With online sales growing by up to 23% per annum in Mexico , it’s a dynamic and exciting market for retailers across the globe. The launch of a full Mexican Amazon site in 2015 further underlines the market’s potential, but it is not without its challenges – including fraud and poor infrastructure, to name a few.
To find out more about how brands and retailers can capitalise on the opportunity in Mexico, we spoke to Mario Nissan and Sebastián Tonda, respectively General Manager of Media & Performance and CEO of Flock – Linked by Isobar, a leading digital agency in Mexico.
Online sales are low currently, but growing quickly. What do you think is driving this trend?
There are several factors contributing to this shift. More and more businesses are tapping into the eCommerce opportunity, as trust in the online channel grows. If you look at AMVO, the Mexican association for online sales, for instance, there were 70 members this time last year, and there are now over 150. People used to be scared of doing business with brands they don’t know; but trust is growing as consumers are becoming more willing to use credit/debit cards and have more faith that products will arrive.
The rapid growth in Internet access and smartphone ownership, allowing consumers to be “always on”, are other key drivers of eCommerce in Mexico. And several global and local players are changing consumer expectations. Cornershop, for example, covers seven supermarkets and allows shoppers to order their groceries through a consolidated online system and have them delivered within 1.5 hours. New models like this are giving shoppers increased confidence in the online channel, and the Mexican consumer is eager to access better services through digital media.
Amazon launched in Mexico last year – is this driving a shift to online shopping?
Amazon have made a huge push in Mexico, with extensive branding campaigns in major media outlets and platforms. However, people were already purchasing on the US version of Amazon, and the Mexican experience is not currently as good, so it’s disappointing for those used to the superior US experience. Walmart, Mercado Libre and Linio are bigger players in Mexico currently.
What do Mexican consumers expect when it comes to delivery?
Current logistics and infrastructure in Mexico don’t support super-fast delivery, but consumers are nonetheless becoming increasingly demanding and often expect 24-hour or 48-hour delivery. Unless it’s a product with really high brand affinity – such as NikeiD which offers customised trainers entailing over a month’s wait for delivery – consumers are not willing to wait.
Larger cities like Mexico City, Monterrey and Guadalajara have now access to logistics networks like iVoy.mx, which offer 90-minute delivery within their borders.
Amazon is in the process of putting into place a logistics network in Mexico to support same-day delivery, as well constructing lockers in convenience stores.
Shoppers expect to be able to have items delivered to their home and work addresses, with the most popular fulfilment companies including DHL, UPS, Fedex and some local players. Liverpool, for example, offers a click-and-collect service but it hasn’t taken off yet in Mexico and is unlikely to do so unless it offers consumers shorter waiting times than standard delivery.
Delivery costs in Mexico are very high because they incorporate insurance payments due to security issues. In larger cities and for larger retailers delivery is often free; but outside of the main cities, you might pay $6-10 for delivery on a pair of jeans costing $20.
What are some of the challenges that retailers have to overcome in Mexico?
Getting payment methods right is a key challenge for brands and retailers operating in Mexico. Debit now accounts for around 80% of transactions, as it is accepted by more and more merchants, but fraud is a huge issue, with fraudulent transactions for new players accounting for around 30-40% of all online sales. As a results, retailers have to invest a lot of time and effort in improving security. PayPal has helped considerably, as it means that retailers don’t have to pay for the fraud.
What other payment options should retailers consider in Mexico?
Retailers are increasingly experimenting with different payment methods, such as prepaid credit and debit cards. The most important option for retailers to offer is split payment – for 3, 6, 12 and 24 months – with no interest.
OXXO, which is the largest convenience store chain in Mexico with more than 15,000 stores, is still a relatively popular payment option too, allowing shoppers to go into the store to pay by cash. Until quite recently, everything in Mexico was paid in cash; but now things are becoming increasingly digitalised, with more people opening bank accounts and moving away from cash.
What is the role of seasonal shopping events like El Buen Fin?
El Buen Fin is the largest shopping event in Mexico and is sponsored by the Government and Mexico’s retail association (ANTAD). Aligned with holidays and people’s bonuses, the event lasts all weekend and offers shoppers the best prices from retailers all over the country, so many people wait to go shopping – particularly for electronics. This creates the same issues for retailers in terms of margin as Black Friday. Hotsale, an online-only shopping event in June, originated in Argentina, is the next most popular event and is sponsored by AVDO. It saw sales growth of 147% across its three days this year, which was the third year that the event has taken place.
Are many foreign-owned retailers entering the market, and how can others learn from their experience?
Yes, more and more foreign-owned retailers are establishing a presence in Mexico - including H&M, American Eagle, Old Navy, Gap, Steve Madden and Banana Republic in the last year alone. Some enter the market through partnerships with department stores; others establish a presence independently. Almost all major US players are now in Mexico. The traditional approach is to open stores first, but increasingly retailers are focusing on the online channel.
Nevertheless, stores still play a fundamental role in introducing your brand to the Mexican market. We’d recommend opening at least some stores and using a combination of flagship stores and extensive advertising to raise brand awareness. Working with a local partner to run operations can work well, but retailers must ensure this doesn’t negatively impact their brand proposition.
What would be your top piece of advice for British retailers wanting to expand into Mexico?
Be very humble in understanding if your brand is relevant in Mexico. Gain a thorough understanding of your target market in Mexico and understand what you need to do to make your brand relevant in the local market.
Success in Mexico will likely involve a combination of flagship stores in the right places and an aggressive eCommerce strategy focused on delivering a better experience than your competitors. This might be in terms of the classic components such as price or service, or it might involve inventing a new type of experience (think Uber). If you’re looking for volume, focus on promotions and having an aggressive pricing and discounting strategy in place - Mexicans like deals and paying in instalments.
For more advice on planning your international strategy, download our 10-step guide to building an operational plan.