Price / Costco’s Bullish Run Heads for Tijuana
When U.S. retailers took the discount membership warehouse concept to Mexico, few envisioned that the giant stores would be so successful in such a relatively short time.
San Diego-based Price/Costco, which opened its first Price Club in Mexico City in 1992 and now has six outlets, says business has been so good that it plans to build six more in Mexico by the end of the year in partnership with Mexican retailer Comercial Mexicana.
The company confirmed Friday that it closed a land deal this week for its first location in Tijuana. Price/Costco officials said the company expects to open the store by December under the Price Club de Mexico banner. Other stores are planned for Acapulco and Hermosillo, as well as a second store in Mexico City.
Wal-Mart’s Sam’s Club unit is also expanding rapidly in Mexico via joint ventures with Mexican partners. Sam’s Club has opened 13 outlets called Club Aurrera in partnership with the Grupo Cifra retailing giant. More are on the way, including at least one in Tijuana, but Wal-Mart won’t say how many or how soon.
Price/Costco co-Chairman Robert Price said the clubs are succeeding because they offer dramatically lower prices--the same reason the membership warehouse concept swept the U.S. retail market in the early 1980s. Price Co., the pioneering company founded by Sol Price in 1976, merged with Costco Wholesale of Seattle last year.
The warehouses have become a principal outlet for Mexican consumers hungry for U.S.-made goods, demand for which is expected to keep growing now that the North American Free Trade Agreement is in effect.
The chains have been pleasantly surprised at the large average purchases made by consumers, many of whom make the shopping trips a kind of extended family outing. In fact, the average total purchases made by Mexican customers per visit exceeds that of U.S. members, said John Skousen, president of Price Club de Mexico.
Average per-store sales volume at Mexican sites is “at the upper end” of the chain’s overall average of between $80 million and $100 million per location per year, he said.
The warehouse clubs also serve a wholesale distribution function for Mexican businesses in that they are channels for U.S. products that are either unavailable or priced much higher elsewhere in Mexico, said Laura Forte, a Smith Barney retail analyst.
Mexican businesses send trucks from hundreds of miles away to fetch goods for resale in Mexico’s interior, said Sean Doyle, a Cushman Realty agent in San Diego who brokered the Tijuana land deal for Price/Costco.
Although analysts say the Mexican market is too small to significantly affect the overall sales of Price/Costco or Wal-Mart, the success of both chains has proven the appeal of U.S. exports and NAFTA’s stimulative effect.
“This is exactly what we said the free-trade agreement would do for U.S. retailers, that they could go set up in Mexico and sell products because now they have lower costs,” said Rudy Fernandez, director of Mexico Affairs in California’s Trade and Commerce Agency.
The expansion of the warehouse clubs in Mexico also shows how U.S. merchandisers are turning away from the “over-retailed” U.S. market for greener international pastures, analysts said.
Price insisted that the new Tijuana store will not “cannibalize” sales from Price/Costco’s nearby Chula Vista store, which counts on Mexican shoppers for much of its business. Mexican shoppers who now cross the border to shop will continue to do so, he said, while the new site will serve Tijuanans who don’t have crossing privileges.
In general, analysts say, Mexico has been a boon for a range of U.S. retailers and service firms and many are looking to expand their presence. Doyle cited recent leases and land sales with Kmart, paint supplier Sherwin-Williams and theater chains Cinemark and AMC.
