Dec 23, 2009
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Christmas shopping fever only an illusion in Mexico

Dec 23, 2009

MEXICO CITY (Reuters) - Mexican stores are packed with shoppers this Christmas, but slashed prices and big promotions mean cash registers are ringing up meager sales, underscoring a fragile recovery from a punishing recession.

From Wal-Mart de Mexico, the country's biggest retailer, to informal street vendors, retailers are cutting prices to lure customers -- some hoping to increase market share and others just struggling to stay in business.

"The stores may be clogged but what are people buying? They are going for the goods marked with a super-discount or super-promotion," said Raquel Moscoso, an analyst of consumer consumption at Ixe Financial Group.

"Everybody is literally slicing the pie ever thinner and in many cases they are sacrificing margin for volume," she said.

Customers like Teresa Saldivar illustrate the retail climate. "Just a few days before Christmas, everything I've come across is discounted. It's great. Now is a good time to buy," said Saldivar, 76, shopping at an upscale department store despite living on a small pension.

Since the global credit crisis threw Mexico's economy into a downturn last year, retailers like Wal-Mart de Mexico, Soriana and Comercial Mexicana have held off on price increases to keep traffic moving through their stores.

"We're offering three-day sales to move items that we would have sold quickly without promotions in past years," said Gustavo San Vicente, a salesman at a luxury department store in Mexico City.

Mexico's economy is expected to have shrunk 7 percent this year after slumping U.S. demand for its manufactured exports threw it into a deep recession. In recent months, the economy has begun to recover thanks to increasing industrial output, but consumer spending remains extremely weak.


With unemployment well-above pre-recession levels, few Mexicans have more money in their pockets this Christmas than a year ago when the world was in the grip of the economic crisis.

"We are only buying necessities like clothes or food, but not gifts yet. The truth is we are worse off now than last year," said Beatriz Vasquez, who has a job but is worried she won't receive her customary Christmas bonus.

In the most recent data available, October retail sales in Mexico were down 0.51 percent from September.

Mexico's thrifty shoppers and narrow profit margins contrast sharply with Brazil, where holiday cash registers are ringing and the fast-rebounding economy is expected to grow around 5 percent in 2010.

Some of the largest Brazilian shopping mall operators expect an increase of 35 percent in sales this Christmas, with most of that coming from middle- and low-income consumers who held onto their jobs through the country's short-lived recession at the start of the year.

"Things are booming in a way I've never seen before," said Edison Couto, a doorman shopping in Sao Paulo for baby clothes, toys and a blender. "For the first time in years I have enough money to buy lots of things."

In Mexico, retailers are expected to have a lackluster 2010 as the economy recovers only slowly.

UBS said in a recent report it expects industry leader Wal-Mart de Mexico's same-store sales, a measure favored by analysts because it reflects operating trends, to grow 5 percent in 2010, not much more than inflation.

Analysts say manufactured exports will continue to lead the way in Mexico's economic recovery. While exports are a smaller part of the economy than consumer spending, they would benefit quickly from growing demand in the United States.

"Consumption is not going to be the most important engine for the recovery," said Sergio Kurczyn, an economist at Banamex.

"The growth engine will continue to be what it has been over the last 15 years -- growth in exports," he said..

(Writing by Noel Randewich and Patrick Rucker; Additional reporting by Guillermo Parra-Bernal in Sao Paulo and Gabriela Lopez in Monterrey; Editing by Leslie Adler)

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