Mexico’s Hot Market

Ask Scott Beck, CEO and chairman of Waldo’s Holdings, why he relocated his small-format, value-priced retail company from Chicago to Mexico City and he’ll say it was because of a mistake, albeit a mistake that has proved to be extremely smart and timely.

In 1998, Waldo’s operated a number of stores in the Chicago market. The company also owned a San Diego-based wholesale distributor that found itself with considerable excess inventory—hence the mistake that Beck credited with motivating the move to Mexico. Waldo’s opened a store in Tijuana to sell the excess inventory.

The success of the Tijuana store inspired Beck to relocate to Mexico City, where Waldo’s has grown into the largest operator of single-price stores in the country. The company has 275 stores operating under two brands, Waldo’s and Solo Un Precio, which are the equivalent of dollar-stores in the United States.

“There is a big opportunity in Mexico for our small-format, value retail stores,” said Beck. “The retail landscape in Mexico is largely made up of super-stores, dominated by several companies, the largest being Wal-Mart, and convenience stores, dominated by Oxxo.”

The market for single-price, value retailing is also strengthened by the country’s economic stability, positive demographics and willing investors.

Describing the business climate in Mexico, Beck noted that in recent years it has become considerably less risky to open businesses in Mexico.

“Mexico has political stability, good monetary fiscal policy and the banking industry in Mexico has been internationally institutionalized with the largest banks being acquired by U.S.-based Bank of America, CitiBank and HSBC, as well as Canada’s Scotiabank and Spain’s BBVA,” he stated.

Waldo’s recently announced the completion of a $120 million growth recapitalization, financed by Citi Markets & Banking of New York City and Mexico City. The privately held retailer, which has sales in excess of $500 million, plans to open 60 new stores this year, expanding throughout Mexico and Latin America. Ultimately, the company expects to grow its store presence into Central America and South America.

Talking with Chain Store Age, Beck described other factors that are contributing to the positive business climate in Mexico. “The inflation rate in Mexico has averaged about 3.5% over the last five years and the Bolsa, Mexico’s stock market, is up 147% since November 2004.”

Describing the demographics in Mexico as tremendous, he noted, “There are a lot of young people moving into household formation, which will be a powerful component of the economy in the next 10 to 15 years. It is similar to the explosive growth in India; however, Mexico has a greater degree of stability and is an easier environment to do business in. The culture in Mexico is very compatible with the U.S. culture.”

With an average footprint of 10,000 sq. ft., Waldo’s performs equally well in large cities or small towns. Sixty percent of the stores are freestanding, and the 40% that are inline are usually located in downtown areas.

The retailer sources product from a number of suppliers: 50% from inside Mexico, 15% from the United States or Canada, and 35% from Asia, Europe or South America. The company employs more than 8,000 associates and all of its stores are corporately owned.