Mexico, like most countries, has been hit hard by the COVID-19 global pandemic. Although the number of confirmed cases in Mexico is still relatively low compared to the United States, the impact of containment measures on the economy has been severe. With just over one full month of shutdown behind us, financial institutions are already projecting 2020 GDP growth for Mexico in the range of -9% and potentially worse. Facing this outlook, retailers are scrambling just to stay in business first, and then to plan for an extended period of bleak near to mid-term consumer spending.
Mexican authorities ordered a shutdown of non-essential business activities on April 1, which included most businesses not related to food or health. As a result, shopping malls and most specialized retailers closed their physical locations, however grocery stores remain open with social distancing and other protective measures in place. Retail sales registered a surge of sorts around the outset of shutdown, according to a review of published reports on the topic, as uncertainty drove consumers to stock up on food, cleaning supplies and personal care products as well as anything else they needed. Sales have since fallen dramatically in most categories, however, as stay-at-home practices and shrinking income drag down spending. Locations with a significant influx of international visitors, such as resort zones, the capital and other major cities, have been hit particularly hard in sales of luxury goods, souvenirs and the hospitality industry in general.
On-line shopping, understandably, has boomed under quarantine with brick-and-mortar options off limits. Industry analysts point out that grocery and general merchandise retailers, department stores and specialty retailers that had already built up their omnichannel marketing capabilities moved quickly to capitalize on this advantage. Perhaps less intuitively, grocery stores have posted strong food sales as consumers have shifted to eating in rather than having lunch near their workplace or dinners out. We have heard anecdotally, as well, that sales of kitchenware have declined less than expected, perhaps for the same reason. Nonetheless, buyers for two leading department store chains recently reported to us that due to the overall drop in sales, they are focusing on reducing inventories for the moment in most categories rather than restock with new orders. Any new orders will be for small quantities, they added.
The road forward, as elsewhere, is deeply uncertain with many smaller retailers facing the prospect of insolvency. Some retailers here have called on mall operators publicly to renegotiate rental agreements. Walmart and Chedraui, for their part, announced programs to suspend or reduce rents for small businesses operating within their stores. Either way, few will come out ahead until consumers are able to earn and spend money freely, and that scenario is not yet visible on the horizon in Mexico.