Reaching a realistic assessment of Mexico’s brand distribution potential
As the second largest retail market in Latin America, Mexico has long been considered an attractive market for international retail brands. With Brazil in recession, Mexico has been able to further improve its position. The country is now on the radar of current and new players seeking to conquer market share.
Cancun Downtown (Photo: M. Michelle)
H&M just announced the continuation of their rapid and successful expansion into Mexico. The Swedish giant intends to open 12 new stores in 2017, taking them to a total of 38 stores. According to industry experts, the Mexican H&M stores are performing among the best worldwide.
H&M Store, Toluca De Lerdo (Photo: Galerias)
Attractive Brand Distribution Mexico
Mexico, particularly Mexico City, is a key starting hub for international brands or retailers expanding in Latin America. Mexico is ranked No. 33 in CBRE’s 2016 report ‘How active are retailers globally’. 7% of 150 international brands interviewed for the report intend to open stand-alone stores in Mexico.
A number of international players with different regions of origin are currently increasing their presence in Mexico. The U.S. brand Timberland, which has launched in Mexico in 2014, currently runs 5 stores and plans on opening 3 more in 2017.
Apple also believes in Mexico, planning 2 more stores after having opened its first POS only in 2016.
German Hugo Boss is currently reviewing its global store network and cutting down stores in other parts of the world but continuing its expansion path in Mexico.
U.S. American Under Armor has recently introduced its 8th store in Mexico, while Canadian sportswear brand Lululemon opened its first Latin American showroom in Mexico a month ago.
What Does the Mexican Retail Landscape Look Like?
Mexico has a hybrid retail landscape with hyper-modern retail concepts dominated by shopping centers and approximately 2 million mom-and-pop stores as well as traditional markets.
In the past 20 years, a significant diversification in store formats has taken place, opening to all income levels and matching the growth of the middle class.
Formal retail penetration is low relative to mature markets and heavily concentrated in the largest cities with estimated 50% share of all retail sales.
Map of Mexico marked with key retail markets. (Map data ©2017 Google, INEGI)
Leading retail chains have developed smaller store formats to expand in midsized cities, seeking to exploit the significant pent-up demand outside the big urban areas.
Mexico is the second largest market for shopping centers in Latin America. In size, the Mexican market is equivalent to a third of the primary Latin American markets combined (Brazil, Mexico, Colombia, Argentina, Peru and Chile). Tendency growing, as real estate developers forecast around 200 new malls by 2025. Mexico City alone stands for 75% of the country’s total shopping center space.
Santa Fe Mall, Mexico City (Photo: Centro)
Department stores and variety stores are widespread all over the country. Unlike in many other countries, department stores in Mexico represent a very popular retail format, reaching very different price and income levels. Key department and variety store players in Mexico are listed below. The largest department store chains, Liverpool and Coppel, are among the 250 largest retail companies worldwide. The majority of department stores are located in the Metropolitan area and in the Center Region of Mexico.
Department Stores in Mexico
| Key Department and Varity Stores | Positioning |
|---|---|
| Almacenes Rodriguez | price-entry position |
| Chapur | bridge market |
| Cimaco | mid-market, family concept |
| Coppel | mass to mid-market positioned retailer |
| Del Sol | price-entry to mid market position |
| El Palacio del Hierro (PdH) | luxury market |
| Liverpool and Fábricas de Francia | mid-market, family concept |
| Sanborns | restaurant, retail, pharmacy and department store chain |
| Sears (Mexico) | mid-market |
| Suburbia | focus on fashion, price-entry to mid-market |
| Surtidora | price-entry position |
| Viana | price-entry position, strong in household domestics |
| Woolworth | price-entry family concept |
There are no legal restrictions on foreign companies to enter the Mexican market. Business practices such as lease terms are often similar as in the U.S. Due to Mexico’s diversity and security aspects, however, foreign brands often use distributors to establish their market position and better match the competitive and geographic landscape in Mexico. Partner stores or franchises have proven to be a successful formula for brand distribution in Mexico.
Two examples of distributors below.
Key Distributors in Mexico
| Company | Background | Brand Distribution |
|---|---|---|
| Grupo Axo | Born in 1994 to distribute and promote internationally renowned fashion, cosmetics and lifestyle brands in the Mexican market. Grupo Axo is a strategic and commercial business partner for these brands, representing, distributing and operating them through retail and wholesale strategies. In 2014, they took care of more than 2178 points of sale within the country’s major department stores and over 115 free-standing stores. | Brunello Cucinelli, Emporio Armani, Etro, Marc by Marc Jacobs, Coach, Kate Spade, Brooks Brothers, Guess, Tommy Hilfiger, Victoria‘s Secret Beauty and Accessories. |
| Exclusive Brands International (EBISA), Panama | The family owned company has over 40 years of experience with fashion and lifestyle business. | Michael Kors, Ralph Lauren, Calvin Klein, Anne Klein |
Finding Your Brand’s Footing in Mexico
Besides Mexico’s solid macroeconomic fundamentals, the country has a strong middle class as well as a strong sense of international brands and retailers. These features are offering rising market opportunities combined with increasing (international) competition. Therefore, foreign players need to develop appropriate and market-relevant ways of entering the market to achieve a meaningful brand position. Spanish Inditex group, for example, has a very strong (nearly five times higher than in the U.S.) and diverse presence in Mexico with its brand portfolio.
Flagship store Mexico City (Photo: Massimo Dutti Social)
Entering the market, no doubt about it, your brand distribution should take advantage of the strong and nationwide presence of department stores and their high footfall. Several department stores are also offering concession or shop-in-store models alongside the classical wholesale business.
Interlomas (Photo: El Palacio de Hierro Homepage)
Having developed international brand market entry strategies for some years, including in Mexico, I recommend moving wisely. If you are new to the market, prepare a good market study that considers the potential risks in the target countries, and take your time to review your options. Ideally, talk to some of the big players in the country such as department stores and distributors to get a better sense of the individual potential of your brand (see also my previous post). Combining local knowledge with global expertise is key.
We don’t know whether Mexico is a hot topic for you, or whether you have concrete expansion plans at the moment. What we do know is that Mexico is ready for (more) international brands now.
About the Author:
Isabell Guidastri has worked most her professional life with brands on their local and global brand distribution strategies, including many well-known global powerhouses in branding and retail. Traditional wholesale in Germany, retail in Mexico or franchise in Turkey were just some of her virtual project travels in the last 24 months. She has also supported brands in their expansion and location finding process for new markets. You can reach her by email or read more from her here.
