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CROSS-BORDER SHOPPING BOOSTS SALES AT TEXAS MALL

By Debra Hazel

Up to 50% of the business at La Plaza Mall, McAllen, Texas, comes from Mexico.

It may be one of the most deceptive U.S. retail markets. Not that outsiders could be blamed for thinking of the McAllen and Mission, Texas, area as poor: The average household income of the two towns together totals $13,339, according to the U.S. Commerce Department, and unemployment is typically in the area of 10% — double the national average — though it has gone as high as 12%.

Yet the largest mall in the Rio Grande Valley region, La Plaza in McAllen, boasts sales of more than $400 per square foot, and last fall completed an expansion that brought it to 1.2 million square feet. The reason: The mall is in a growing border town, and gets shoppers from both the United States and Mexico. Economic growth on the U.S. side, greater stability in Mexico and cooperation between the two countries bode well for future retail growth in the region.

Even now, shoppers, particularly consumers from south of the border, spend at a level that belies often misleading statistics.

“They carry a lot more economic impact than you would think,” said Michael P. McCarty, senior vice president of research and communications for Indianapolis-based Simon Property Group, La Plaza’s manager. Simon also has centers in the nearby border towns of Brownsville and Harlingen, Texas. Mexicans shopping in the United States often are doing so for several other families at the same time, McCarty explained. And Mexicans just like coming north to shop.

“There is a mystique in Mexican culture about shopping in the United States,” said Raudel Garza, CEO of the Mission Economic Development Authority, which is looking to bring manufacturing, offices and retail to McAllen’s satellite city of Mission. While Wal-Mart has stores on both sides of the border, Mexican shoppers prefer to come to the U.S. side if possible, he said.

The percentage of business La Plaza and other projects derive from Mexican nationals varies from month to month, according to McCarty: Up to 50% of La Plaza’s business can come from Mexico around Cinco de Mayo, a national holiday. At other times, between 30% and 50% of the mall’s sales come from Mexico.

Mexican shoppers’ purchases also vary to some extent by the time of year: While electronics purchases are fairly consistent year-round, because product is hard to find in Mexico, Cinco de Mayo brings more apparel shoppers.

The success of retail in the region belies its demographics, which show high unemployment on the U.S. side, and are nearly impossible to quantify on the Mexican end. But the statistics don’t give the full scope of the area’s sales potential.

McAllen, which is 46.6 square miles, is the fourth fastest-growing metropolitan statistical area (MSA) in the nation, and in 1999, ranked second among the top 20 Texas cities in per capita sales tax collections, according to the McAllen Chamber of Commerce. Unemployment, while high compared with the rest of the United States, has been dropping. Joblessness declined from 12.0% in May 2000 to 10.6% in May 2001, according to the U.S. Bureau of Labor Statistics.

“McAllen as an MSA has a population of 300,000; across the border, you probably have 1 million people,” said James W. Collins, president of brokerage firm Rioco Corp., McAllen, and a director of Hightstown, N.J., brokerage network New America International. The Chamber of Commerce estimates that 10 million people live within a 200-mile radius. “Instead of having one major city, we have a region, and a lot of our statistics are skewed by transient workers.”

Mexico’s lack of an elaborate census system makes it virtually impossible to assess the size and affluence of that market. But a once-turbulent economy has stabilized in recent years, a peaceful change of government has taken place, and consumers clearly have more money to spend.

“There’s just one river that divides, and the economics are intertwined,” Garza said.

Even the more scientifically compiled U.S. stats are deceiving.

“McAllen’s statistics count migrant workers that base themselves here but move around. They show high unemployment and low income — but also [the growth of] new housing,” said Larry Fallek, president of RGV Properties, McAllen, which operates restaurants and hotels throughout south Texas.

The growth began prior to the passage of the North American Free Trade Agreement, which eased trade barriers among the United States, Mexico and Canada. But the main reason for growth in the Rio Grande Valley is the building of maquiladoras, pairs of manufacturing plants that are constructed by companies with one on each side of the border. Among the companies expanding in the area are Symbol Technologies, printer R.R. Donnelley and auto manufacturers. The plants have brought higher-tech jobs than had ever been in the region before, with most managers living on the U.S. side of the border.

Those jobs are well paid, and perhaps the biggest mistake a retailer could make is to assume that customers from Mexico are poor and seeking discount goods. La Plaza is anchored by Bealls, Dillard’s, Foley’s, Foley’s Home & Children’s Store, J.C. Penney, Joe Brand and Sears.

“They are interested in better-priced goods. They will shop in better-priced stores,” McCarty noted. “Retailers have to get rid of stereotypes.”

Fortunately, those stereotypes have not gotten in the way of leasing: Getting tenants has not been a problem at La Plaza.

“If a mall is doing $400 per square foot, and the U.S. average is $300 a foot, they want to be there,” McCarty pointed out.

The smaller town of Mission also is showing increasing opportunity for future retail, Garza noted. The city itself has about 45,000 people, according to the Census Bureau, with an additional 500,000 in the overall metro area, plus 1 million in Mexico. McAllen and Mission are located in Hidalgo County, which is 1,567 square miles.

Construction has begun on an expansion of a Frito Lay/Rio Grande Valley Snack Co. plant, which could generate 40 additional jobs in the community. A 75,000-square-foot business technology center broke ground in July, and roadways are being expanded around the city.

The U.S. and Mexican governments are working on designing the $60 million Anzalduas Bridge border crossing just south of Mission, tentatively set to open in April 2003. The bridge is being financed in part by revenue bonds issued by the partnership of McAllen; Mission; and Hidalgo, Mexico. That should increase shopper traffic even more.

What hasn’t happened, yet, is a great deal of retail construction.

“Retail development has not kept pace [with the growth], but sales have,” Garza said.

But some observers note that while big-box retail is lacking, retail developers shouldn’t go overboard on new construction.

“Downtown McAllen is still vibrant: They deal with the lower end of the economy while La Plaza deals with the higher end. Then there’s the power centers, so there is no lack of retail,” Fallek said.

Future retail growth will likely focus on grocery-anchored centers rather than big boxes, and such specialty-food retailers as Starbucks and Krispy Kreme are still a dream for the region. But with a Texan in the White House, and a two-party system taking hold in Mexico, the future looks brighter for Mexican-American relations, and companies doing business along the border.

“It’s in its infancy,” Collins said.

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