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CHELSEA BETS THAT MEXICANS, TOO, LOVE A PREMIUM BARGAIN

Although most foreign investors in Mexico’s fledgling retail real estate sector are concentrating on shopping centers that provide basic goods and services, Chelsea Property Group is aiming a bit higher.

The Roseland, N.J.-based REIT has formed a joint venture with architectural firm Grupo Sordo Madaleno, one of Mexico’s most experienced shopping center developers (in Mexico it is not unusual for a firm to combine architectural and development functions), to bring its Premium Outlets concept there. Many large cities are already served by at least one regional mall, but Chelsea is betting that it can capture a share of the fashion market by bringing upscale American-style outlet shopping to Mexico, its second foreign market. (Chelsea already owns centers in Japan.)

A key part of Chelsea’s leasing strategy is to focus on well-known brands that have not had a presence in Mexico. Historically, many foreign brands have been shut out of Mexico in part because retailers seeking entry have been hard pressed to find space in existing shopping centers, where shops have been sold off condo-style, or because they were reluctant to bear the costs of acquiring local merchants. Consequently, some affluent Mexicans have been going abroad to shop for brands unavailable at home.

“Chelsea is taking an approach that looks at the higher echelon of the market, bringing to it not only American and Mexican brands, but brands that have global recognition,” said Karen E. Fluharty, senior director of international marketing for Chelsea. “It is pivotal to our strategy to bring brands that Mexican consumers are already familiar with.”

Chelsea and its Mexico City-based partner, which owns several leading fashion-oriented malls in Mexico, broke ground in July 2003 on their first project: the $35 million, 403,000-square-foot Premium Outlets Punta Norte. The center is part of a much larger commercial and residential project Sordo Madaleno is building on 190 acres 17 miles northwest of Mexico City.

The Mexico City market gives Chelsea access to some of the country’s wealthiest neighborhoods and to the millions of tourists who visit each year. The Greater Mexico City area’s population exceeds 20 million, including 9.8 million households earning between $16,500 and $110,000 yearly, the center’s target market, according to Chelsea.

It seems Chelsea will also get a captive audience at the site, given Sordo Madaleno’s plans to build thousands of middle-income homes, an auto mall and a 100-room hotel to serve business travelers. The firm is even exploring the idea of building an amusement park on the property.

At press time, the partners were targeting a Nov. 18 opening for the center’s 230,000-square-foot first phase. Among the 70-plus announced stores are Adidas, Christian Dior, Ermenegildo Zegna, Nike, Roberto Cavalli and Zara. The second phase, spanning 173,000 square feet and containing about 70 additional stores, is scheduled to open in the fall of 2006.

The project is located at the intersection of two heavily traveled highways; road improvements have eased access. Javier Sordo Madaleno Bringas, who heads Sordo Madaleno, designed the open-air center with a local flavor, using terra-cotta, warm colors and plazas with fountains.

Chelsea is especially interested in attracting “the ‘B’ class,” that segment of Mexican consumers composed of affluent, well-educated professionals, says Andrew Strenk, president of Tustin, Calif.-based Strategic Planning Concepts International. (The ‘A’s are independently wealthy Mexicans.) Strategic Planning helps retailers and developers, including Chelsea and Sordo Madaleno, craft positioning strategies in Mexico and its U.S. border areas.

“There are millions of people in Mexico City who belong to the ‘B’s,” said Strenk. “Their shopping habits are a hodgepodge of what the ‘A’s are doing and what they learned from their parents. They are great customers if you can get them.”

Not only are Chelsea and Sordo Madaleno convinced that they can “get them” in Mexico City, but they have already begun seeking a location for a second center. They are seriously contemplating the Mayan peninsula, which would allow a project to draw from such important tourist destinations as Cancún, Cozumel and Playa del Carmen.

— AR