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Amazon bets Mexico street-market bargain hunters will go digital

October 15, 2015 02:45 PM
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(Bloomberg) -- The growth potential for online shopping in Mexico, where consumers are more likely to scour shopping malls and street markets for goods, has put the country on the radar of the world’s biggest retailers.

In June, Amazon.com Inc., No. 1 in the 2015 Internet Retailer Top 500 Guide, began operating in Latin America’s second-largest economy -- where online retail sales, excluding travel and event tickets, are seen growing 30% to $5.7 billion this year, according to eMarketer. While Web-based sales from Wal-Mart de Mexico SAB, El Puerto de Liverpool SAB and others represent less than 2% of all purchases, more than 15 million more Mexicans will gain Internet access by 2018, eMarketer said.

As the middle class grows and has more access to consumer loans, retailers are starting to test modified delivery options, circumventing payment obstacles that had prevented them from offering online shopping. Customers without credit cards now have options to pay in cash at delivery or even pick up packages at local convenience stores.

“I’ve never seen so much interest as now, not just from Amazon and consumers, but from other traditional retailers as well, to invest and come up with online offers,” Juan Carlos Garcia, who heads Amazon Mexico, said in a phone interview. “There’s an important demographical factor as more and more young people with digital mindsets are entering the economy.”

Millennials, people currently 15 to 34 years of age, are expected to swell the pool of digital buyers to 18 million next year from 14 million last year, according to Osbaldo Franco, a research analyst at eMarketer. Millennials already make up for more than half of Internet and smartphone users in Mexico, he said.

Payment Options

Mexico marks Seattle-based Amazon’s first major foray into Latin America and a renewed push to fuel sales growth outside the U.S. Amazon.com.mx debuted with more product categories -- electronics, housewares, sporting goods and more -- than any other Amazon international rollout.

Consumer lending is equal to 4.5% of Mexico’s gross domestic product, well below Brazil’s 18%, Credit Suisse Group AG analysts said in a note last week. Even so, access to formal credit is increasing and Internet retailers are offering a wide variety of payment options to make online shopping accessible to people without bank accounts.

Still, getting shoppers, stuck in their ways, to switch habits may be a hard sell at first.

Israel Flores, a 26-year-old student visiting Mexico City’s bustling historic center on a weekend afternoon, has never shopped online. The narrow tiled roads are lined with street vendors and mom-and-pop shops selling leather shoes and drapery fabrics -- a contrast to the larger glass-walled and brightly- lit chain stores nearby.

“My girlfriend and I have a tradition of coming downtown every Sunday,” said Flores, holding a yellow bag from the trendy, youth-oriented store Forever 21, where he bought a pair of burgundy drawstring chinos. “We go into different stores, we shop, we eat ice cream -- I don’t think we’d change that.”

Flores, who works part-time as a receptionist and doesn’t own a credit card, is wary of online scams. He said he’d only consider online shopping if it offered a considerable discount. Retailers such as Petsy.mx, an online store for pets that sells goods from dog food to luxury hamster houses, has spent considerable time developing alternatives for people like Flores: offering clients options such as paying cash on delivery and paying directly through their bank accounts or at a local convenience store.

Convenience a Draw

“We’ve had to innovate because Mexicans haven’t really fully changed their shopping habits,” said Toby Clarence-Smith, who co-founded Petsy 2 1/2 years ago and now has a 30-person staff. The retailer fulfills most orders in Mexico City in a day or less and has plans to offer a three-hour delivery window. “We suffer from a lack of trust, and hopefully Amazon’s arrival will give people the courage and let them see how convenient it is.”

More brick-and-mortar retailers in Mexico are entering the Internet market every year. E-commerce is part of the strategy to double Wal-Mart de Mexico’s size in the next 10 years, Antonio Ocaranza, a Walmex spokesman, said in an interview. The company is currently leading online sales in the country, accounting for 2% of the total, according to Euromonitor data.

Walmex gives consumers the option to place orders online and pay at stores to take advantage of exclusive Internet discounts.

Mexican consumers aren’t so different from those in the U.S, Amazon’s Garcia said. They want the best prices, best selection and fastest delivery. Amazon plans to continue investing in Mexico, he said.

“I can’t tell you where we’re going to go from here,” Garcia said. “But this is just the tip of the iceberg.”

 

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