BMI View: The outlook for the Mexican consumer and retail spending as a whole continues to look promising, as a result of improved employment dynamics. Following the release of historical data from the statistics office, we have upgraded our 2014 data , and this has improved the total level of household spending for our forecasts over the next five years. Rising disposable incomes will see the non-essentials segment outperform essentials spending in terms of growth rates , and this has already begun to attract investment from international players looking to capitalise on the opportunities, especially in the clothing & footwear segment. Premiumisation is key in lower growth segments such as food & drink and housing & utilities, encouraging Mexicans to trade up a nd spend more on higher- value products. Online reta iling has been slow to take off, but with Amazon and Linio making investments in the market, it is only a matter of time before these players eat into the share of traditional retailers and department stores.
|Headline Household Spending|
|e/f = BMI estimate/forecast. Source: BMI, INEGI Mexico|
Key Views & Developments
We expect household consumption to continue to improve, thanks to a stronger labour market (unemployment stands at 4.1%, beating the US's 5.0%), and higher wages. This will be further supported by low inflation, which will help support real purchasing power, causing spending to reach MXN5,586bn in 2016, up from MXN5,230bn in 2015.
Growing consumer acceptance and demand for online retail has the potential to radically disrupt and transform the existing business environment and retail formats. Amazon has invested heavily to expand the market and this will likely cannibalise heavily on market share from traditional retailers and department stores. This will additionally intensify competition in convenience and place pressure on margins for retailers .
Walmex has recently unveiled plans to expand its portfolio in Mexico as it expects to see positive sales growth, supporting our view that Mexico provides a profitable investment opportunity for retailers.
We have revised down our 2016 forecast for the Mexican peso, from MXN16.20/USD to MXN17.50/USD. Increased global risk aversion given tighter global liquidity conditions and rising market fears of a disorderly slowdown in China will weigh on the peso. Coupled with a sharper-than-expected drop in oil prices - which will cool export growth and undermine investor sentiment toward the oil producing economy - this underpins our view that the peso will be vulnerable to sharp sell-offs in the months ahead.
Banco de Mexico (the Mexican reserve bank) raised interest rates in December 2015 following the FED increase, and further hikes can be expected throughout the year. However, the weak external environment and low inflation will keep interest expansion subdued and will remain offset by the growing economic competitiveness internationally of the Mexican economy, which will fuel strong household income growth.
The Mexico Retail Report has been researched at source and features BMI Research's independent assessment and forecasts for the retail sector. The report examines key drivers of retail sales growth and future prospects, including consumer spending and private sector investment.
BMI's Mexico Retail Report also examines the level of development and potential for growth of the retail sector, the commercial initiatives of major players, changing consumer demographics that influence demand and the regulatory environment. Key sub-sectors include mass grocery retail, autos, over-the-counter pharmaceuticals, computers and consumer electronics.
- Benchmark BMI's independent retail industry forecasts for Mexico to test other views - a key input for successful budgeting and strategic business planning in the Mexican retail market.
- Target business opportunities and risks in Mexico through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
BMI Industry View
Summary of BMI’s key forecasts and industry analysis, plus a discussion of major industry developments and a snapshot of key short-term demand-driving macroeconomic movements.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the retail sector and within the broader political, economic and business environment.
BMI Industry Forecasts
There are four separate 5-year forecast modules in the retail reports. These are:
- Headline Retail Forecast: Total household spending (local currency and USDbn, % growth, % GDP, per capita, per household), spending by retail sector (food & non-alcoholic drink, alcoholic drink, clothing & footwear, housing & utilities, furnishings & home, health, transport, recreation, education, restaurants & hotels, personal care & insurance (local currency and USDbn, % growth, % GDP, % of total spending)
- Retail Sector Forecast: Breakdown of Food, Non Alcoholic Drink, Alcohol, Tobacco, Clothing, Footwear, Household Goods, Furnishings, Appliances, Glass and Tablewear, Household Textiles, Consumer Electronics, Garden Toys and Pets, Home and Garden tools, Personal Care, Personal Effects Spending (USDbn, % Growth)
- Household Income and Numbers Forecast: Number of Households (‘000, % growth); gross income per household and per capita; net income per household and per capita; tax and social contributions per capita; breakdown of household incomes – USD5000+, USD10,000+ USD50000+ (‘000, % of total); labour force, employment and unemployment (‘000, % change)
- Demographic Forecast: Total population; Babies 0-12 months; Young Children 0-4yrs; Children 5-9yrs; Young Teens and Older Children 10-14yrs; Older Teens 15-19yrs; Adults 21yrs +; Young Adults 21-29yrs; Middle Aged 40-64yrs (‘000, % growth, male, female); Urban Population (‘000, % population); Rural Population (‘000, % population).
BMI’s Retail Risk Reward Index
BMI’s Risk Reward Indices provide investors looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.
Provides a detailed country-specific analysis of the key trends and developments in the retail sector as a whole, as well as an assessment of the main drivers affecting the major retail segments including mass grocery retail, fashion, pharmacies, consumer electronics, home improvement and personal care. The market overview also considers the most effective store formats in a given country and the impact of these factors on the main international and domestic players’ development strategies.
This provides a brief overview of the key players in each subsection of the retail sector including MGR, Fashion, Home Improvement, Consumer Electronics, Pharmacies, and Department Store chains.
The Retail Reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.