Mexico’s e-commerce market is quickly becoming one of the most dynamic growth sectors in the country’s economy. Companies such as Amazon, Best Buy, Wal-Mart, and Palacio de Hierro are all investing in e-commerce in Mexico. I checked in with David Bernardo, the founding partner of LITS ebusiness, a leading e-commerce consulting firm that is based in Mexico City. Bernardo is widely considered to be one of the leading experts in the emerging field of e-commerce in Mexico and has also launched the ebusiness academy, a school focused on e-commerce education. Here are his responses to my questions.
What companies are really making a name for themselves in e-commerce in Mexico?
I think Wal-Mart has really taken the lead of the market over the last few years. They have a good team here. Another company making a name for itself is Linio. Local retailers like Palacio de Hierro and Liverpool have also started taking e-commerce much more seriously. Online tourism with companies like Despegar and airlines like Aeromexico and Interjet are also registering high levels of sales. Lowe’s, Home Depot, OfficeMax and local supermarkets like Soriana are trying to catch up now as well. Last year several companies surpassed the 100 million dollar in sales barrier. You also have a few startups coming up that are showing potential. There is a certain randomness to it though, on one hand large international brands that have solid e-commerce operations abroad have been late to the market—-Tommy Hilfiger for example just launched its e-commerce website in Mexico and is behind the curve. Others such as Armani haven’t launched yet. At the same time other Mexican fashion retailers brands like Grupo Ilusion or Price shoes are making great efforts and growing their e-commerce channels. There are a lot of other companies that are still dormant and will probably wake up too late. It’s a matter of who has vision. I think the retail scene will change a lot in Mexico during the next few years. While some of the traditional retailers are very active with their online strategy others are still ignoring the potential of online sales. While e-commerce is not going to replace the traditional retail it will take a larger share of the market during the next couple of years and it will be a fundamental part of most retailers strategy.
How does Mexico compare to other countries in the region in terms of e-commerce potential?
The market potential is very high even though it’s at a very early stage. You have a market that has 112 million inhabitants and physical access to goods is harder than countries like the US where you have a target or Walmart in even the smallest towns. When compared with Brazil for example that has been in the eyes of a lot of funds, Mexico has 30 percent more GDP per capita and conditions for doing business are far better. Mexico is ranked number 39 while Brazil is ranked 120 in the World Bank’s ease of doing business index.
Still, online sales are still in a nascent period in Mexico. According to some estimates e-commerce in the US already represents 7 to 10 percent of total sales. In Brazil it’s 4 percent of the retail market. In Mexico it’s still around 1 percent. This gap should narrow during the next few years, as large companies are educating consumers in Mexico and encouraging them to buy online for the first time.
The market now is getting far more interesting. Amazon is launching its operations very soon, Alibaba is looking for a team in Mexico and so is eBay. The first market that Amazon and Alibaba will fight each other directly will most likely be Mexico and bad results will probably impact total company valuation. This will bring both attention and a lot of investment to the Mexican e-commerce market. These efforts are going to educate the consumer and encourage online purchases. It opens the possibility to all the other companies to sell to these consumers.
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