E-commerce and its growth in Mexico
by: Sean Fong
This section provides a brief orientation to the document and shows how the findings may assist and support you in exploiting opportunities for business development pertaining to the e-commerce sector in Mexico.
Who is this document for?
This document provides an overview of e-commerce in Mexico, detailing its growth and opportunities for future development. This article is mainly aimed at:
EU investors who seek to improve their knowledge about the e-commerce sector in Mexico
SMEs operating or with interest in the e-commerce sectors
Anyone exploring opportunities for potential development in the e-commerce sectors in Mexico and other emerging economies in Latin America
In subsequent levels, you will get a deeper understanding of exploring opportunities in the industry.
Why should I read this document?
The creation of the World Wide Web by British computer scientist Tim Berners-Lee in the 1990s unleashed a new information age that soon revolutionized the means business has been conducted. That includes the fundamental transactions in buying and selling. E-commerce has grown significantly as both retailers and consumers understand the immense efficiency, flexibility, and convenience. It provides and develops solutions to deliver goods at one’s doorstep without the need to enter a traditional brick-and-mortar shop. Global retail e-commerce sales have more than tripled between 2014 and 2020, with leading companies such as Amazon, Alibaba, and Walmart paving the way for future developments and expansion of the sector.
In the developing economies such as China, India, and Mexico, there has been a significant increase in Internet use and penetration, especially among a growing young, mostly middle-class population segment that is digitally savvy as average incomes rise. Therefore, companies and organizations that are looking for opportunities to develop in the e-commerce sector should look towards these emerging markets for business exploration and exploitation.
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An Overview of the Mexican E-commerce Sector
Mexico has a population of more than 125 million people and is the second-largest economy in Latin America. Like many major developing economies, the Latin American giant has a rather youthful population (the average age is 27 years) that is also savvy with information technology (IT) and significant spending propensity, which presents numerous opportunities for development in the local e-commerce sector. As of now, Mexico is the 17th largest market for e-commerce with a revenue of US$19 billion in 2020, placing it ahead of Sweden and behind the Netherlands. The total retail revenue earned by the sector in 2020 amounts to US$18.8 billion.
Currently, the biggest player in this sector is Amazon. The online retailer giant led by American billionaire Jeff Bezos had a domestic revenue of US$1.4 billion in Mexico in 2020. It is followed by Liverpool with US$655 million revenue and Coppel with US$598 million revenue. Combined, the three retailers account for 15% of online revenue in Mexico. Overall, electronics and media is the largest segment in Mexico, covering 31% of the e-commerce revenue in the country. This is followed by fashion with 24%, toys and hobby equipment with 18%, furniture and home appliances with 16%, and food and personal care products at 10%.
Debit cards and personal credit cards are the preferred methods of payment among Mexican consumers. Nevertheless, many online retailers offer payment alternatives such as cash payments at convenience stores. The top-cited incentives among online shoppers are secure payment options, free shipping, and a guaranteed return policy. In addition, there is a growing trend towards purchasing through mobile devices. The Mexican Central Bank (Banxico) mandated that all financial institutions with over 3,000 clients provide commission-free payments via quick response (QR) code on their mobile applications from September 30, 2019.
Growth of the Mexican E-commerce Sector
The sector is expected to continue growing due to improvements in Internet connectivity, enhanced financial inclusion, more streamlined logistics, and increased digital literacy. Analysts predict that the increased use of e-commerce platforms during the COVID-19 pandemic will cement consumer habits, contributing to growth expectations for the sector. MercadoLibre’s platform has seen acceleration at triple-digit paces in certain categories shortly after the onset of the pandemic. Other multichannel brick-and-mortar (brick-and-click) retailers have reportedly seen their online sales grow to account for a quarter of overall sales. According to the National Institute of Statistics, Geography, and Informatics (INEGI), in 2019 Mexico had 80.6 million Internet users, representing 70% of the population over the age of six and reflecting a growth rate of 4.3% over 2018.
With an increase of 32%, the Mexican e-commerce market contributed to the worldwide growth rate of 26% in 2020. This may be attributed to supportive regulatory reforms and increasing the affordability of smartphones. In fact, e-commerce revenue in Mexico is expected to grow at a compound annual rate of 6.5% over the next four years, resulting in a market volume of US$21.8 billion by the end of 2024. The average annual revenue per user currently amounts to US$334.
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Future Opportunities and Challenges Faced
Market expansion in Mexico is expected to continue over the next few years, as indicated by the Statista Digital Market Outlook. It has been predicted that the compound annual growth rate (CAGR 20-24) for the next four years will be 7%. Compared to the year-over-year growth of 32%, this decrease suggests a moderately flooded market. The market saturation may be indicated by the online penetration of 36% in Mexico. In other words, 36% of the Mexican population have bought at least one product online in 2020. This implies that as the number of competitors in the e-commerce scene increases, new entrants would need to find alternative methods to highlight their unique selling points in order to be positively distinguished among the range of rival products and services.
From a demographic perspective, new users in the Mexican e-commerce ecosystem are more likely to adhere to online shopping and, unlike the global trends, men between the ages of 25 and 44 are more bent to shop online than women. Therefore, retailers and individuals wishing to tap on this growing consumer segment must understand their needs and preferred items of purchase in order to establish effective strategies for marketing, product development and branding.
Despite the progress made in improving Internet accessibility and easing business procedures to enhance innovation and commerce in Mexico, there is scope for significant improvement in the sector. Many Mexican retailers offer limited delivery options with delivery times consistently below those of global leaders such as the USA and China, averaging between 10 and 15 days for arrival at customers’ doorsteps. In this aspect, policies such as in-store pickup, express delivery services, and same-day posting should be explored.
Although credit cards are frequently used in payments for online purchases in Mexico, its penetration rate is still low at 24%, lagging behind many of its Latin American rivals. This is compounded by pervasive online fraud, with 56% of customers having been a victim of fraud reportedly over the past 5 years. Moreover, despite the relatively ubiquitous usage of debit cards in the country (134 million debit cards vs. 30 million credit cards), the lack of options for the former means that only 15% of e-commerce payments are made via debit cards. In response, mechanisms such as SPEI (Interbanking Electronic Payment System) have been established to offer an agile and secure means for instantaneous electronic transfer payments without the use of credit cards. Nevertheless, additional long-term investments, particularly in credit card security, would need to be considered, researched, and developed to improve the overall e-commerce system in Mexico.
European Involvement in Business Development of the Mexican E-commerce Sector
Various European companies have implemented efforts to play a significant role in the Mexican e-commerce system. Examples of such companies include the courier service division of German logistics firm Deutsche Post, DHL, which played an integral role in the logistics system of the Mexican e-commerce sector, and the startup Jokr, a global rapid delivery platform, launched by German entrepreneur Ralf Wenzel that aims to deliver a wide range of products from “hyperlocal” warehouses within 15 minutes of an order placed via a smartphone app. The latter is already present in Mexico City, Lima, and São Paulo, while there are plans for New York and Bogota to follow ahead of rollouts across Europe and Latin America. Ireland-based packaging company Smurfit Kappa saw the usage of its leading corrugated packaging increase by 150% in Mexico.
In addition, the European Commission is involved in regular bilateral engagement with Mexico to promote mutual development and enhancement of growth and innovation in business sectors such as e-commerce. As seen in the second EU-Mexico dialogue on the digital economy, the two parties reaffirmed the strategic partnership between them and agreed that engagement would be stepped up to exchange best practices in e-commerce as part of the former’s Digital Single Market Strategy.
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