VIVA e-MEXICO: Amazon, Alibaba And Walmart Are Investing Heavily South Of The Border

Mexico Shutterstock/Wiktoria Matynia

Samuel Israel Managing director of SIG Business Consulting
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While U.S. politicians argue about a border wall with Mexico, leading ecommerce companies are ignoring the rhetoric and battling for position in this promising Latin American market.

Online shopping in Mexico has been slower to catch on than in the U.S. But with online sales in Mexico expected to more than double to nearly $18 billion over the next three years, the major global ecommerce players are moving into high gear. Amazon, Walmart and Alibaba are all making significant investments to capture a larger share of Mexico’s fast-growing market.

As the three global leaders go mano a mano in the battle for online sales, they are creating new opportunities for U.S. and international investors in both inbound and outbound commerce. No matter which ecommerce platform comes out on top, Mexico’s logistics, finance, retail and technology infrastructure will need an infusion of capital to support the increased flow of goods and services.

Making Big Bets on Mexico

While MercadoLibre was the leader in Mexico’s e-commerce market in 2016, the Argentina-based multinational has seen its market share plummet over the past five years, as Amazon and Walmart have surged. Amazon reported $253 million in sales in Mexico last year, which is more than double the previous year, according to Euromonitor InternationalAnother recent study by Euromonitor shows that Amazon and MercadoLibre will most likely hold the same e-commerce market share of 7% in 2017.

Both U.S. based ecommerce giants, as well as China’s Alibaba, are making major investments. Amazon is building a 1 million square-foot warehouse near Mexico City, tripling its current distribution space in Mexico. The company recently introduced its Amazon Prime free shipping and streaming subscription service to the Mexican market.

In late 2016, Walmart eCommerce Mexico y Central America (Walmex) announced a $1.3 billion investment into distribution centers primarily for ecommerce fulfillment. Walmex President Guilherme Loureiro noted at the time that “Mexico is a country rich in opportunities”.

Alibaba recently announced its intention to battle for those riches. In September 2017, the Mexican government announced an agreement with Alibaba to help Mexican small and medium-sized enterprises (SMEs) expand into China and other international markets, using the company’s B2B trading platform, Alibaba.com. “By partnering with Alibaba, we can expand Mexico’s export options in China and in Asia more broadly, while enhancing Mexican SMEs’ knowledge of ecommerce and cross-border trade,” said Mexico’s President Peña Nieto.

Mexico’s own ecommerce platform, Linio, rounds out the top five market leaders. Earlier this year, Linio raised $55 million to support its growth plans.

Poised for Market Growth

From 2016 to 2017, Mexico’s ecommerce market grew 25 percent to an estimated US$7.6 billion, according to emarketer. That strong growth is expected to accelerate over the next few years.

Mexico currently has 60 million Internet users and 38 million online shoppers, according to a recent eShopWorld study. The number on online shoppers is expected to reach over 55 million by 2020 and overall ecommerce sales are forecast to to more than double to US$17.6 billion. With a population of 128 million, Mexico is Latin America’s second largest economy after Brazil.

Amazon, Walmart and Alibaba are hoping to close a huge gap between online and bricks-and-mortar retailing in Mexico. Online shopping now represents just 2 percent of the nation’s $203 billion in annual retail sales.

In 2016, personal electronics was the largest segment of Mexico’s online retail market, although fashion is projected to have a higher growth rate. While retail is growing quickly, travel-related services, including air fares and hotel accommodations account for 54 percent of Mexico’s ecommerce market, according to the eCommerce Handbook 2017.

Younger users and urban residents are the most likely to use ecommerce platforms, creating well-defined demographic targets for digital, social and mobile marketing campaigns.

However, there are significant hurdles to ecommerce growth, ranging from transportation and wireless issues in rural Mexico to concerns about financial fraud. Many Mexicans are used to paying cash for purchases rather than bank cards. One factor that propelled MercadoLibre to the front of the market years ago was allowing consumers to make ecommerce purchases in cash at Occo convenience stores.

The Takeaways

U.S. and international investors have a number of ways to take advantage of Mexico’s ecommerce market growth, particularly in these infrastructure sectors.

  • Transportation. Mexico has embarked on a long-term modernization program for its highways, international airports, railroads and ports, aiming for a top 20 percent ranking in the World Economic Forum’s Infrastructure Competitiveness Index by 2030. That means there will be ongoing public-private investment opportunities in project construction, development and advisory services.
  • Logistics. In transporting ecommerce products, DHL Express dominates the logistics market. However, many areas of Mexico still lack rapid, reliable delivery service, opening the door to nimble, regional competitors. Growing consumer demand in urban areas may open the door to other logistics entrants willing to challenge DHL for a profitable piece of the action.
  • Finance. Innovative strategies may be needed to make Mexican consumers feel comfortable with online purchases. For example, retail kiosks in urban, suburban or rural areas could function like ATMs, allowing consumers to make online purchases using cash as well as credit or debit cards. Another concept would be small banking offices offering wire transfers directly to an online retailer.
  • Cellular towers. Reliable high-speed wireless connections are crucial for ecommerce transactions. Investors could partner with Mexico’s telecom and data service providers, or with infrastructure companies to continue building out the nation’s online network.
  • Technology.From smartphones to desktop computers to digital advertising platforms, technology investments can help drive Mexico’s ecommerce market. However, there are many nuances to Mexico’s consumer buying patterns and media consumption behaviors. Therefore, international investors may want to consider joint ventures or local partnerships in seeking the penetrate the market.
  • Social Media. With more than 50 million active Facebook users, Mexico offers fertile ground for new consumer marketing and advertising investments. U.S. and international firms can take advantage of current social media platforms – including alliances with Amazon, Walmart and Alibaba – or develop their own proprietary sites, brands or applications.

In any case, well-chosen investments in Mexico’s physical and digital infrastructure have the potential to deliver significant dividends in this fast-growing ecommerce market.

Samuel Israel is the former CEO of Damco IMEA (India, Middle East & Africa), Damco Latin America and DHL Latin America. He is currently managing director of SIG Business Consulting, which provides strategic advice to startups and global companies. Follow Samuel on Twitter.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.