 1997.

A Smash Hit, 1947-59

Sears, Roebuck & Co. was the first U.S. retailer with a presence in Latin America. In 1945 it paid $516,000 for a store in a quiet part of Mexico City on Avenida Insurgentes, close to a fashionable residential area and far from the main shopping district. When this store opened in 1947, the company had to issue passes to hold down the crowds, who on opening day numbered 123,000 and bought $600,000 worth of goods, all paid in cash. Sears Mexico sold practically all its stock within a week, requiring three airplanes to bring in more goods from the parent company’s Texas warehouse.

Although Sears charged more than it did in the United States and so expected its clientele to be an upper-class one, its prices were still lower than that of local merchants, including the department stores that catered essentially to a wealthy, but small, upper class. Customers also liked Sears’s fixed prices and prominently displayed price tags, which eliminated the need for bargaining. A sophisticated formula was used to determine just what Sears would charge. Almost any appliance would have to be bought on credit since few Mexicans could be expected to pay full price.

Sears stimulated consumer interest by introducing window displays to Mexico. A “satisfaction guaranteed or your money back” promise was as popular here as in the United States. Household appliances like refrigerators and stoves were particularly popular, as were men’s shirts and underwear, and cloth for dressmaking, since most Mexicans still wore clothing made by seamstresses or tailors working out of their homes. The Mexico City store did an estimated $16 million in business in its first year, exceeding the parent company’s own expectations by 2 1/2times.

Within months of the store’s opening, however, Mexico barred some nonessential imports and raised tariffs on others as much as threefold in order to prevent a drain on the nation’s foreign-currency reserves. Sears Mexico, which had imported as much as 90 percent of its merchandise, adjusted to the situation by forming alliances with Mexican manufacturers. The company offered financial and technical help to its suppliers, some of whom were recruited from small-scale entrepreneurs, such as a woman with only two machines. Sears Mexico bought a half-interest in a factory making work clothes and another manufacturing sports shirts. It brought into being an enterprise producing radio and television goods. Some of these suppliers became subsidiaries of the company.

Sears also pioneered in and popularized installment buying, the use of cash registers, and large-scale display advertising in the press. By 1949 Sears Mexico had 2,500 Mexican suppliers furnishing some 80 percent of the goods in the Mexico City store. Prices had come down because of the greater use of Mexican suppliers and an increasing orientation toward the middle class. The store’s profits were estimated at $2 million that year. A second Mexican Sears store opened in 1949 in Monterrey and a third the same year in Guadalajara.

By 1953 Sears had seven stores in Mexico and annual sales of more than $15 million. The company was credited with having helped 1,300 Mexican manufacturers get into business, expand, and diversify. It often lent money, making advance payments of up to 50 percent for merchandise. Of its 1,900 employees, all but 19 were Mexicans. They received overtime, merit raises, cost-of-living allowances, paid vacations, profit-sharing contributions to a retirement fund, access to company cafeterias serving lunch at cost, free medical treatment and medicines, and a discount on purchases. Salespeople received a commission on top of base salary.

By 1956 there were 17 Sears stores in Mexico, nine of which had opened the previous year. Their combined sales volume was around $25 million, and only 16 of 3,200 employees were U.S. citizens. About 90 percent of the merchandise sold was made in Mexico. Installment buying now constituted about half of all sales, indicating that Sears Mexico was reaching the emerging middle class. By 1959 it had over 40,000 items in stock. Of its 3,560 workers, only 22 were not Mexican. Of its 20 stores and sales offices, Mexicans were managing 16.

Losing Its Way in the 1980s

In 1969 Sears, in concert with a trust of the Mexican national bank, established Plaza Universidad, a shopping mall with 80 stores and parking for 1,100 vehicles. It was a partner in the creation of Plaza Satélite in 1971, with space for 3,600 cars. In 1980 it took part in the creation of Perisur, with parking for 6,000 automobiles.

Chosen from among 15,000 applicants, Jorge Lemus went to work as a warehouse checker in the first Sears store for 400 pesos ($US46) a month. In five years he worked his way up to become manager of the Puebla store in 1952. In 1973 he became the first Mexican to head the company, which was by then 80 percent owned by U.S. Sears. The rest was owned by a profit-sharing plan. There were now 38 Sears stores in Mexico, with 6,400 employees and some 3,000 suppliers. In that year the government passed a law by which the company was restricted to a minority interest in any new stores.

During the 1970s Sears Mexico’s expansion slowed, but it had 43 stores in 1981 and remained the leading retailer in markets outside the capital, although it faced formidable native competition in Mexico City. The company was now 75 percent-owned by the parent firm and 25 percent by its employees. Sears Mexico responded poorly to the economic crisis of 1982, during which the peso went into free fall. “After the devaluation and the crisis that hit then,” a Sears executive told WWD in 1995, “we basically cut off all investment and all costs. We instituted mandatory cost decreases in terms of operations. What we ended up doing was not operating the store intelligently. We lost market share.”

Resurgence, 1987-94

It was only in 1987 that Sears decided again to adopt an aggressive marketing strategy in Mexico. “By the end of the 1980s Sears just wasn’t living up to our Mexican customers’ expectations,” Thurman Williams, who became president of the chain in 1988, told the Wall Street Journal in 1993. “We had to choose between getting serious about Mexico or getting out of the market.” The company had been in the red, but soon it was making money again.

