Wednesday, April 26, 2006

Sales Tax and the Mexican Economy

Hi Hector,

I didn't want to hijack the rep's blog for a side discussion. I'll also add this to RGV Life for public comment. Here is what you wrote:

What would this do to Mexico's economy if the majority of wealthy Mexican nationals were faced with the decision to either spend money in their own country or ours during peak holiday seasons? Would this improve Mexico's economy?
I'd like to know, please respond either here or email me..

I don't have hard facts to which to point, it's just my best guess from talking to many of my Mexican customers. The average Mexican doesn't shop for taxable goods. They will go to the flea markets in Hidalgo, here in Mission, or other places. They are looking for goods for resale. So, they don't bother with manifiestos because they don't pay taxes on the stuff anyway. These shoppers don't typically come here and stay at a hotel and fill their suburbans with goods during peak holiday seasons.

Those who do come here for peak holiday seasons are, not suprisingly, business owners or executive level employees. They have disposable income that they intend to use on quality goods and services. So, they will stay at the nice hotels. They will dine out, shop, and seek entertainment. They are not average Mexicans, but they LOVE getting a bargain. One of the most asked questions in retail here in the RGV is "si compro en cantidad, hay descuento?" Of course, for wholesale prices, you need to buy a few hundred or thousand items to make the price break worthwhile. So, I'd tell them that we did not offer price breaks because we simply did not have enough quantity to justify it. Still, they would buy $200 to $300 in goods. But, it must be something in the Mexican psyche that demands that they try to find a bargain. That 8.25% they save goes towards buying more stuff. In contrast, the average Mexican will buy $20 to $30 of goods after much debate on the right mix. There is a big difference in purchasing power between the upper class and the typical person.

Your question is what would happen if they stayed there? Would it help the Mexican economy? It is unlikely. The upper class shop here because of the quality of our goods. Mexicans do have products on their shelves, but they are priced and marketed for the majority, who aren't generally wealthy. The quality of their goods is different from the quality of ours (not necessarily inferior, but perhaps perceived that way). So, they'll come here to shop anyway, but will buy fewer goods due to the increased cost from sales taxes. We'll see slower inventory turnover, which is bad for business. Mexico does not have substitutes for the products we offer, except for services or imported products at inflated prices. So, it is vital to us here in the RGV and Texas, to keep them shopping.

Many of the wealthy families who have homes here have their businesses back home in some part of Mexico. One of the good things about being in business is that you can buy stuff below retail cost, keep what you want, and sell the rest. So, many of the people who come here to shop can already buy Mexican goods at below retail prices because they are business owners. They have more money to spend than the average Mexican, but it is still finite. They may have cases of products for sale to the general public in their shops or factories back home, but those goods are not necessarily a good value for their personal tastes. Average Mexicans, on the other hand, can get everything they need back home at better prices. They are more willing to substitute with lower quality than the wealthy.

There was an answer in there somewhere. I believe it was that the shoppers who support the RGV economy would still shop here, but would buy less if we got rid of the manifiestos. Therefore, the impact to the Mexican economy would be negligable as they can already get bargains for Mexican products. The people who shop here ARE the Mexican economy. If there is an increase in the middle class and there is higher demand and production of high quality goods, perhaps the Mexican elite will stay home to shop. But, they can't buy what isn't there.

Does that make sense? I should note that my response is RGV and Texas centric. After all, it is not Austin's duty to worry about the Mexican economy. It is not in the RGV's interest to keep shoppers away. I believe that I live in a great country. I believe that I live in a great state. And, I believe that the Rio Grande Valley is a great place to live (most of the time). So, my thinking goes along the lines of what is good for Shaine Mata here in Mission, Texas, USA. More commerce in the RGV means more jobs that can turn me down when I apply for them. I'll get something eventually. If we slap a big source of our revenue in face with a sales tax, my chances for getting a job go down with slower sales.
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