MEXICO CITY — El Palacio de Hierro is upping its luxury offer, so much so that the retailer is spending $300 million to overhaul its key store in the posh Polanco quarter here to transform it into its flagship.
“We closed the entire store January 6 and work began January 7,” said Carlos Salcido, the Mexican luxury department store network’s marketing director. “We are on it full steam.”
The effort, which will gut the entire 18-year-old store to erect a 646,000 square foot flagship, increasing its size from the current 215,000 square feet. A new first floor — where many luxury brands will open shop-in-shops — should be ready by April before the store fully opens in October.
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Salcido said the $300 million investment is the largest in the 125-year-old retailer’s history, and more than double what it spent on its latest Mexico City store in the wealthy Interlomas enclave.
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The overhaul, led by Mexican architecture firm Sordo Madaleno and the U.K.’s Gensler, comes at a time when many global luxury labels are courting well-heeled Mexicans to profit from surging demand for pricey goods.
According to Salcido, the new store will be home to 15 additional high-end brands, some of which will arrive in Mexico for the first time. Others, notably Louis Vuitton, will make the flagship their main Mexican and Latin American units.
“We are going to have a much bigger offer,” Salcido said, adding that more space means labels will carry a broader assortment of apparel, accessories, jewelry and beauty products. “Some brands will even have three floors [stores] including Prada and Gucci and we will also introduce many brands’ ready-to-wear collections unavailable before” across the 13-store chain.
The flagship will feature men’s and women’s personal shopping lounges — a departure from Interlomas where they are only available for women. Gourmet foot shops will dot the store, enhancing the shopping atmosphere.
According to Salcido, the revamped store will boast huge windows on the façade for brands including Dior, Fendi and Bottega Veneta, inviting shoppers to stroll a “world-class luxury” setup infused by elements of Mexican culture such as bright colors and references to Mexico City’s architectural gems including Avenida Reforma or the bohemian Roma quarter.
“Many luxury stores in London, New York or Singapore look the same,” Salcido said, adding that it’s too early to provide more design details beyond a current basic sketch.
The facelift has long been in the works. Since the store opened, “we have thought about making it our flagship; it’s in a privileged block in the heart of Polanco, one block from Antara [a luxury mall] and Masaryk [Mexico’s most expensive high street].”
In light of the luxury market’s boom — growth is seen at 9 percent this year — the retailer’s owner Grupo Bal realized the time was ripe for the expansion. “It’s a good moment for luxury in Mexico and we wanted to bring the differentiator,” added Salcido.
That “differentiator” is key for El Palacio because other department stores, including archrival Liverpool and Sears, owned by billionaire Carlos Slim, continue to muscle in Mexico, though their luxury portfolio is much smaller. “We grow by sales value, not volume,” Salcido said.
El Palacio will open a new store in the industrial port town of Veracruz in spring 2016, elevating its count to 14 units.
The latest arrival — a 300,000-square-foot store in the city of Queretaro, a fast-growing retail spot — has had a strong start, Salcido claimed, adding that first-month sales rose 30 percent, exceeding expectations. The unit is in a new mall called Antea, where many international names such as Michael Kors and A/X Armani Exchange have set up shop. Called the “great book” because it resembles the leaves of an open book, the glitzy outlet features a permeable aluminum and steel façade, also designed by Sordo Madaleno. “It has our world in worlds store design concept and it’s very easy to navigate,” said Salcido.
But not everything is glitz and glam. Salcido conceded 2015 will be a challenging sales year for El Palacio because of the Polanco closure. He said the chain hopes revenues will increase 5 percent, matching expectations of a similar gain last year (the chain will post results in February), riding a difficult and unpredictable Mexican retail market.
Salcido was sanguine about the market’s prospects, saying department-store sales could grow several percentage points (some predict a 4 to 5 percent increase) this year compared to 2014 which was a tough year, rocked by government zig-zagging on GDP projections, cut several times to record a meager 1 percent growth. This year’s forecast is for a 3.9 percent GDP increase but that also may get trimmed, pressuring the industry which is already moving to step up store-card promotions and sales.