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Mexico – The Race for E-commerce Dominance Starts with Logistics

When one reads about Mexico, it’s typically in relationship with the US and NAFTA. Indeed, the country has long been known as an outsourced manufacturing location for primarily the US market and in fact, upwards of 80% of its exports are destined to the US. However, there’s much more to Mexico.

A rising middle class with 80% of the population living in urban locations has emerged. According to the Economist Intelligence Unit and the Consejo Nacional de Poblacion, the Mexican agency responsible for monitory population growth, about 63% of Mexico’s citizens are 15 to 60 years old. In addition, while 14% of households currently earn about $2,800 or more monthly, this figure is set to grow to 22% by 2018. In other words, Mexico is ripe for e-commerce.

According to eMarketer and A.T. Kearney estimates, B2C e-commerce, including services and retail, was worth $13.1 billion in 2014 and expected to grow 26% annually to reach more than $14.5 billion by 2019. This expectation has prompted the likes of Alibaba, Amazon, Walmart and UPS to look towards Mexico in a renewed interest.

Alibaba

Alibaba signed an agreement with the Mexican government to promote the Chinese company’s e-commerce, digital payments and logistics expertise to Mexican small and mid-sized firms including cross-border trade with China.

As part of the agreement, Alibaba will create a program specifically for Mexico on its business-to-business platform, Alibaba.com. In addition, Alibaba will share best practices in logistics and payment platform options so that Mexican companies can increase their cross-border e-commerce operations as well as to attract Chinese tourism to Mexico.

Amazon

A relatively new entrant into domestic Mexico, Amazon introduced its Kindle store to Mexico in 2013. In 2015, the company launched its physical goods store on Amazon.com.mx, a Spanish-language website. Retailers ship Amazon Mexico orders from their own distribution center or use Fulfillment by Amazon. Retailers and other branded manufacturers using FBA for Amazon Mexico orders are required to import their products to an Amazon Fulfillment Center located in Mexico for storage and local fulfillment.

Earlier this year, Amazon launched Amazon Prime to the Mexican market. The service focuses on offering free shipping, including, in some areas, 1-day or same-day deliveries, along with access to Amazon Prime Video.

Euromonitor International estimates that Amazon posted $253 million in sales in Mexico in 2016, more than double the year before. As such, Amazon is preparing to open a one million square-foot warehouse near Mexico City. The facility is expected to be completed in 2018 and will triple Amazon’s distribution space in Mexico. Amazon currently has two distribution centers in Mexico totaling more than 500,000 square feet. Both are in Cuautitlan Izcalli in the state of Mexico. The new facility will be constructed about 7 miles from the existing facilities. All are located along the so-called “NAFTA” highway, an industrial belt that runs through Mexico’s factory regions to the U.S. border.

Walmart

Walmart has been in the Mexican market since 1991. To date, the retailer has 2,412 retail units including 263 Walmart Supercenters and 161 Sam’s Clubs.

In 2013, Walmart de Mexico y Centroamerica introduced its local website. At the time, it had a dedicated distribution center with deliveries made via FedEx – Express (24 hours) or Standard service (72 hours).  In late 2016, seeing the growing potential and threat as Amazon gathered steam within the Mexican e-commerce market, Walmart announced a $1.3 billion investment in Walmart operations in the country. This includes plans to build out its logistics network, expand the number of distribution centers and upgrade existing ones.

Business Insider estimates that Amazon and Walmart each have a 5.5% share of Mexico’s e-commerce market and while this can certainly shift to favor Amazon with its recent enhancements and expansions, Walmart could utilize its physical store presence similar to what they do in the US by offering pick up and returns in stores as well as provide shoppers the option to pay in cash for online purchases. This, Business Insider noted, is what MercadoLibre already offers through Occo Convenience stores.

MercadoLibre

And speaking of MercadoLibre, UPS recently announced a partnership with Latin America’s largest e-commerce provider, headquartered in Argentina. Through its logistics arm, MercadoEnvíos, UPS will offer solutions exclusively for MercadoEnvíos Full, a logistics service offered by MercadoLibre in Mexico to its sellers for storage and shipping solutions. To make the inventory management process at MercadoLibre’s distribution center more flexible, UPS will implement Application Programming Interfaces (API’s), allowing MercadoLibre to create shipping labels, track packages and provide buyers with visibility into their shipments.

Through the partnership with UPS, MercadoLibre will provide customers with access to the UPS Express Saver small package service, which offers guaranteed next day delivery, by end of the day in major cities throughout Mexico. Users can also use the UPS Access Point™ network, allowing them to select an alternate delivery location.

If the relationship proves successful, perhaps UPS can expand its relationship with MercadoLibre further into South America.

Challenges

As hinted (maybe not loud enough…), logistics is a challenge for Mexican retailers. According to an A.T. Kearney and Google Mexico survey, top challenges include regular delivery times, detailed return policies including response time and solution times, express delivery and lack of store pick- ups.

Further noted in the study is the fact that it is important to focus on warehouse location and logistics in order to offer competitive prices and shorter delivery times. On average, most online retailers deliver between 10 and 15 days. For Mexican consumers, it is easier to simply go to the store to purchase what is needed versus waiting. Another trait of the Mexican e-commerce landscape is that Mexico’s online shoppers appreciate having a variety of payment options such as cash on delivery, convenience store payments and no-interest monthly installations.

As with any country, e-commerce is a local experience. For logistics providers as well as retailers entering new countries, understand the traits, trends and consumer preferences. For logistics providers, also understand the infrastructure limitations as well as benefits, rates and taxes, local players, government regulatory requirements and of course, what your competition is doing.

 

 

 

 

 

 

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