Old American store brands don't die, they just move to Mexico

A Sears store in Fairfax, Virginia, in 2010.
A Sears store in Fairfax, Virginia, in 2010.PHOTO: REUTERS

MEXICO CITY (BLOOMBERG) - Forgive a US visitor for feeling lost in a time warp.

Mexico City's trendy Roma neighborhood is dotted with Blockbuster, Sears and Woolworth stores, along with art galleries and sidewalk cafes.

The American chains - extinct or barely hanging on in the US - are getting an afterlife from Mexican billionaires and other investors who look past the mustiness and see profits.

Ricardo Salinas Pliego's Grupo Elektra paid US$31 million in 2014 for 300 Blockbuster stores in Mexico, just as the US business collapsed into a shell of its former self with nothing more than an online streaming service. Woolworth, whose last US shop closed in the 1990s, plans three new locations in Mexico next year. Sears in Mexico, controlled by Carlos Slim's Grupo Sanborns, will open five new stores in 2015; last fiscal year, its US namesake closed 61.

All this shows that there's money to be made from Mexican consumers who still have positive associations with American brands. While Blockbuster as a date-night destination went the way of the VHS tape in the U.S., Mexicans still flock to rent video games the old-fashioned way. Retail brands have a longer shelf-life because they don't face as many competitors, and fewer people buy online, according to Juan Martinez, the president of research firm Superbrands Mexico.

"There's not the same pressure," Martinez said from Mexico City. "There are many brands that can survive a little longer in Mexico than in the US"

U.S. stores and restaurants are "aspirational" brands for many Mexicans, particularly those without easy access to credit, according to Martha Shelton, an equity analyst with Itau BBA in Mexico City.

Walk through the Sears in the capital's upscale Polanco area, and the clothes, electronics and Craftsman tools are much the same as those in the US.

Sears Mexico's same-store-sales grew by 7.1 per cent in the first quarter. Hoffman Estates, the parent company of what was once the largest US retail chain, is selling assets and has posted 12 straight quarters of losses.

Salinas, Mexico's fifth-richest person, bet on Blockbuster last year even though pirated DVDs are readily available from street vendors in Mexico often for less than a price of a rental. The unit made US$117.7 million for its former parent, Dish Network Corp., in the three quarters before the acquisition closed.

Oscar Guevara, the head of economic competitiveness at Grupo Salinas, said in an interview this week that the store "is a well-known brand. It's good in that niche market."

The company has said it may use its Blockbuster stores to promote other products and services, such as televisions and banking services.

Even Woolworth, overtaken in the US by Wal-Mart Stores Inc. and shopping malls filled with specialty retailers, has seen sales expand 5 per cent annually, the holding company said.