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Home Depot thriving in Mexico

Unprecedented housing boom stark contrast to U.S.

The Atlanta Journal-Constitution
Published on: 05/16/08

Mexico City — With the U.S. home improvement market hobbled by an unrelenting housing slump, Atlanta-based Home Depot is predicting a far rosier outlook in Mexico, which is in the midst of an unprecedented housing boom.

The Mexican government hopes to spur construction of 16 million houses by 2030, a goal that would nearly double the nation's current stock. President Felipe Calderon has argued that a robust home-building effort could save the Mexican economy from the negative effects of recession north of the border.

For Home Depot Mexico, the prospects are tantalizing.

Since entering the Mexican market in 2001, Home Depot has enjoyed steady growth. The company started with four stores and now operates 69, with at least nine stores set to open this year.

The chain, which has annual Mexico sales of more than $1 billion, is the country's largest home improvement retailer.

In a sign of confidence, Home Depot announced in March the construction of a $28 million distribution center in the central Mexican state of Hidalgo that will serve at least 60 stores.

"The housing sector will continue to be strong in the future, and surely [Home Depot] will benefit," said Carlos Gonzalez, director of stock market analysis and strategy for IXE Bank.

Last year, Home Depot revealed that its stores in Mexico, Canada and China accounted for 9 percent of its revenues and 11 percent of its operating profits.

Home Depot's strong Mexico performance stands in stark contrast to slumping sales in the United States, where officials this month announced the closing of 15 stores.

Home Depot won't reveal its specific sales figures in Mexico, but Ricardo Saldivar, president of Home Depot Mexico, said the company has enjoyed double-digit growth. Saldivar said he expects Home Depot to enjoy similar rates of growth "for the foreseeable future."

"I think that if we had asked ourselves back then if Home Depot would have [nearly 70] stores in 2008, probably some of us wouldn't have believed it," Saldivar said. "Mexico was a market that needed something like Home Depot."

As it continues growing, Home Depot hopes to fend off a challenge from North Carolina-based Lowe's, which has also been drawn by the promise of the Mexican market. Lowe's plans to open three to five stores by 2009 in the northern city of Monterrey.

Monterrey, considered by many to be Mexico's most lucrative market, is also home to Home Depot's corporate offices and seven stores. Home Depot has seven stores in Mexico City, three in Guadalajara and stores as distant as Tapachula, along the Mexico-Guatemala border.

In many ways, Mexico's housing market is as healthy as it is sick in the United States.

Mortgages are relatively new in Mexico — most homes were traditionally inherited or built by hand.

Since 2000, the Mexican government has promoted home loans — mostly for low-cost housing through lending from public agencies — as a way to stimulate the housing industry. Traditional bank mortgages have also become much more affordable in recent years, with interest rates approaching U.S. levels.

Analysts estimate Mexico has a housing shortage of about 4 million homes, and Calderon has set a goal of more than 1 million housing loans per year by the end of his term in 2012.

The rosy housing outlook coincides with a largely stable economy over the past decade, relatively low inflation and an emerging middle class of potential Home Depot shoppers, Saldivar said.

But some analysts warn that Home Depot's growth potential will be limited unless it figures out a way to appeal to the millions of poor Mexicans who currently can't afford to shop in its stores.

"In Mexico, the people who build their own houses are the people who are very poor, and here they don't go to Home Depot," said Veronica Baz, director of a Mexico City economics think tank. "Home Depot here is selling to an elite."

Published Friday, May 16, 2008 6:05 AM by Kanoa Biondolillo


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