FEATURE ARTICLE, OCTOBER 2011

AN EMERGING MARKET
Retailers have targeted Hispanic consumers in the wake of increased migration to Texas.
John Nelson

H-E-B owns and operates a Hispanic concept store in Pasadena, a suburb of Houston, called Mi Tienda (“my store” in Spanish). As of right now, this pilot store is the sole Mi Tienda in the H-E-B portfolio.

The continual emerging presence of Hispanic consumers has been a boost to retail in Texas for the past few years. The influx of Hispanic shoppers has increased revenue spent in Texas, especially in border cities like El Paso, McAllen and Laredo.

In response to the increased migration, retailers from the U.S. and Latin America have targeted Hispanic consumers with specifically designed retail options.

“Hispanic retail is a whole new niche market. We’re trying to learn about it and understand it a little bit better,” says Roberto Coronado, an economist with the Federal Reserve Bank of Dallas. “The Hispanic market is a very complex market.”

The retail market for Hispanic consumers in Texas has widened significantly due to the numbers of Hispanic residents in Texas, as well as from Mexican nationals who come to Texas to shop.

MIGRATION

The Hispanic presence in Texas now stands at 37.6 percent of Texas’ general population, according to the 2010 U.S. Census. Hispanics make up 16.3 percent of all residents in the U.S., so Texas is outpacing the national average by a significant margin. Compared to all other states, 18.7 percent of all Hispanics living in the U.S. live in Texas.

“Everybody is recognizing that Hispanic consumers are not minorities anymore,” says Jose Lizan, vice president of business development for the International Council of Shopping Centers. “In Texas, there’s a majority of Hispanic consumers.”

Among the top 20 cities with Hispanic populations in the U.S., Houston comes in at No. 3 with 2.06 million Hispanics, compared to Number 1 Los Angeles with 8.1 million and Number 2 New York with 4.59 million. Three other Texas cities made it into the top 20, including Dallas/Fort Worth at Number 6 with 1.85 million, McAllen-Brownsville with 1.16 million and El Paso at Number 15 with 777,900.

“The local population is growing fast in the border cities, and Texas has Mexican nationals crossing the border to shop and work every weekend,” says Lizan.

Texas retailers have seen an increase of Mexican nationals coming across the border to shop and dine. This cross-border commerce has proven to be an important cog in several border cities’ economies. According to the Federal Reserve Bank in Dallas, the historical average (from 1978-2009) of Mexican nationals’ spending in Laredo makes up 30 percent of all spending. It’s at 26 percent for McAllen, 16 percent in El Paso and stands at 7 percent in Brownsville.

Several factors have contributed to the boom of Hispanic presence in Texas. The most obvious one is proximity. Texas borders Mexico and some of Texas’ border cities are within walking distance to Mexican municipalities. Cities like Juarez are within 3 miles of El Paso and Reynosa is only 12 miles away from McAllen. This proximity has naturally helped boost Hispanic presence in Texas.

Texas is also much wealthier than Mexico. The gross domestic product per capita in Mexico in 2010 was $13,900. In Texas, it stood at $45,940. This disparity has naturally led to an influx of Mexican nationals to enjoy the prosperity in Texas.

Another factor is the recent surge of violence in Mexico due to the drug cartels fighting with Mexican authorities. The death toll for drug cartel violence in Juarez was approximately 3,000 in 2010. The violence has led Mexican nationals to come to the U.S. at a higher rate just to get out of harm’s way.

The boom of Hispanic migration into Texas has had a significant impact on the state. Whether it’s people moving in or just coming on the weekend to shop, Texas is benefiting from the influx. And retailers are taking notice. 

WHAT RETAILERS ARE DOING

Retailers are shifting their focus to capitalize on this emerging niche market. Established national and international retailers are targeting this market in a variety of initiatives and marketing.

“You have all types of retailers trying to capture the market share of the Hispanic consumer,” says Lizan.

Walmart Stores, in an effort to tap the market, has launched a brand of stores known as Supermercado de Walmart, with a 39,000-square-foot store opening in Houston in 2009. The store features more ethnic food choices like specialty meats, tropical fruits and traditional Mexican breads and cheeses. The stores also feature a cocina so families can dine-in during their visit.

