Wal-Mart de Mexico, S.A. de C.V.

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Wal-Mart de Mexico, S.A. de C.V.

Blvd. Manuel Avila Camacho 647
Colonia Periodistas
11220 Mexico, DF
Telephone: 52-5-387-9200
Fax: 52-5-387-9209

Public Company
1984 as Cifra, S.A. de C.V.
Employees: 70,997
Sales: $6.40 billion (1999)
Stock Exchanges: OTC
Ticker Symbol: WMMVY
NAIC: 45211 Department Stores; 45299 All Other General Merchandise Stores; 45291 Warehouse Clubs and Superstores; 44814 Family Clothing Stores; 72211 Full-Service Restaurants; 551112 Offices of Other Holding Companies

Wal-Mart de Mexico, S.A. de C.V., formerly known as Cifra, S.A. de C.V., is the largest retailer in Mexico, operating 460 units under a number of different banners. Wal-Mart de Mexicos two principal retail chainsin terms of their contribution to the companys annual sales totalsare Sams Club stores and Bodega Aurrera stores, both of which operate as warehouse-style concepts. Combined, the two chains account for 49 percent of the $6.4 billion the company collected in sales in 1999. Aside from the 34 Sams Club stores and the 69 Bodega Aurrera stores, the companys business formats include: 27 Wal-Mart Supercenters, 38 Superama supermarkets, 51 Suburbia discount apparel stores, 38 medium-sized, general merchandise Aurrera stores, and 205 Vips restaurants. Wal-Mart Stores, Inc. owns 60 percent of Wal-Mart de Mexico.


Cifra, Wal-Mart de Mexicos predecessor, was founded in 1958 by Jerónimo Arango. The son of a Spanish immigrant to Mexico who prospered in the textile business, Arango spent his youth studying art and literature at several American universities and traveling in Spain, Mexico, and the United States. While in New York City he saw a crowd waiting patiently for the opportunity to enter E.J. Korvette, then a pioneering Fifth Avenue discount department store. Impressed by Korvettes success, he persuaded his father to lend him the equivalent in pesos of $240,000 so that he could organize a similar venture with his two brothers, Placido and Manuel. Called Aurrera Bolívar, this discount store was opened in downtown Mexico City in 1958.

Like the Korvette store, Aurrera Bolívar immediately drew the public, andalso like Korvettesit attracted the hostility of established retailers, who felt threatened by competition engendered by Aurrera Bolívars low prices. In fact, the store was selling household goods and clothing at 20 percent below manufacturers list prices, while established retailers were marking them up by 40 to 45 percent. Soon the brothers had to locate alternate sources of goods as far away as Guadalajara and Monterrey because the Arangossuppliers were threatened with boycott by angry rivals. Nevertheless, Aurrera reportedly won sympathy by publicizing its competitors tactics during its sponsorship of the popular television show, The 64,000 Peso Question. By 1965 eight Aurrera stores were in existence, drawing $16 million in sales. The companys first Superama supermarket opened in 1960 and the first Vip restaurant opened in 1964.

In 1965 Jewel Cos. of Chicago organized a joint venture with the Arango brothers to start new stores, and a year later Jewel acquired a 49 percent stake in the business for about US $20 million. While Manuel and Placido Arango took their part of the money and left the business to establish other enterprises, Jerónimo studied modem retailing at Jewel headquarters in Chicago. In 1970 he opened the first of the firms Bodega Aurrera discount warehouse stores and Suburbia department stores. Aurrera S.A. became publicly owned in 1976, the year it opened its first hypermarket, and was so successful that by 1981 Jewels Mexican operations accounted for nearly one-third of its income. Jewels stake had dropped to 41.7 percent of the outstanding shares by 1980 and eventually would fall to 36.1 percent.

Hard times came in 1982, when the peso collapsed because of huge foreign debt, touching off an inflationary crisis and a severe recession that lasted for years. But Arango was confident enough of the future to buy back Jewels share in the business (which he renamed Cifra in 1984) from its successor, American Stores Co., for about $53.4 million. He kept all existing stores open and retained the employees, although they were expected to work longer hours and those who left were not replaced.

Cifras emphasis on discounting helped sustain the company during these dark years. Located in the poorer neighborhoods of Mexico City, the Bodega Aurrera stores, for example, stocked all types of nonperishable goods to the ceiling and offered prices as low as half those of other retailers. By the end of 1989 Cifra was in its best financial shape ever. It had grown in sales by 20 percent or more in every year of the decade. Its sales in 1989 were about $550 million, and its stock more than tripled in value during the year.

Joint Venture and Subsequent Expansion: Early 1990s

In 1990 Cifras sales grew by 26 percent, and between 1990 and 1991 its stock shot up almost fivefold. At the end of 1991 there were 38 Almacenes Aurrera self-service department stores, selling general merchandise, clothing, and supermarket items. The high-income Superama chain consisted of 34 freestanding community supermarkets. Next came the 29 Bodega Aurrera discount ware-house stores and the 29 Suburbia family-oriented department stores, selling discount clothing and dry goods. The Vips restaurant operations consisted of 59 cafeterias, 15 El Porton restaurants (initiated in 1978), and four more specialized restaurants. Gran Bazar was the name for Cifras hypermarkets, and Sigla for its real estate interests in opening new shopping centers.

