Lessons from Luxury: What Fast Fashion Can Learn in Mexico

Mexico has seen a flood of incoming low-cost and standard international apparel brands in recent years. 2012 brought Forever 21, Express, Stradivarius and H&M to Mexico, while 2013 saw the entrance of the likes of Under Armour and American Eagle Outfitters as well as the launch of Banana Republic’s own apparel specialist stores. By contrast, all luxury brands tracked by Euromonitor International in Mexico have been in Mexico since at least 2008, with the exceptions of Miu Miu (2012) and Tag Heuer (2013). Despite differences in positioning, pricing and target consumers, fast fashion brands can take cues from the successful strategies implemented by luxury brands with more time and experience in Mexico.

Build a following before building outlets

In designer apparel and footwear, upscale department store El Palacio de Hierro is Mexico’s gatekeeper. With the exception of Salvatore Ferragamo SpA, every luxury brand tracked by Euromonitor International has opened its own bricks-and-mortar stores only after several years of sales through other channels, primarily through El Palacio de Hierro, but also increasingly through internet retailers. Burberry Group Plc, for example, opened its first stores in 2010, but began sales in Mexico in 2008 through third party retailers. This strategy of licensing lowers the costs of entry to the market as apparel brands can forego investing in physical stores until after their brand is familiar to consumers. Internet retailers may be the opportunity for standard brands to get off the ground in Mexico that El Palacio de Hierro has offered luxury brands: internet sales of apparel through online retailers are expected to show an 18% CAGR between 2013 and 2018. The most important internet retailers of apparel and footwear in Mexico are currently Dafiti, Linio and Privalia, but there is still room for new players in the internet retailing space. By contrast, department stores and apparel specialists are both projected to see value CAGRs of just around 5% over the same time period. In contrast to luxury brands, where exclusivity and protecting the brand from saturation are key concerns, fast fashion thrives on offering a wide range of quickly changing items to build a following. Internet retailers can support this more cost effectively and – critically – more dexterously than bricks-and-mortar stores, giving fast fashion brands immediate and broad exposure to customers.

Leverage loyalty and easy credit

Mexico’s credit card market is widely viewed as being significantly underdeveloped, with just 21 personal credit cards per hundred people. Reasons for this include concerns about security, stringent application requirements and a strong culture of cash payments. Low credit card usage limits large purchase spending and constitutes a barrier to internet sales – problematic for apparel brands seeking to build a following online before launching in-person and for brands seeking to target consumers living away from store outlets.

Non-apparel specialists such as Wal-Mart have enjoyed enormous success with store cards (cards that extend credit only to consumers shopping at the card-issuing retailer). Spending on store cards in Mexico is expected to grow at a 7% CAGR to 2019, outpacing credit, charge and debit spending. Consumers often view store cards more positively as the card is viewed as an extension of the favourable relationship they already have with the retailer, eliminating much of the distrust surrounding credit cards. Retailers are often able to offer easier approval than issuers of credit cards, such as requiring a lower monthly income or a shorter credit history. Store cards also give underbanked consumers a method of payment that can be used for internet purchases. Perhaps most importantly for building brand success in Mexico, however, is the chance store cards offer retailers to build loyalty with shoppers. Store cards give retailers unique opportunities for individualised promotions as well as detailed insights into the purchasing habits of their most loyal customers. Department stores have seen enormous success with this model: El Palacio de Hierro, for example, reports that nearly 50% of its sales are made with store cards.

Rising income redefines affordability

Average per capita disposable income in Mexico is set to grow 40% in constant value terms between 2014 and 2019, from Mx$9,113 per month in 2014 to Mx$12,757 in 2019. While there is much talk among premium brands of “affordable luxury” and the concept of treating oneself by indulging in purchasing an item from a premium brand once in a while, the same concept can be applied to standard and economy brands. The boom in international brands in Mexico means international brands at all price levels are no longer accessible only to high-income consumers who make most of their apparel and footwear purchases while traveling abroad, and rising income levels mean consumers are increasingly in a financial position to take advantage of this. A broader range of consumers is more easily able to “indulge” in the kind of short-term yet frequent consumption fast fashion brands push.

 

Learn more about trends in apparel in our Fashion E-tailing: Innovation Hotspots, Omni-channel and Mobile Development on-demand webinar.