Wal-Mart Mexico probe is a gift for activists

by The City Wire staff ([email protected]) 95 views 

BLOOMBERG — Wal-Mart de Mexico SAB achieved success in Mexico even as the company fought off activists and officials who warned of the dangers of its encroaching influence. A bribery probe into Wal-Mart’s store expansion is giving those opponents new ammunition.

Mexico’s largest retailer and biggest private employer went from one Wal-Mart store in 1991 to 2,138 locations this year, including discount centers, grocery stores, restaurants and bodegas. Until this week, it was an investor darling, outpacing Mexico’s benchmark stock index with a more than sixfold return over the past decade.

That changed after the New York Times reported April 21 that the retailer had bribed local officials to get stores opened faster in the early 2000s, a revelation that sent shares tumbling 13 percent by yesterday’s close. For some Mexicans, the allegations confirm their fears that Wal-Mart’s rise would come at a grave cost to their communities.

“We knew that Wal-Mart would bring consequences when it opened in small towns,” said Emma Ortega Moreno, an activist who lost a battle with the retailer over the opening of a store near one of Mexico’s most historic sites, the pyramids of Teotihuacan. “But we didn’t even suspect everything that has come to light.”

Antonio Ocaranza, a spokesman for Wal-Mart de Mexico, said the company benefits local communities.

“We not only generate direct employment where few opportunities exists but also buy local produce and goods, contribute with volunteers to local causes, generate traffic for other local business, and foster new sources of economic growth,” he said in an e-mailed statement.

Before the scandal hit, Wal-Mart de Mexico was most famous for its relentless growth. Sales reached 379 billion pesos ($28.8 billion) last year, up more than fivefold from a decade ago, as Mexico’s economic growth led to the rise of middle-class consumers. This year, the company plans to open 410 to 436 stores, increasing floor space by 12 percent in Mexico and 9 percent in Central America.

Wal-Mart de Mexico employed 238,128 workers at the end of last year in Mexico and Central America, up 8.4% from 2010. That tops the 209,000 jobs in the companies controlled by Mexico’s Carlos Slim, the world’s richest person according to the Bloomberg Billionaires Index.

The retailer has store concepts for several classes of Mexican consumers. Bodega Aurrera Express is stocked with single-use boxes of cereal and small cartons of milk for customers with limited resources who make their shopping decisions based on their day-to-day needs.

Superama supermarkets offer organic spinach and imported beers in high-end residential districts. Suburbia specializes in affordable apparel, and Vips diners serve enchiladas and hamburgers.

Wal-Mart Stores Inc. first entered Mexico two decades ago in a partnership with a local retailer, Cifra SA. In 1997, the Bentonville-based company acquired a majority of Cifra, creating a company that then had almost 400 locations. The company changed its name to Wal-Mart de Mexico in 2000, and it’s now 69% owned by Wal-Mart Stores.

As Wal-Mart stores began popping up across the country, opposition began to crystallize as local merchants found themselves increasingly squeezed.

One opposition group, the Teotihuacan Valley Civic Defense Front led by activist Ortega Moreno, waged one of the more high- profile fights against a store opening in Mexico. The group fought to stop the retailer from building a mere 3 kilometers (1.9 miles) from the 2,000-year-old Pyramid of the Sun.

Protesters including Moreno organized a sit-in for 24 hours in August 2004 that blocked the entrance to the construction site, La Jornada newspaper reported that year. After asking the United Nations Educational, Scientific and Cultural Organization and the International Council on Monuments and Sites to intervene, the group organized a demonstration in front of city hall in September, demanding to see a copy of Wal-Mart’s building permit.

The company never met with the protesters, Moreno said. Wal-Mart opened its doors in Teotihuacan, an hour’s drive from Mexico City, later that year.

Elena Poniatowska, the Mexican journalist and author, later told La Jornada that the Wal-Mart opening in Teotihuacan represented “the triumph of power and money over archaeological heritage and Mexican history.”

When the store’s cash register system briefly failed on opening day, some people muttered that it was the vengeance of the gods, the newspaper said.

Among the local business owners who felt the retail giant’s impact was Silverio Hermosillo, 45. He said his shoe store’s sales fell 70% as a result of Wal-Mart’s presence, even as he offered discounts to keep up with his bigger rival’s prices. The problem, he said, was that Wal-Mart offered credit cards to its shoppers to help them load up on purchases, leaving him unable to compete and pushing the town’s consumers into debt from which they’ve struggled to recover.

“When a shopping plaza comes to town, it destroys local commerce,” Hermosillo said. He now rents out most of his building to other businesses.

The struggle to thwart Wal-Mart’s expansion has continued over the years, though rarely with any results. In the colonial city of Queretaro last month, about 400 vendors from public markets protested in front of city hall after the local government approved the opening of 20 Wal-Mart-owned bodegas near their businesses, La Jornada newspaper reported. In Mexico’s public markets, created in the 1950s, butchers, fruit sellers, florists and fishmongers crowd together to sell their wares.

The one notable victory scored by the anti-Wal-Mart forces occurred last year in Mexico City. The local government there has taken action to protect local businesses, enacting an ordinance to keep large retailers from opening near public markets.

A judge struck down Wal-Mart’s injunction against the ordinance, the government said in November.

The ordinance echoes the opposition by the New York City Council to allow Wal-Mart Stores to open locations there amid union opposition. Just as it has in the U.S., Wal-Mart continues to grow in Mexico even as community groups try to slow its expansion.