7 May 2009

Mexico’s retail industry is experiencing a slowdown, but this should be seen as an opportunity says Microsoft’s managing director of distribution and services for Canada/Latin America Juan Mertins.

Mexico is a federal republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize and the Caribbean Sea; and on the east by the Gulf of Mexico. Mexico City, whose metropolitan area has one of the highest population densities in the world, is home to an estimated 16 million inhabitants. With a total population of 110 million and almost two million square kilometres (761.6 million square miles) of territory, Mexico is the 11th most populous country and the 11th economy in the world by gross domestic product (GDP), which reached a record US$1.5 trillion in 2007.

Mexico is the largest North American automobile producing nation, recently surpassing Canada and the US. Considered a newly industrialised country, Mexico’s economy is strongly related to the North American Free Trade Agreement (NAFTA) which includes the US and Canada. Other major trade agreements have been signed with the European Union, Japan, Israel and many countries in Central and South America. Measured in the dollar value of exports, Mexico was the 15th largest exporter in the world and had 16 companies listed in the Forbes Global 2,000 largest companies in 2008. Almost 90 per cent of Mexican exports are destined for the US and Canada, and close to 65 per cent of its imports come from these two countries. As a result, the US financial crisis and resulting fall in retail sales has also affected Mexico’s exports and the industry in general. The financial sector has not been immune to the crisis either. Mexico’s banking system has strong relationships with both the US and European banking systems.

Retailing in Mexico
There are no published statistics for consumer confidence levels in Mexico, but good guidance can be obtained from the National Association of Department and Self-Service Stores (ANTAD), whose members include 14,034 stores in total. Of these, 2,244 are self-service stores, 957 are department stores and 10,833 are speciality stores. Total sales floor for ANTAD members amounts to 15.2 million square metres. ANTAD members started experiencing a deceleration in national sales growth around mid 2008 – a trend that trails the US phenomenon with several months’ lag. The lag is a peculiarity of the countries with a high dependency of the US market when reacting to economic events happening there. While it could buffer the Mexican economy during several months, the lag typically also applies to any eventual recovery.

Measured in the dollar value of exports, Mexico was the 15th largest exporter in the world and had 16 companies listed in the Forbes Global 2,000 largest companies in 2008

Juan Mertins, Microsoft The retailing sector in Mexico is clearly divided between the ‘locals’ and Wal-Mart, the US giant. Between the locals, Soriana is the biggest player in the food market, followed by Chedraui, Gigante and Comercial Mexicana. The latter suffered from a liquidity crisis by mid-year and triggered concerns in some sectors and anticipation in others.

Total December 2008 Sales
There was a decrease in ANTAD members’ sales in December 2008, compared with December 2007 sales. Overall sales decreased by 4.5 per cent, and same-store sales were down 10.7 per cent (note: December 2008 had one less weekend than 2007). The different types of retailing and their decrease in sales are shown in the table below.

The highest decrease in sales by far was experienced in electronics (-20.4 per cent) and furniture (-30.4 per cent). Results are aggregated in the table.

While the deceleration of growth has negative connotations, it also means opportunities for the nimble and the well-prepared. In terms of market share we predict a consolidation of players that could be mild or dramatic depending on the time the economy takes to recover. Small format stores may replace the large formats in expansion plans. From the technology point of view we at Microsoft see good opportunities for vendors with a well-developed product to assist in managing the business and enhancing the shopper experience. Mexican shoppers have changed, as have their counterparts around the globe. They are more informed, less loyal and hunting for value. If they can do that at your stores while enjoying a satisfying experience, they might sit down for a good coffee and come back with a friend next time.

A word of caution if you are a vendor of technology: only those that can demonstrate a strong record of success, a very high return on investment and short payback need apply.


This article first appeared in the Summer 2009 edition of Retailspeak magazine.

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