Sears Mexico aimed for the affluent top tenth of the population in this period by upgrading its stores. A new one in Mexico City’s suburb of Villa Coapa had marble floors, tastefully subdued lighting, and fashions by Nina Ricci, fragrances by Guerlain, and Bally shoes. The Sears private-label credit card gained the highest penetration in its market sector, with some 900,000 holders in 1993. Its average sales per store was still lower than its main competitors, but analysts were impressed by the credit-card operation and the fact that it was the only store chain with automotive centers.

In 1992 Sears Mexico had 37 stores and annual sales of $410 million. That year it went public, selling 25 percent of its stock for $144.7 million, with the money to be used to remodel existing stores and to open new ones. Also in 1992, Sears opened a 55,000-square-foot self-service discount test store in Pachuca. This outlet offered carpeting, furniture (both upholstered and ready-to-assemble), an auto service center and Craftsman tools center, a videocassette rental department, a basic assortment of soft goods, and candy and snack foods.

Sears Mexico opened a furniture store in Gómez Palacio in 1993 to sell primarily imported furniture. This was the first Homelife Sears store outside the United States, and the company followed with several more in 1994. Imports included products from Singer, Bassett, Guildcraft, Klaussner, Action, Pilliod, and Howard Miller Clock. Lower tariffs resulting from the North American Free Trade Agreement (NAFTA) were expected to have a significant impact on the Homelife format.

Sears had 45 stores in early 1994. Metropolitan-area stores ranged in size between 110,000 and 170,000 square feet while smaller communities had stores of 50,000 to 75,000 square feet but the same inventory, although in smaller quantities. The company was considering adding a third tier of stores for rural areas, with Sears’s basic merchandise but a less upscale image, substituting, for example, carpeting for marble floors. New that year was its Santa Fe outlet in Mexico City, located in the largest mall in Latin America. This four-story emporium resembled a specialty store, with the emphasis on apparel and women’s labels like Jones New York and Evan-Picone that were not carried in Sears’ U.S. stores. Apparel was accounting for 40 percent of the chain’s sales, with half of the merchandise being made in Mexico, including licensed designer labels like Oscar de la Renta and Christian Dior.

In 1993 Sears Mexico had net income of 237.4 million pesos ($US75.4 million) on sales of 1.71 billion pesos ($US542.9 million). Warren Rick, who succeeded Williams as chief executive officer of the chain in 1994, estimated that by the early part of the 21st century the company would have more than 100 stores, representing an increase of 20 percent per year in floor space. He told developers that Sears was searching for more space and was “willing to be a tenant, to go into a joint venture, or to do it on our own. We are not going to wait.” The company was planning to open 22 stores in the next three years with a capital investment of $250 million.

Dealing with the Crisis, 1994-97

Following the economic crisis that descended on Mexico after a capital outflow resulted in the peso devaluation of December 1994, such U.S. competitors as J.C. Penney, Dillard Department Stores, and Wal-Mart Stores temporarily put their expansion plans on hold, but Sears intended to fortify its position as Mexico’s only national department-store chain. To help keep costs in line, Hick emphasized a buy-Mexico-first strategy. “The customer is resorting to basics,” he told WWD in 1995. “They still want fashion, they still want a label, but they are buying more moderate labels.” Focus groups had indicated that Mexicans regarded Sears Mexico as generally overpriced for many of the country’s middle class.

During the second half of 1994, before the full effects of devaluation, the company earned 37.7 million pesos (about $10.8 million) on sales of 898.1 million pesos (about $256.6 million), but in the first half of 1995 it lost 47.9 million pesos ($US7.9 million) on sales of 827.5 million pesos ($US 135.7 million). For 1995 as a whole the company lost 647.4 million pesos ($US95.2 million) on sales of 2.18 billion pesos ($US320.6 million).

Under the impact of the economic crisis, Sears Mexico modified its merchandising program. It set aside part of each department for items priced under 200 pesos ($US33), which represented about one-fourth of its women’s apparel. It increased the ratio of its domestic merchandise from 65 percent to 85 percent and the ratio of soft goods to hard goods from 50 percent to 70 percent. Some of the higher-end labels were replaced with lower-priced Mexican-made clothes that were similarly styled. The company also was turning to Mexican manufacturers to produce its private-label apparel.

In April 1997 parent Sears, Roebuck & Co. reduced its stake in Sears Mexico from 75 to 15 percent, selling the remainder to the giant Mexican conglomerate Grupo Carso for $103 million. Grupo Carso also made a tender offer for the remaining shares. Since the devaluation, Sears Mexico stock had been trading at less than half of book value. The company retained the right to use the Sears name in Mexico under an exclusive license with a five-year initial period.

In a conference call addressed to media and securities analysts immediately after the purchase, Fernando Chico Pardo, a managing director of Grupo Carso, declared, “We don’t plan to change the Sears concept, or we wouldn’t have asked to buy the brand.” He endorsed the company’s growing orientation to a lower-middle-class-to-middle-class consumer but went on to add that the chain had “an ambience and merchandise that look 40 years old.” Chico Pardo revealed plans to implement point-of-sale technology similar to systems used in Sears’s U.S. stores so that Grupo Carso could micromerchandise the Mexican units. One analyst told WWD that some Sears stores “need some heavy renovations. They also have a lot of work to do on merchandising.”

In 1997 Sears Roebuck de México had 47 stores (of which 12 were in the Mexico City metropolitan area and 8 were wholly owned), ownership of a shopping mall, and part ownership of two other malls. Some 64 percent of its sales in 1996 were made through its credit card, and it had 1.9 million credit-card accounts.