The weak peso is dev­as­tat­ing Laredo, Texas

▶ One of ev­ery two retail dol­lars is spent by vis­it­ing Mex­i­cans ▶ “Now, with the peso, my cus­tomers aren’t com­ing any­more”

Bloomberg Businessweek (North America) - - Contents -

Cindy Gal­le­gos, an el­e­men­tary school teacher from Nuevo Laredo, Mex­ico, has sticker shock while look­ing for lace for her wed­ding dress. She’s in a fab­ric store just over the Rio Grande, in Laredo, Texas, and the price tag is $63. “It’s too ex­pen­sive,” she says. “When con­vert­ing to pe­sos, the price is im­pos­si­ble.”

Sur­rounded by racks of dresses and colorful rolls of cloth, the store’s owner, Sil­via Guerra, says: “We are dead over here. Busi­ness is dead.”

The peso is down 16 per­cent against the dol­lar in the past year, low­er­ing the pur­chas­ing power of Mex­i­cans vis­it­ing the U.S. All Texas bor­der cities are feel­ing a pinch. State data shows sales-tax re­ceipts down as much as 6 per­cent in the se­cond quar­ter from

a year ago, af­ter years of boom-time in­creases. But mer­chants in Laredo — where an es­ti­mated one of ev­ery two retail dol­lars is spent by Mex­i­cans—say busi­ness is off 50 per­cent or more.

“We are talk­ing about mil­lions and mil­lions of dol­lars per day that Mex­i­cans spend in Texas,” says Roberto Coron­ado, an econ­o­mist at the Fed­eral Re­serve Bank of Dal­las. “The city that de­pends the most on them is Laredo.”

Some of the pain is a reg­u­lar part of the ebb and flow in a slice of the U.S. econ­omy that’s re­liant on for­eign­ers and a city that, with four in­ter­na­tional bridges, is the coun­try’s big­gest in­land port. “When the Mex­i­can peso gets a cold, Laredo sneezes,” says Les Nor­ton, head of the Down­town Mer­chants As­so­ci­a­tion. But to­day Laredo is tak­ing two hits at once. The peso is down largely thanks to the de­cline in world­wide oil prices. (Mex­ico is a ma­jor ex­porter.) That’s also led to sharp pro­duc­tion cuts in the nearby Ea­gle Ford shale basin, one of the fields be­hind the surge in U.S. oil out­put in the past half-decade. Guerra’s fam­ily is im­pacted by that, too: Her hus­band re­cently lost his job leas­ing drilling equip­ment for Weather­ford In­ter­na­tional. “The news hit like a bomb,” she says.

Most of the 115 mil­lion peo­ple who legally cross the bor­der into Texas from Mex­ico ev­ery year are on shop­ping ex­pe­di­tions. They buy ev­ery­thing from jeans to smart­phones to toys to toi­let pa­per. Now there’s a lot less in­cen­tive to make the trip. A yard of Guerra’s pop­u­lar turquoise-col­ored crepe satin, priced at $8.50, cost Mex­i­cans 127 pe­sos last year; it’s 152 pe­sos to­day.

On Con­vent Street, a short walk from the Gate­way to the Amer­i­cas In­ter­na­tional Bridge, Kush Sam­tani is strug­gling to keep his 27-year-old elec­tron­ics shop open. Many store­fronts along Con­vent are boarded up or braced with metal grids over their win­dows, and land­lords have started leas­ing space to cur­rency-ex­change kiosks hawk­ing dol­lars for pe­sos at rel­a­tively cheap prices. At least 50 of the out­fits have sprung up down­town in the past year, ac­cord­ing to lo­cal mer­chants.

“They bring in ex­tra in­come,” says Sam­tani, who rents a cor­ner of his store to a kiosk. He says he has no choice. Al­most all his pa­trons are from Mex­ico, and many will likely re­sell the tablets and Blue­tooth speak­ers they buy from him at the Tepito street mar­ket in Mex­ico City. “Now, with the peso, my cus­tomers aren’t com­ing any­more,”

says Sam­tani.

Laredo (pop­u­la­tion 252,309) is among the least af­flu­ent cities in Texas, with about 30 per­cent of house­holds liv­ing below the poverty line. Xo­chitl Mora, a spokes­woman for the mu­nic­i­pal govern­ment, says the cur­rent slump is noth­ing the city can’t bounce back from. “This is not the first time that bor­der busi­nesses have dealt with Mex­i­can peso de­val­u­a­tions, the Amer­i­can re­ces­sion, or con­versely, the oil and gas boom,” she says. “It is, as they say, the na­ture of the beast.”

Guerra’s not as con­fi­dent. Born in the Mex­i­can state of Nuevo León, she’s lived in Laredo for 40 years, mak­ing dresses from her home and rais­ing three chil­dren be­fore tak­ing the plunge to be­come a small-busi­ness owner four years ago. She in­tends to wind down her busi­ness in May. “I started late in life, but I said, ‘I don’t care.’ And I did it,” she says. “I’m very sad that I have to close my store.” -Is­abella Cota

The bot­tom line A South Texas city runs into two prob­lems at once: a busted shale boom and fall­ing pur­chas­ing power for some of its best cus­tomers.

Cur­rency kiosks in Laredo

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