Walmart also delivered a 143,000-square-foot Mas Club in Houston in 2009. Mas Club is similar to Sam’s Club in that it’s a members-only warehouse retailer offering large quantities of goods at discounted rates. Mas Club features outdoor shopping and international brands, as well as a café that offers fresh-made tortillas.

Similarly, H-E-B operates a Hispanic concept store in Pasadena, a suburb of Houston, called Mi Tienda (“my store“ in Spanish) that features a restaurant offering Mexican and Cuban options. United Markets also has launched concept stores in Texas called Amigos.

Houston-based Fiesta Mart has expanded to approximately 60 stores in the Houston, Dallas/Fort Worth and Austin markets. This retailer offers traditional Mexican groceries and services. Most locations feature a traditional Mexican hot deli (known as salchichonerias).

These U.S. retailers are targeting a specific market with different signage, product mix and brand extensions.

“The Home Depots, Targets and Walmarts of the world, depending on where they operate, lure Hispanic customers in different ways,” says Lizan. “You also have the purely Hispanic retailers like the Fiesta Supermarkets in Texas. These customers shop in the Hispanic grocery stores but also in Walmart.”

It’s not just U.S. retailers tapping the Hispanic market — it is working the other way too. Retailers from Latin America have emerged in Texas to tap into new markets.

FAMSA has expanded from Mexico into the United States with 24 stores currently in Texas. The appliance and furniture retailer currently operates more than 370 stores in Mexico alone.

FAMSA, an electronics, mattresses, appliances and furniture retailer from Mexico, has more than 370 stores in Mexico and 53 stores in the U.S. FAMSA is currently operating 24 stores throughout Texas, with the first one opening in 2003 in Dallas.

Other Latin American retailers that have expanded into Texas include Fred Loya Insurance, El Super, Dona Tota Gorditas and Banamex.

The amount of businesses owned by Hispanics in Texas stands at 20.7 percent, while only 8.3 percent of U.S. businesses are owned by Hispanics, according to the 2010 Census. This shows again that Texas is outpacing the national average with its Hispanic presence.

Visa has recently announced a 3-year extension with the United States Hispanic Chamber of Commerce that will continue to provide Hispanic-owned merchants customized access to Visa services for small businesses.

Some retailers have looked for outside help in tapping into Hispanic markets. Denny’s Corp. has recently made Casanova Pendrill, a leading Hispanic advertising agency, its agency for targeting Hispanic consumers.

These migration trends have been a definite boom for Hispanic retail, but whether or not the long-term effects are beneficial is questionable.

OUTLOOK

Migration from Mexico and other Latin American countries has reshaped the cultural landscape of Texas. U.S. and international retailers alike have tried to capitalize on this emerging niche market.

Based on data compiled by the William C. Velasquez Institute, the Hispanic population in Texas is expected to top 50 percent of the general population between 2020 and 2030.

Coronado is worried about the effect that the migration is playing on consumers as a whole. The economies of Mexican cities will get worse if the richer citizens keep coming to the U.S. So, ultimately, there will be less choices in the marketplace for the consumer because the opportunities on the Mexican side could dissipate.

Also, with the influx of consumer spending from Mexican nationals, Coronado fears that Texas cities will depend too much on the revenue they bring.

“My hypothesis is that in cities like El Paso will show a higher dependence on cross-border shoppers going forward,” says Coronado.

The emergence of international retailers has been a welcome sight for the consumer, offering more choices and prices for goods and services. Lizan doesn’t believe that any Hispanic retailer is quite ready to go national in the U.S., despite some strong showings in different regions, especially in Texas.

“At this point, I can’t see a Latin American retailer going national because the U.S. market is so big and most don’t have the size to go national,” says Lizan.

Migration is expecting to only increase and retailers will continue to cater to their needs. Along the border, migration could have a negative impact because of the complementing nature of border cities, but more inland markets like San Antonio and Houston are expecting to only gain from the influx of Hispanic consumers.

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