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Retail in Mexico: Four Trends To Watch In 2017

January 18th, 2017

Retail sales in Mexico grew an impressive 7% in 2016 thanks in large part to a stable economic performance despite global uncertainty. Below, Euromonitor International highlights four major trends that will likely shape the industry in 2017, including the impact of the strong US dollar, the proliferation of interest-free financing offers, mobile retailing, and continued company activity in the form of mergers, acquisitions, and expansions.

Impact of the strong US dollar

Largely as a result of international macroeconomic factors, the value of the Mexican peso relative to the US dollar declined by 42% between 2013 and the end of 2016. While the costs of imported products have increased, the value of remittances has also climbed – 26% in current local currency terms in the first 10 months of 2016 compared to 2015, according to the Banco de México. The exchange rate has also had positive implications for Mexico’s tourism market, and those indirectly benefited by it.

In 2015 and 2016, many retailers tried to avoid passing the full costs on to consumers. With the dollar projected to remain strong and inflation expected to increase, many retailers may be unable to continue this strategy. While discretionary purchases such as apparel and homewares will likely show the biggest impact from reduced spending power, there may be spill over effects on other categories, similar to the effect on cosmetics of the IEPS tax on soft drinks. When IEPS went into effect, many consumers traded down to more generalised beauty and personal care products without a specific age or gender positioning in response to greater spending on soft drinks.

Institutionalisation of interest-free financing

Financing in the form of interest-free months (meses sin intereses, or MSI) have been extended to consumers from retailers and banks so frequently that it has become expected and institutionalised in the minds of consumers. Originally extended primarily by national retailers during special events such as the Hot Sale and el Buen Fin, the practice has become widespread amongst both local and international companies. Furthermore, MSI has become a very common feature of store cards as well as bank-issued credit cards, with nearly every credit card issued by major banks offering some form of interest-free instalment plan.

The impacts of this trend are still uncertain. While financing has been a factor driving consumption, particularly of durable and semi-durable goods, many consumers may find themselves financially overextended as interest-free payment periods conclude.

Mexico leads the region with mobile retailing

Despite the fact that Mexico lags other Latin American countries in terms of total internet retailing, with just 2.5% of all sales being done via the internet in 2016, Mexico leads the region by a large margin in terms of the prevalence of mobile internet retailing. In 2016, approximately 24% of all internet retailing sales in the country were carried out via smartphones or tablets, compared to 12% for the region overall. Part of the success of mobile is attributable to access: the penetration rate of smartphones in Mexico in 2016 was 133%, meaning there were more smartphones than households.

The second component is company activity. Consumers across the region are willing to browse via mobile, but outside Mexico, relatively few visits convert to sales. Pure internet players and international retailers have been leading the push for mobile, but increasingly, multi-channel retailers in Mexico offer mobile-optimised websites or apps. Many retailers in other Latin American countries offer only desktop versions.

In addition to a smooth user experience, major retailers in Mexico have created an effective value proposition for shopping on a mobile. For example, Privalia is particularly effective at mobile sales because deals are time-sensitive, encouraging consumers to buy at the same time they browse, rather than waiting to complete the transaction at home.

Local retailers in expansion mode

2016 was a year full of company activity, as domestic retailers sought to take advantage of economic stability in Mexico to grow their footprint and entrench their strategies:

  • Soriana proceeded with integration of the former Comercial Mexicana stores and announced a joint venture with Chilean Falabella to introduce home improvement chain Sodimac; strengthening Soriana’s position as a dominant national player across merchandise categories.
  • Femsa completed a series of acquisitions boosting its network of convenience stores and pharmacies across the region. More acquisitions in Mexico and abroad are expected as Femsa seeks to further consolidate its role as a leader of small format, chained retailers.
  • Liverpool acquired all Suburbia locations, expanding to a new consumer group, as well as Chilean department store Ripley, expanding to a new market. Liverpool has established itself as a popular partner for international apparel and homeware brands seeking to enter Mexico, and the move gives Liverpool increased negotiating power.

2017 will likely bring even more mergers, acquisitions and expansion activity as consumer expenditure slows in Mexico, creating a tougher environment for retailers, and as other economies in Latin America begin to pick up.

 

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Amanda Bourlier

Amanda Bourlier is a services and payments analyst at Euromonitor International, conducting competitive intelligence studies and analyzing sectors including retailing, tourism, and consumer finance in North America.  A graduate of the University of Michigan, her professional interests include international strategy and the effect of politics on business environments and consumers.

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