Changing Landscape of Mexican Retailing

Written By: Gargi Sarma

Introduction:

The retail industry in Mexico is a dynamic reflection of the changing socio-economic situation of the country, set against a lively background. The retail industry in Mexico is going through a paradigm shift that is changing customer behaviors, industry dynamics, and the meaning of the shopping experience itself as the nation experiences unprecedented changes.

The story of how Mexican shopping is evolving, from vibrant local marketplaces to the emergence of e-commerce behemoths, is an engrossing one that captures the meeting point of innovation and tradition. This article takes the reader on a tour of the many facets of Mexico's retail industry, examining the factors that are driving its development and the tactics used by merchants to prosper in this period of transition.

Figure 1: Growth of Modern Retail vs. Traditional Stores in Mexico (2013 - 2023)

We will discover the effects of evolving consumer tastes, technological breakthroughs, and international trends on regional markets as we explore the many facets of Mexico's retail scene. The retail narrative in Mexico is one of tenacity, flexibility, and an unshakable dedication to satisfying the changing demands of its heterogeneous customer base. This is evident in everything from the throbbing vitality of vibrant street markets to the smooth integration of digital platforms.

2023 Absorptions:

Mexico City leads the way in absorptions thus far in 2023, with approximately 104,000 square meters. With around 53,000 square meters, Monterrey comes in second, followed by Guadalajara at approximately 19,000 square meters and Queretaro at approximately 11,000 square meters.

Regional malls have dominated the retail space type in these four regions, accounting for 28% of the total absorption. Super-regional malls (20%), lifestyle centers (21%), and community centers (20%) all witnessed strong demand; power centers made up the remaining 11%.

Figure 2: Market Share of Online Retailers in Mexico

Regional malls are the industry leaders in terms of absorption, although no one form of retail space entirely controls the market. The Mexican retail market's adaptability and durability are highlighted by this broad demand. The supply and demand for different commercial spaces are balanced despite obstacles, providing a positive picture for Mexico's retail industry in 2024.

Challenges and Opportunities:

The shifting terrain carries with it challenges as well as opportunities. Retailers have to deal with challenges such as shifting regulatory environments, economic uncertainty, and disruptions in the supply chain. To fulfil changing customer expectations, merchants are encouraged to investigate new business models, fortify relationships, and invest in employee training as a result of these problems, which also present opportunities for creativity and resilience.

Challenges:

• E-commerce Surge: Conventional brick-and-mortar retailers are under tremendous pressure due to the emergence of online shopping giants such as Amazon and Mercado Libre.
• Integration Across Channels: It takes a large financial commitment for personnel training, logistics, and technology to seamlessly merge online and offline experiences.
• Consumer Preferences are Changing: Mexican consumers are looking for ecological and ethical products, expecting personalized experiences, and being more value-conscious.
• Informal Economy: Since a sizable section of Mexico's economy is run informally, formalizing retail businesses and collecting taxes would likely be difficult.
• Infrastructure Gaps: Inaccessible internet and logistical challenges in rural areas impede the growth of inclusive retail and e-commerce.

Opportunities:?

• Mobile-First Strategy: To target tech-savvy Mexican consumers, it is imperative to embrace mobile commerce, which includes easy-to-use apps, mobile payments, and social media marketing.
• Omnichannel Advantage: By effectively combining online and offline channels, a distinctive and practical shopping experience may be created, increasing client loyalty and revenue.
• Localized Strategies: You may accommodate a wide range of consumer tastes and open up new market segments by customizing product offers, pricing, and promotions to particular locations and demographics.
• Sustainability Focus: Mexican consumers are becoming more and more interested in socially and environmentally conscious goods. Adopting ethical sourcing and sustainable methods can draw in customers who care about the environment.
• Potential for Rural Growth: Increasing the reach of e-commerce and enhancing rural infrastructure can open up new markets and give rural people more influence.

Growth of E-commerce in Mexico:

The retail industry in Mexico is changing dramatically as a result of evolving consumer patterns, technology breakthroughs, and international economic conditions. Traditional brick-and-mortar retailers are embracing innovation as the nation's retail landscape changes in order to remain competitive in a market that is changing quickly.

The rise in e-commerce adoption is one of the biggest changes in Mexican retail. Customers are resorting to online platforms for their purchasing needs as a result of rising internet penetration and a growing population of tech-savvy individuals. Online retail sales have significantly increased as a result of consumers' ability to browse and buy from the comfort of their homes. Big and small retailers are putting money into strong e-commerce platforms to give their online-engaged customer base a smooth purchasing experience.

E-commerce will keep expanding even if some customers are still reluctant to shop online, particularly when it comes to fast delivery options. Compared to pre-pandemic levels in 2020, the percentage of Mexican consumers who bought online on a weekly basis climbed by 7% in 2021, while weekly trips to food stores decreased by 6%. Additionally, throughout COVID-19, the proportion of consumers who only ordered goods by delivery rose by 15%. Furthermore, home delivery is strongly preferred by online shoppers (80%) over click-and-collect (29%).

In contrast to pre-pandemic levels, online sales of books and consumer electronics rose significantly, and despite flat global demand, a wide range of consumer products showed a shift in sales to e-commerce platforms as a result of the pandemic (Figure 3).

