Notes on the Mexican retail sector

You gettin' some?
You gettin' some?

Mexico’s retail sector, a key bellwether for the health of the domestic economy, took a severe beating in 2009.  In the space of a few months, economic activity was affected by the international recession, the influenza outbreak, drug violence and drought.  Fortunately, varying degrees of recovery in the United States spurred some rather healthy signs of economic revival in Mexico as well.  General merchandise and specialty store chains such as Wal-Mart, Soriana and Coppel reactivated expansion plans in 2010, and through July of this year, overall retail sales were up 9.2% over the same period for 2009, according to the ANTAD retailers association.

As retailers strive to recover from the effects of the recession and find new ways to strengthen their sales, certain trends are emerging within the market.  Perhaps the most visible of these is the sudden love affair between retail chains and banks that has sprung up in the wake of recent regulatory changes.  This new relationship has taken various forms, including the following:

  • Bank branches in grocery stores: Banamex, for example, has partnered with the Soriana grocery and general merchandise chain to operate bank branches in Soriana stores, and  Boncomer operates branches in some Comercial Mexicana stores.
  • Retail chains operating their own banks: Wal-Mart, Coppel, Famsa, Elektra and Chedraui now operate their own banks, providing their customers financial services on-site in their stores.
  • Stores offering financial services on behalf of banks: Financial authorities will soon permit banks to authorize stores such as convenience chains to carry out banking operations on their behalf.  Banorte has allied with 7-Eleven for the chain’s sites to take account deposits, bill and credit card payments and other banking services.

In addition to boosting traffic by offering financial services, grocery stores in particular are offering a greater variety of goods including more gourmet, organic and “environmentally sustainable” products.  North American and European producers of specialty products have been able to take advantage of their more advanced product development in these areas to serve this growing demand.

The growth of internet commerce in Mexico has lagged behind that of its NAFTA partners, but a surge appears now to be underway.  E-commerce sales in Mexico totaled close to US$1.8 billion in 2008 and growth of some 85% was projected for 2009, according to the Mexican Internet Association (AMIPCI).  Despite the recession, advertising on Mexican internet sites rose 24% last year, the AMIPCI reported.    Marketers are now beginning to leverage social networking resources as well, as sites such as buzzurbano.com team up with retailers to offer promotions that use Twitter and Facebook to spread the word.  MercadoLibre.com, a portal for electronic classified ads, has now allied with the Oxxo convenience chain to allow customers make payments for their on-line purchases at Oxxo locations.

Another channel increasingly pursued by large Mexican retail chains is expansion abroad.  The Chedraui grocery and general merchandise chain obtained a foothold in the United States when it took over Gigante’s locations in California, and this year projects its U.S. presence will reach 21 locations, under the Fiesta Foods brand.  Coppel, a downmarket department store chain, reportedly plans to test the waters in the markets of Brazil and Argentina, initially with two stores in each country.  Upscale department store and commercial real estate developer Liverpool, meanwhile, has obtained a beachhead in Central America and the Caribbean through the purchase of a 30% stake in Regal Forest Holdings, which operates appliance and furniture stores under various brands and formats throughout the region.

For more on retail, check out ANTAD and our friends at the International Housewares Association.

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