2016: The Tipping Point for E-Commerce in Mexico

2016: The Tipping Point for
E-Commerce in Mexico
With more Mexican consumers using the Internet
and smartphone costs dropping, the time has come
to bring the online shopping experience up to
international standards. Retailers that succeed
could see enormous sales.
2016: The Tipping Point for E-Commerce in Mexico
1
A boom in e-commerce is coming to Mexico. The online market is poised to grow dramatically in
the next five years, according to A.T. Kearney’s 2015 Global Retail E-Commerce Index, which ranks
the country higher than Spain, Chile, and Brazil thanks to its high potential for online growth.1
That spells opportunity for retailers that quickly improve their online operations to tap into this
marketplace, which is expected to reach $41 billion in sales by 2019. Three factors fuel the boom:
the population’s growing Internet usage, supportive regulatory reforms, and the falling cost of
smartphones. In fact, we believe mobile is the sweet spot. Mexico has a growing population of
young people who are buying smartphones and making purchases online at an increasing rate.
Retailers that focus on this demographic and invest in mobile commerce even more than
laptop- or PC-based e-commerce could reap the greatest rewards.
However, Mexican retailers lag behind those in other parts of the world when it comes to having
an effective online presence. From adopting easy-to-use website formats to offering a broader
range of products, more-efficient searches, and attractive promotions, the country’s retailers
have a lot of ground to cover. Faster shipping and more options for delivery and in-store pick-up
will be important. And knowing how to meet the competitive challenges posed by online-only
start-ups, which have lower cost structures that let them enter the market more easily, will be vital.
To understand the challenges, A.T. Kearney recently conducted research into leading online
retailers’ best practices in mature markets and compared them with what Mexico’s retailers are
doing online. The results reveal that some widely held opinions about what is holding
e-commerce back are more myth than fact.
More important, we identified the moves Mexican merchants can make to win consumers’
hearts online now and get them to make their purchases online well into the future—especially
as consumers discover that the most desirable way to shop online in the near future will be from
their mobile phones, not from their PCs or laptops.
We begin by taking a look at the current and evolving demographics supporting e-commerce in
Mexico. Then we examine what is holding e-commerce back before looking at what retailers can
do to take advantage of online opportunities.
Favorable Numbers: Support for
E-Commerce in Mexico
More Mexicans are using the Internet than ever before. Internet penetration was expected to
reach 53.8 percent in 2015 and should grow 6.7 percent annually to reach 67.4 percent (84.9
million users) in 2019, according to eMarketer.
Concurrently, business-to-consumer (B2C) e-commerce (services and retail) in Mexico was
worth $13.1 billion annually in 2014 and is expected to grow at 26 percent annually to reach more
than $40 billion in 2019—three times 2014 revenue (see figure 1 on page 2). In 2014, retail
generated $4.6 billion, and the market is expected to grow annually by 26 percent to reach
$14.5 billion by 2019.2 However, there is also a wealth of opportunities beyond retail in service
industries such as banking, insurance, and travel.
Mexico placed 17th, ahead of Spain (18), Chile (19), and Brazil (21), in the 2015 A.T. Kearney E-commerce Index, which ranks the 30 countries
with the biggest opportunity for retail e-commerce. The index evaluates four main variables: online market size, consumer behavior,
growth potential, and infrastructure. For more information, see the Global Retail E-Commerce Index at www.atkearney.com.
1
B2C includes services, goods, and other.
2
2016: The Tipping Point for E-Commerce in Mexico
1
Figure 1
Mexico’s online shopping market is expected to grow
Business-to-consumer e-commerce in Mexico
($ billion)
40.8
Retail
27.1
CAGR
22.0
17.5
9.5
3.0
32.5
+26%
Services and other
13.1
8.5
2013
2014
2015f
26.3
25%
11.5
7.5
4.6
6.5
26%
9.4
5.9
11.6
14.5
14.5
2016f
17.7
2017f
21.0
2018f
2019f
Sources: eMarketer; A.T. Kearney analysis
That growth is fueled in part by telecom regulatory reform, approved by Mexico’s congress in
December 2013. While new regulations have disrupted the status quo for the country’s telecom
industry by enabling AT&T’s entry into the market, they also have introduced fairer competition.
Consumers are beginning to enjoy lower prices and better Internet and mobile access.3
On another front, the entry of pure online leaders in retail such as Amazon and the response
from established mega retailers such as Walmart broaden shopping opportunities and
positively influence the market.4
These factors are important, but perhaps the biggest influence lies with Mexico’s population.
E-commerce typically starts to thrive within a young, urban, middle class—a segment that is
already strong and growing in Mexico. During the next decade, young people will add to the
working-age population to augment an expanding middle class with higher expectations and
larger disposable incomes.
According to the Economist Intelligence Unit and the Consejo Nacional de Población, the
Mexican agency responsible for monitoring population growth, about 63 percent of Mexico’s
citizens are 15 to 60 years old, and 80 percent of them live in urban locations. While 13 percent
of households currently earn 50,000 pesos ($2,800) or more monthly, this figure is set to grow
to 22 percent by 2018.
