MEXICO CITY — El Palacio de Hierro, Mexico’s upscale department store chain, plans to open 10 stores by 2015 as it continues to expand in the country’s growing luxury fashion market.
“We want to expand in Mexico and will open one store per year in the next five years,” marketing director Carlos Salcido told WWD, adding that in that time Palacio will roll out five of its traditional department stores and five of its fledgling La Boutique Palacio shops.
Palacio plans to install one store in Mexico City’s wealthy Interlomas neighborhood in the next 12 months, marking its eighth outlet in the Mexican capital. The other stores will be in Veracruz, Villahermosa, Querétaro and in another undisclosed location, Salcido said.
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Established in 1888, Palacio has 10 department stores averaging 236,786 square feet in size. Of these, seven are in Mexico City, and one each is in Puebla, Monterey and Guadalajara. It also operates a premium housewares store called Casa Palacio, in the city’s prestigious Polanco quarter, and a boutique concept dubbed Casa Palacio/Boutique Palacio, in Acapulco.
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According to Salcido, the new La Boutique Palacio will boast a store-within-a-store structure that will house Casa Palacio shops. The first 21,500-square-foot to 32,300-square-foot concept store will open in Acoxpa, Mexico City, in early September and will sell “the best” luxury, premium and beauty brands found in the department stores, combined with Casa Palacio’s upscale housewares products. Future La Boutiques will arrive in Cancún in October and in Morelia in 2011. Salcido would not disclose the other upcoming locations.
Salcido added that Palacio has enough cash in its coffers to bankroll the future expansion, but he would not provide exact figures.
Palacio is keen to boost its presence in the luxury and fashion market, which Salcido estimates is growing as much as 15 percent annually in Mexico. As part of that effort, the company is working to bring more international fashion and luxury labels to its stores and is hunting for a New York public relations agency to help publicize its name.
Fashion and luxury account for 50 percent and 15 percent, respectively, of the chain’s apparel sales.
“This is the strongest growth market for us,” conceded advertising director Françoise Lavertu Stevens. “There is a huge growth opportunity for selling luxury and fashion in Mexico.”
Palacio is striving to persuade high-end global brands to debut in its stores — and the effort has so far proved fruitful. Italy’s Bottega Veneta is set to open two corners, in Palacio’s Santa Fe and Perisur outlets, while Hermès has agreed to open a corner in Guadalajara, a spokeswoman said. Givenchy Leathergoods, See by Chloé and Emporio Armani bags are also arriving in the coming weeks, Lavertu Stevens added. In the high-end shoe department, Jimmy Choo and Marc Jacobs are expected to reach Palacio in the second half.
Meanwhile, Palacio is striving to seduce Mexico’s growing set of wealthy consumers.
“We are adapting our offer for this market,” she said. “Many of these shoppers used to think they could find the most exclusive brands only in New York, Paris or London, but they are now realizing they can get them in our stores.”
Palacio’s net sales (which include the company’s retail, credit and real-estate businesses) should rise 9 percent, to 13.6 billion pesos, or $1.06 billion at current exchange, this year, up from 12.5 billion pesos, or $976 million, in 2009, as it brings more luxury brands and opens new stores, Salcido said. He added that same-store sales are performing well, as the retailers’ typical middle-upper and upper customer base continues to shop with gusto despite volatile economic conditions in Mexico.
According to Salcido, Palacio’s operating profits leapt 21.8 percent last year, as it managed to slash operating costs as much as 20 percent.
“We made an extraordinary effort to manage the business, which was very difficult for all retailers,” Salcido said. “We managed our inventory very carefully to avoid excess stock, cut our advertising spending and improved operating efficiencies wherever possible.” However, net profits fell 4.9 percent, to 642,776 pesos, or $502,000, due to a onetime tax adjustment.
Salcido would not provide 2010 same-store forecasts or year-on-year comparisons, stating that Palacio never reveals such figures. Palacio belongs to Grupo Bal, which has interests in mining, retail and banking.
During the next five-year period, Palacio’s operating profits should grow faster or in line with sales, Salcido said, as the chain continues to lower its cost base, streamline its inventory and improve productivity-per-square meter. Boosting sales of higher-margin brands should also boost the bottom line, he said.
To further boost revenues, Palacio is working to sign new retail ventures with specialized retailers. It currently manages Spanish women’s fashion chain Mango’s business in Mexico and has an exclusive country distribution agreement with Grupo Cortefiel, for which Palacio would not provide profit-sharing details.
“We are talking to other brands in the U.S., the U.K., Spain and France and hope to sign two more of these deals,” Salcido said.
Despite the bold international incursions of its Latin American peers’ (such as Chile’s Falabella or Almacenes Paris), Palacio intends to stay in Mexico, Salcido said.
“Mexico is huge and has 100 million people. We have a lot of growth opportunity here and a very strong brand reputation,” he said.
Underscoring the company’s more conservative growth strategy, Palacio recently shelved negotiations to launch a department store chain in partnership with Chilean counterpart Ripley, which would have challenged much larger domestic rival Liverpool.