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Mexican wave: why fashion brands are eyeing this growing market

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Mexico’s retail scene is on the rise, and the growth opportunities are drawing fashion brands from the UK and Europe

The retail market of Mexico’s has traditionally been eclipsed by its star-spangled neighbour to the north. However, the country’s retail sales are growing steadily and, combined with cultural similarities between the country and the US, this makes it a relatively easy target for international expansion.

Research firm GlobalData predicts that overall retail expenditure in Mexico will grow by 29% to reach £285bn between now and 2022. Clothing and footwear expenditure is forecast to grow by 45% to £27bn – driven by a 167% rise in online sales

Accordingly, British brands are building up a strong presence in the country. Ted Baker, Karen Millen and AllSaints have all expanded into the market through licence and franchise partnerships. Although Ted Baker and AllSaints have entered the market more recently, Karen Millen has operated in Mexico for five years, and has 13 points of sale across the country.

Why Mexico?

Several factors make Mexico an appealing destination for brands in the UK and Europe, says Maureen Hinton, global retail research director at GlobalData: “Mexico has a lot to offer retailers – a large and growing population, increasing personal wealth, urbanisation, growing economy, and more stability than many other Latin American countries, with increasing demand for retail.”

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Premium womenswear brand BCBG has 36 partner-operated stores and concessions in Mexico, which is one of its largest markets outside Europe

She notes that cultural similarities to the US give the nation an appeal over other international destinations: “Its proximity to US means it is heavily influenced by US culture and language, which makes it easier from the point of view of cultural trends and communication to trade with than Asia-Pacific countries.”

Jordi Balsells, vice-president Asia and Americas at Spanish womenswear brand Desigual, agrees that Mexico’s retail market is on the rise, and says it is a “focal point of growth” for the brand, which entered the market in 2015. Currently, Desigual has 13 franchise stores operated with upscale Mexican department store Palacio del Hierro, and more than 100 multi-brand points of sale.

“Mexico is a large market with rates of growth that are more stable than those seen in other Latin-American countries, and there’s a segment of the population with purchasing power who are keen to buy international brands,” Balsells explains. “It’s a large country, and its strategic location and the growth of the middle  and upper classes who are interested in fashion make it attractive. This means that competition is greater, but there’s huge potential for a brand that can set itself apart from its competitors.”

BHS International is in the early stages of discussions to expand into Mexico in some capacity. Managing director Rebecca Rajeswaran has been discussing the country’s potential with advisors from the Department for International Trade.

“It really feels like there is an opportunity in Mexico for British brands,” she tells Drapers. “There are UK brands that are doing really well in Mexico, such as Ted Baker, Thomas Pink and Karen Millen, TM Lewin – the higher end of the UK retailers. But they haven’t really got anything that is like the BHS brand. BHS has always been about quality and value, and we feel like there is a gap in the market.”

Rajeswaran notes that British brands have a certain cachet in Mexico: “A brand like British Home Stores, with British in the logo and ‘founded London 1928’ – that works well.”

Tough competition

However, despite the appetite for international brands, Mexico has its challenges. The market is competitive, and brands must make an impact to stand out.

Marshall Lester, CEO at consultancy ML Marketing, notes that the proximity of the US – with its mega-brands and big-name retailers – creates its own difficulties.

“The massive marketing budgets of brands like Tommy Hilfiger and Guess spill over into the Mexican market,” he says. “They are continually exposed to the American mega-brands. It makes it more difficult for a British brand to enter the market, unless it has some serious marketing support to create a buzz. Otherwise merchandise is just going to sit on the hanger.”

British brands with a strong US presence stand a better chance of gaining traction in Latin American markets, and for them, Mexico is a logical next step in expansion. This was the case for Karen Millen, which leveraged its experiences in the US market to target Mexican shoppers, and now operates in the market via a franchise partnership with an undisclosed partner.

“Karen Millen has a very successful business in the US, including Miami, LA and New York,” explains the brand’s international development director, Simon Gaffey. “We found a significant customer demographic included Mexican clients, and started to explore the market. Despite some economic and currency challenges I felt the size and scalability of the market was worth perusing.”

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Desigual in Playa del Carmen

Gaffey notes that a middle class, premium shopper demographic is a rising consumer group in Mexico: “The essence of what Karen Millen stands for; confidence, femininity, style-led, quality and design detail resonated perfectly with a section of Mexican society in a market where Department stores play an important role.”

“If you already have operations in the US, you would be forsaking an opportunity not looking to Mexico,” adds Georges Berzgal, vice-president and managing director EMEA at global technology company Pitney Bowes. “It’s a substantial market.”

He highlights the potential of the Mexican ecommerce market – 90% of consumers now shop online, and 22% shop online at least once a week, the Pitney Bowes Global Ecommerce Study 2018 indicates.

“There is interest in well-known British brands [online],” he says. “It is the heritage and luxury brands that have an appeal – brands that are otherwise difficult to get hold of in the domestic market or hard to get from the US.”

Hinton agrees: “The environment for online sales is good – there is high urban density. This is the obvious route to understand demand without the risk of investing in property and locations, especially as labour costs are increasing, which is good for demand but not for operating costs.”

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Ben Sherman operates with partners in Mexico

Berzgal says, however, that even though the market is growing, it is also still developing. Although there has been a great deal of investment in logistics, he describes the network as “not fully baked”, but the government is investing in the country’s infrastructure to make improvements.

Payment methods also differ from other markets. Credit cards far less common and 48% of consumers use an “e-wallet” – a service that stores customer details and allows electronic transactions – when they shop online. Berzgal stresses the importance of providing access to these local payment methodologies when launching into the market: it is key to offer both debit and e-wallet options.

Perfect partners

Away from ecommerce, franchise and licensing can be the key to success. Marquee Brands, the US owner of BCBG and Ben Sherman, operates with partners in Mexico, although it does not disclose the precise nature of the partnership structure.

Michael DeVirgilio, president of Marquee Brands, says the local knowledge has been invaluable: “Mexico is a great market with a lot of potential, but if you don’t understand the specific processes, it can be taxing. When you have a local partner with all that capability built in, it becomes quite easy to see success quite quickly.”

He highlights tariffs, import processes, shopping mall rental agreements and department store logistics as areas where partner experience is invaluable. For example, there is a huge variety of tariff rates on imports when bringing stock into the market. Additionally, the malls across Mexico are operated by numerous different management groups, making for a complicated picture when it comes to rental agreements.

Premium womenswear brand BCBG has 36 partner-operated stores and concessions in Mexico, which is one of its largest markets outside Europe. Meanwhile, Ben Sherman opened its first franchise store in Mexico – a 1,350 sq ft unit in the Paseo Interlomas Mall – in October.

DeVirgilio describes the country as a “key opportunity” for Ben Sherman: “We think the aesthetic fits well with the upper-middle class and premium market in Mexico.

“The world is getting smaller, and the consumer has a voracious appetite for new brands.”

Like any developing market, Mexico has its challenges. But a burgeoning appetite for international brands, growing consumer base and US connections should place the market firmly in the sights of UK and European brands seeking to expand.

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