In May 1992 Cifra announced that it intended to invest $211 million to open 12 new stores during the year and another $68 million to renovate 78 existing ones. The restaurants were modernized to attract new and younger customers. In addition, an investment of $80 million was to be made in such technological developments as information and point-of-sale systems, satellite-based communications, and complex data processing units. By this time, the implementation of a computerized inventory-control system had made the company the leader in the industry for inventory management. Its point-of-sale systems allowed it to collect, analyze, and make use of vast amounts of data concerning consumer preferences and the effects of price changes. Cifras sales per square foot were almost twice as high in 1992 as those of its competitors, and its liquidity in cash and equivalents as well as its inventory turn-over were the highest in the industry.

Cifras growth remained impressive in 1992. A total of 23 units were built that year. Sales rose by 20.7 percent to $3.7 billion. Operating profits increased by 32 percent during 1992. As much as 31 percent of the companys earnings came from interest income on its considerable cash surplus. An investor buying $1 of Cifra B shares at the start of 1988 had seen his investment reach $39.46 at the end of 1992. Sales in fiscal 1993 rose to $4.6 billion and were the best per square foot in Mexico.

Cifra formed two joint ventures with Wal-Mart in 1991. One, Commercializadora Mexico-Americana, promoted trade between Mexico and the United States. The other, Club Aurrera, was directed at small businesses and their employees and was patterned on Wal-Marts Sams Club. In fact, after a short period of time the Club Aurrera stores were renamed Sams Club. The first Club Aurrera opened late in 1991 and three more were opened in 1992. This joint venture was serving many customers wishing to buy in quantity. Like Sams Club, Club Aurrera members-only stores typically offered just one brand of an item stacked to the rafters in cartons. The customer base was expected to include restaurants, discos, and clubs.

In May 1992 the joint venture of Cifra and Wal-Mart was expanded to oversee all of the new Almacenes Aurrera, Superama, Bodega, and Gran Bazar stores. The rationale behind this move was that Wal-Marts technology and marketing know-how would fuel Cifras growth to otherwise unattainable levels. One analyst also noted that it precluded the prospect of Wal-Mart forming links with another Mexican retailer or opening stores in Mexico on its own.

By June 1994 there were three Almacenes Aurrera stores, 18 Bodega stores, three Superama Supermarkets, two Suburbia stores, 11 Vips restaurants, ten Sams Clubs, and three Wal-Mart Supercenters combination stores. Wal-Mart had built three Supercenters in 1993 and early 1994, one of which, with 244,000 square feet, became the largest Wal-Mart Supercenter in the world. In addition, a revision of the agreement added the field of collaboration to Cifras restaurant and clothing store divisions, previously excluded.

Wal-Marts expertise was considered especially important in the creation of regional distribution centers. Because Cifra had concentrated on the Mexico City metropolitan area, it was relatively inexperienced in the efficient delivery of supplies to other cities, including Guadalajara, Leon, and Monterrey to the north and west and Villahermosa and Merida to the south and east. During this time, the collaboration between Cifra and Wal-Mart was managed primarily by Mexican nationals in Mexico. Wal-Mart was contributing a few dozen Mexican expatriates to help out, but their roles were shifting increasingly to Mexican citizens as skills were passed on to local personnel, according to Bob Martin, president and chief executive officer of Wal-Mart International.

A prototype Almacenes Aurrera was erected in the Mexico City suburb of Las Auguilas. Executed by Fitch Inc. of Worthington, Ohio, the store featured white walls and color codes for the major merchandise categories. New fixtures allowed more prominent opportunities for display and highlighting than in the past, with redAurreras signature colordrawing attention to new merchandise, sales items, and other promotions. Freestanding archways in the back corners were intended to draw customers to the perimeter. The parqueteria, an outside bottle return, bag check, and security checkpoint standard in Mexico, was sheltered to shield shoppers from the elements.

Company Perspectives:

We are the most important retailer in Mexico. Wal-Mart Stores, Inc., our majority shareholder, is the largest retailer in the world. Our leadership is the result of a series of operating and commercial practices aimed at a timely and efficient satisfaction of our customers needs, thus creating value for them and for our shareholders.

The creation of the North American Free Trade Agreement (NAFTA) at the beginning of 1994 deepened the collaboration between Cifra and Wal-Mart. In January 1994 the joint venture was extended to include all future Suburbia stores and Vip restaurants. In October 1994 Cifra and Wal-Mart announced a 50-50 joint venture with Dillard Department Stores, Inc. to build and operate Dillards stores in Mexico. The first Dillards store was expected to open in Monterrey in late 1995.

In late 1994 Cifra was reportedly planning to invest heavily in the expansion of its store and restaurant chains. By that time the Cifra empire, by itself and in combination with Wal-Mart, consisted of 35 Almacenes Aurrera, 58 Bodegas Aurrera, 36 Superamas, 33 Suburbias, 22 Sams Clubs, and 11 Wal-Mart stores, in addition to 114 Vips cafeterias and restaurants.

