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Dillard assesses peso plunge from sidelines.

WASHINGTON (FNS) - William Haviland, president of Dillard de Mexico, is relieved to be watching the plunge of the Mexican peso from the sidelines and is hoping to learn from other retailers already located there how best to cope with the ramifications.

"We have a luxury in that we don't open until October 1995," said Haviland, of the first Mexican Dillard, which will join JC Penney and Sears de Mexico as anchors in a posh Monterrey mall.

"That is very easy for me to say. If I had a store opened now, I would be a lot more concerned in the next couple of months. There is no doubt inflation is coming. Historically, that has happened with the devaluation."

While President Ernesto Zedillo has unveiled an economic restructuring roadmap, the Group of Seven countries, including the U.S. and Canada, is developing a strategy to supplement Mexico's currency reserves.

Despite the finanical lifepreservers, analysts and industry observers say retailers in Mexico are expected to continue well into 1995 to be pinched by the economic upheaval, caused by a shift in government policy to promote domestic production and reduce its trade imbalance.

"There's no doubt in this type of situation that all businesses, not just retailers, suffer marginwise," Haviland said, noting how retailers won't be able to pass along their increased costs entirely to consumers. He said the key for stores will be in their choice of sources.

"You have to look carefully at your mix of imports versus domestic sources," Haviland said. The right formula, he said, will be difficult to arrive at in the midst of changing prices, interest rates and other variables, referring to the situation as a moving target."

By the time Little Rock, Ark.-based Dillard's steps into the competitive Mexican retail arena this fall with its first of five stores planned for die next two years, the currency will have stabilized, said Haviland, in an interview from his Dallas, Texas, office. "I have no doubt about that," Haviland said. "We will also have a much dearer cost picture as far as products. We will also look at how the other retailers have done. It will be a lot easier to make decisions then, than making your decision on the run while it's happening."

Although the peso has regained some ground since tumbling Dec. 20 from 3.4 to the dollar to its crisis low of 5.6 pesos to the dollar on Monday, most retailers in Mexico are still hemmed in by higher costs for imported goods and high interest rates caused by the devaluation, analysts say. One of their biggest headaches is shouldering the additional cost of debt owed on imported receivables that are to be paid in dollars. Any Mexican deal made in dollars is affected.

Because of the devaluation, Controladodra Comercial Mexicana has told joint venture partner Price/Costco, the San Diego-based discount chain, that it may take a second look at its $95 million offer to buy out the U.S.concern's interest in 10 Mexico warehouse stores. The two companies signed a letter of intent to sell earlier this month.

The deal becomes more expensive for them in pesos," said Hal Kaplan, vice president and treasurer, Price/Costco. Under the deal, Controladora would also pay Price/Costco to continue using its name in Mexico and as a source for products.

While Dillard's and JC Penney Co., Plano, Texas, say they aren't changing their minds about opening stores in Mexico, other U.S. and Mexican-owned retailers already there may put on the brakes, analysts say.
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Title Annotation:Dillard Department Stores Inc. to open in Mexico in October 1995
Author:Ramey, Joanna
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Jan 16, 1995
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