Bloomberg Businessweek (North America)
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”
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.