The mid-1990s presented some challenges for Cifra. The companys financial reportings for 1993 proved disappointing to many analysts, and the companys stock was trading at about 28 times estimated 1994 earnings, although a cost-cutting campaign helped the companys operating profits to climb 23 percent during the first quarter of 1994. A blow was then dealt to all publicly traded Mexican companies in 1994, when the value of shares on the Bolsa stock exchange experienced a sharp drop. Mexican stocks ended the year down by 44 percent. Finally, the devaluation of the peso in December 1994 triggered a financial panic, and during the first half of January 1995 Mexican stocks dropped another 28 percent. Wal-Mart and Cifra announced during the month that plans to open 24 new stores in Mexico during 1995 were temporarily on hold due to the countrys economic conditions. Cifra representatives noted, however, that this decision did not affect the long-term growth strategy of the joint venture, nor did it change the level of commitment by both partners in the association. Moreover, analysts noted that one point in favor of Cifras future was its lack of foreign currency debt.

Wal-Mart Stores Majority Shareholder in Cifra in 1997

Any suspicions that the mid-1990s economic crisis in Mexico might weaken the partnership between Wal-Mart and Cifra were thoroughly eliminated during the latter half of the 1990s. From Wal-Marts perspective, the Mexican market ranked as one of the companys fast-growing international markets during the late 1990s, a segment of the companys business that was becoming increasingly important as domestic markets began to suffer from an oversaturation of stores. Wal-Marts commitment to expansion in Mexico was evinced in a landmark transaction in 1997, one that marked a turning point in the history of Cifra. In June 1997, Wal-Mart announced that it was acquiring a 51 percent interest in Cifra in a $1.2 billion deal. The merger agreement was completed in September 1997, giving the $105 billion discount chain control over the stores formerly controlled by the six-year-old joint venture and the stores and restaurants owned solely by Cifra. The new entity was renamed Wal-Mart de Mexico, S.A. de C.V.

With all of the businesses consolidated under one corporate banner, Wal-Marts expansion efforts in Mexico became decidedly more aggressive. The merger allowed Wal-Mart to use the cash flow produced by Cifras other businesses to finance the expansion of Sams Club and the companys supercenters in Mexican markets. In addition, the union strengthened Wal-Marts ability to expand into smaller markets and broaden its operating territory beyond central Mexico. By the end of the decade, Wal-Mart de Mexico consisted of approximately 460 units, with 34 Sams Club warehouse stores and 69 Bodega Aurrera stores accounting for 49 percent of the companys $6.4 billion in annual sales. As the company formulated plans for the future, with the massive consolidation efforts under way until the conclusion of the 1990s, expansion was expected to continue throughout Mexico. Supported by the considerable financial resources of Wal-Mart Stores, which increased its stake in Wal-Mart de Mexico to 60 percent in April 2000, the company figured to be the dominant retailer in Mexico during the 21st century.

Principal Subsidiaries

Controladora de Tiendas de Descuento; Cifra-Mart; Wal-Mart Holding Company Mexico; Comercializadora Mexico-Americana.

Principal Competitors

Controladora Comercial Mexicana, S.A. de C.V.; Grupo Gigante, S.A. de C.V.; Organizacion Soriana, S.A. de C.V.

Key Dates:

The first Aurrera store opens in Mexico City.
Superama retail concept is launched.
Vips restaurants are established.
Two more retail concepts, Suburbia and Bodega Aurrera, begin operating.
The company, then known as Cifra, completes initial public offering of stock.
Cifra and Wal-Mart Stores, Inc. sign joint venture agreement.
Wal-Mart Stores acquires majority interest in Cifra, creating Wal-Mart de Mexico.

Further Reading

Cifra: Aiming To Be a Mexican Wal-Mart, Euromoney, May 1993, pp. 10708.

Cifra, SA, Latin Finance, November 1992, pp. 3334.

Merger of Merchandising Magnates, Business Mexico, June 1994, pp. 2224.

Millman, Joel, The Merchant of Mexico, Forbes, August 5, 1991, pp. 8081.

Moffett, Matt, Mexican Retailers Jockey for Position, Hoping To Win Big as Nation Recovers, Wall Street Journal, August 26, 1991, p. A4.

Sandier, Linda, Retailer Cifra Lights Up Mexican Stock Market, But Its Spectacular Run-Up Raises Caution Flag, Wall Street Journal, September 9, 1991, p. C6.

Seckler, Valerie, Wal-Marts Mexican Evolution, WWD, June 4, 1997, p. 19.

Torres, Craig, Mexican Retailer Cifra, with a High Multiple and Disappointing Results, Falls into Disfavor, Wall Street Journal, February 23, 1994, p. C2.

Zwiebach, Elliot, Cifra, Wal-Mart Consolidate Mexican Venture, Supermarket News, June 9, 1997, p. 4.

Robert Halasz

updated by Jeffrey L. Covell

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