Figure 3: Online Acceleration in Mexico (Source: McKinsey & Company)

Rise of Omnichannel Retailing:

For merchants in Mexico, integrating online and offline channels is becoming essential. The practice of seamlessly integrating online and offline purchasing experiences—known as omnichannel retailing—is becoming more popular. Nowadays, customers want a seamless experience that lets them browse things online, and buy them in-store, and vice versa. Retailers are making investments in technology that unites digital and physical retail, giving customers a seamless, customized experience.

Boom in e-commerce:

• Mexico's e-commerce revenues increased by 23% in 2022, outpacing growth averages before the epidemic (Source: Mexico Business News).
• During delivery, 75% of Mexican clients want real-time order tracking. (Source: "The Technological Effect" by SOTI)
• Smartphones account for 72% of all online purchasing traffic, making mobile shopping the norm (Source: Statista is the source).

Figure 4: Devices Used For Online Shopping in Mexico, 2023

The Omnichannel Necessity:

• If their chosen payment methods are not accepted in-store or online, 55% of customers back out of purchases (Source: AMVO).
• 61% of consumers prefer businesses that allow online shoppers to return items in-store (Source: AMVO).
• Retailers who are not omnichannel report a 33% customer retention rate, whereas omnichannel champions report a 91% rate (Source: Harvard Business Review)

Stories of Success Driven by Data:

• After putting omnichannel strategies like click-and-collect and in-store kiosks into place, Liverpool, a chain of department stores in Mexico, witnessed a 30% boost in online sales.?
• Walmart of México y Centroamérica increased online grocery sales by 137% in 2022 by utilizing omnichannel techniques.?

Localized Retail Strategies:

Mexican customers are now exposed to multinational brands thanks to globalization, yet regional retail tactics are becoming more and more valued. Retailers are adapting their products to suit local preferences as they become aware of the diversity within the Mexican market. This involves stocking goods that are in line with regional customs, preferences, and cultural quirks. The prioritization of localization enables shops to forge closer ties with their clientele, cultivating patronage and involvement in the community. Here are some crucial aspects to pay attention to:

1. Acknowledge Cultural Differences

• Family: Mexicans value spending time with their families, thus take into account extended store hours, family-friendly areas, and merchandise suitable for a range of age groups.
• Customization: Mexican customers value recommendations and individualized treatment. Employees should receive training on how to introduce themselves, greet clients by name, and foster connections.
• Festives: Make the most of significant Mexican holidays like Christmas and Dia de Muertos by implementing specialized advertising, décor, and unique product lines.

1. Prioritize mobile first:

• Smartphones: Mexicans are some of the world's most avid mobile buyers. Make sure your app and website are suited for mobile devices, use social media promotion, and provide easy payment options like cash-on-delivery.
• Omnichannel: Combine experiences from online and offline. Provide click-and-collect services, online ordering kiosks in-store, and easy cross-channel return and exchange processes.

1. Sensitivity to Price:

• Value-conscious customers: Mexicans are keen on costs, so provide loyalty plans, competitive pricing, and discounts. Take into account tiering prices according to income levels.
• Sales and promotions: Mexicans adore a good deal. To draw clients, hold frequent promotions, flash sales, and package discounts.

By using these tactics, you may modify your retail strategy to appeal to Mexican customers, create enduring connections, and realize the full potential of this dynamic market.?

Adapting to Changing Consumer Demands:

Retailers are changing to be ahead of the curve as consumer demands change. Speciality store growth and the creation of specialized sections within existing stores are the results of consumer desire for healthier and organic items. There's also a clear emphasis on reasonably priced luxury, as businesses carefully choose which products to provide to suit different price points.

Mexico is one of the most significant economies in the region and the second-biggest e-commerce market in Latin America. It can be challenging for local businesses, too, to comprehend the post-pandemic trends that Mexican internet consumers are following and what has changed in their online consumer behavior since COVID-19.

Figure 5: Premiumization and Health Trends in Mexican Retail (2022)

First, let's have a look at the demographic profile of Mexican online consumers. According to the AMVO survey from 2021, the majority of these customers are Mexicans between the ages of 25 and 34, however the number of shoppers over 45 has increased from 2020. Even more so, the participation rate of women and middle-class and upper-class consumers has increased.

Figure 6: Share of Mexico in E-commerce (Source: Beyond Borders, 2021 - 2022)

Online shopping was commonplace among 47% of Mexicans prior to the outbreak. But according to Forbes-Mexico, digital commerce is here to stay, with 74.3% of consumers making purchases online. This "new normal" is predicted to remain going forward. Despite demographic changes, the following list presents important general insights from Mexican online shoppers following COVID-19, derived from a McKinsey survey:

• After the epidemic, most respondents anticipated cutting back on their spending.
• New shipping methods are being tried by Mexicans: When the pandemic first began, 82% of respondents said they attempted a new shipping method, which they now do on a regular basis.
• Overall, following the pandemic, they continued to shop online as usual.
• Delivery services became permanent.

Conclusion:

Technology innovation, shifting customer habits, and an emphasis on sustainability are all driving significant changes in the retail industry in Mexico. It will be critical for retailers to embrace e-commerce, multichannel tactics, sustainability, localized approaches, and cutting-edge technology as they traverse this changing terrain. In addition to responding to international trends, Mexico's retail industry is changing to celebrate the country's distinct culture and wide range of customer base. The retail industry in Mexico has a bright future ahead of it, one that benefits both customers and companies equally if shops stay innovative and adaptable.

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