Business: Border Boom

The streets of Laredo are a smugglers’ paradise

Most American merchants were happy when their sales volume just kept ahead of inflation in 1978, but those in Laredo, Texas really had a banner year. Their sales will probably be a record $470 million—or more than $6,000 for every one of Laredo’s 76,900 residents. Pretty impressive for a border town where per capita income is only $3,575, one of the lowest in the country.

If Laredo’s storekeepers had to depend on the locals for patronage, they would starve. Nearly all of their customers are Mexicans who cross the border to buy American, European and Japanese products, which they consider superior to Mexican goods. Brand-conscious Mexicans think the General Electric refrigerator that is produced in the U.S., for example, is much better than the one GE makes in Mexico.

Some of the merchandise is taken back into Mexico legally (and duty is paid on it); much more is smuggled, by individuals for their own use or by professionals for resale. The total value of goods smuggled into Mexico from the U.S. is thought to approach $1 billion a year.

The traffic, which violates Mexican but not U.S. law, benefits stores in other Texas cities too. Mexicans account for an estimated 20% of all retail sales in San Antonio. In Houston, the Sakowitz department store does 10% of its business with Mexicans. Says Maurice Aresty, executive vice president of Houston’s Retail Merchants Association: “They buy shoes, furs and all the jewelry they can carry back.”

Laredo is the hub of the trade. Poor Mexicans make many small purchases, but large amounts of goods are bought by the rich, a number of whom buzz into town in their Lear jets from as far away as Mexico City. Sometimes they are met at the airport by a 1939 Rolls-Royce belonging to Joe Brand, who owns three Laredo clothing stores. Other wealthy Mexicans fill empty suitcases with $195 suede handbags or $105 men’s loafers from the Gucci boutique in the Frost Bros. department store. Says Gary Payne, general manager of the Laredo Chamber of Commerce: “The Mexicans don’t even look at the price. That’s their last priority. They want quality, fashion and availability.”

In Laredo, some still unpaved streets are lined with quaint, two-story Spanish-style buildings that house hundreds of tiny discount shops. Aisles are packed with color TVs, pocket calculators, tape decks and radios. Prices—$460 for a Sony 17-in. portable color TV, vs. $634.95 at Foley’s department store in Houston—attract a different kind of professional smuggler, the chiveras. They sometimes hire pilots, who are occasionally smugglers themselves, and twin-engine Beechcraft “Beech 18” airplanes with the noses extended 6 ft. to haul more cargo.

Whatever merchandise is not pre-ordered by specific customers may wind up on the streets of the Tepito section of Mexico City. Prices there, even after the mardida, or bribe, that chiveras must pay to Mexican customs agents, are low. A Panasonic radio cassette that sells in the U.S. for $40 was snatched up in Tepito for $65 at the same time that a Mexican department store was selling it on a special for about $90.

Under President José López Portillo, the Mexican government has tried harder to stamp out the smuggling. Tepito has been raided by the police three times in the past year, and in Nuevo Laredo, across the Rio Grande from the U.S. town, customs agents have been clamping down. This has put a crimp in some Laredo businesses. Jack Cowl, who runs a music store, has seen sales drop 50% since 1976 and has taken to offering discounts for the first time on his top-of-the-line McIntosh and Nakamichi stereo equipment. But clothing stores like those of Joe Brand and Frost Bros. still appear to be doing just fine.

A greater threat to Laredo’s boom: U.S. companies are opening low-wage factories in Mexico that make goods and ship them to the States. So some Laredo shoppers, when they get back across the border and closely inspect their loot, find labels reading: MADE IN MEXICO.