That means there are at least 57.6 million young and urbanized Mexicans (half of the country’s
population in 2014), with two of the three traits typically found in countries with developed
e-commerce markets. This number aligns fairly closely with Mexico’s 59.4 million Internet users
as measured by eMarketer in 2014. Even though the Internet reaches only half of the country
(49.7 percent), it represents a market share comparable to the entire population of the United
Kingdom (64.5 million) and more than twice the total population of Australia (23.5 million) in
2014, according to World Bank.
Diario Oficial de la Federación, 20 December 2013; reforms to articles 25, 27, and 28
3
Amazon entered the Mexican market with 12 departments on 30 June 2015 and now has 16.
4
2016: The Tipping Point for E-Commerce in Mexico
2
Online Buying Habits
Mexicans spend more online per shopper than in other countries with more-developed
e-commerce markets. In 2015, Mexico’s online shoppers were expected to spend an average of
$864, higher than average expenditures in Brazil ($852) and Argentina ($598). However, only 32
percent of the country’s Internet users shop online (see figure 2). A greater percentage do so in
other Latin American countries, and more than double this number shop online in South Korea,
the United States, Japan, and the United Kingdom.
Then there is Mexicans’ preferred device. Today, most make their online purchases using a
computer (75 percent), but purchases via smartphone are rapidly catching up (see figure 3).
Mexico is second only to South Korea for using mobile devices to buy online, at 15 percent
versus 25 percent.
Figure 2
Only a third of Mexico’s Internet users shop online
Online purchase per digital buyer
($ thousand)
3.4
3.1
2.7
Digital buyers
(% of Internet users)
88%
3.0
1.6 1.7
United United
Kingdom States
1.3 1.4
South
Korea
Japan
81%82%
74%76%
2014
73%75%
2015
47%48%
0.8 0.9
0.8 0.9
Mexico
Brazil Argentina
38%40%
31% 32%
0.5 0.6
United
Kingdom
Japan
United
States
South Argentina Brazil
Korea
Mexico
Sources: Asociación Mexicana de Internet, eMarketer; A.T. Kearney analysis
Figure 3
Most Mexican people use a computer when shopping online
Devices used to purchase online
1%
6%
1%
5%
8%
4%
6%
10%
3%
9%
7%
3%
6%
4%
15%
3%
2%
25%
Other
Tablet
Smartphone
Computer
92%
Japan
83%
81%
81%
Brazil
United
States
United
Kingdom
75%
70%
Mexico
South
Korea
Note: Other includes other Internet-enabled devices as well as respondents who did not answer or who said they don’t know.
Sources: Google’s Consumer Barometer, 2014-2015; A.T. Kearney analysis
2016: The Tipping Point for E-Commerce in Mexico
3
The increasing penetration of online and mobile devices has accelerated the ROPO effect in
Mexico.5 According to Google’s Consumer Barometer, this market has the second-highest
occurrence of ROPO behind Brazil and falls below more-developed markets such as South
Korea and Japan (see figure 4). It is worth noting that since 43 percent of sales are ROPO,
when retailers improve their value proposition to drive their online platforms and sales, they
indirectly support their offline sales as well.
Figure 4
Many Mexican shoppers research online and then buy in physical stores
Research online,
purchase offline
Brazil
45%
Mexico
43%
South
Korea
United
States
Research online,
purchase online
19%
Japan
24%
United
Kingdom
24%
Research offline,
purchase online
46%
18%
48%
43%
35%
28%
Research offline,
purchase offline
17%
40%
34%
7%
25%
21%
36%
8%
32%
30%
9%
13%
14%
Note: Numbers do not add up to 100 because results are derived from a variety of samples.
Sources: Google’s Consumer Barometer, 2014-2015; A.T. Kearney analysis
Within specific categories, Mexicans favor physical purchases for clothing and grocery
purchases (72 percent and 74 percent respectively), categories in which having a first-hand
experience with products matters more (see figure 5 on page 5). Product information for
clothing can be incomplete online, and returns are not always simple, so customers prefer to
finish their purchase offline to reduce the risk of buying clothes that do not meet their expectations. For less customized products such as television sets and mobile phones, Mexicans feel
more confident making purchases online, a pattern that is reflected in the higher percentages
of sales completed online for these items.
Myth and Fact: What is Holding E-Commerce Back?
Some retailers cite a lack of proper infrastructure and shoppers’ difficulty making payments
online as the reasons for e-commerce not having taken off yet in Mexico (see sidebar: The Usual
Suspects: Are Infrastructure and Payment Methods Really Barriers? on page 6). But we believe
several other factors are more significant.
To better understand those challenges, we analyzed the main characteristics of top online
retailers in Mexico and compared them with the leaders in the more mature online markets of
ROPO stands for research online and purchase offline, where customers research products in online stores and brand websites but
purchase them in a physical store.
5
2016: The Tipping Point for E-Commerce in Mexico
4
Figure 5
Mexicans prefer brick-and-mortar stores for many items
Purchasing behaviors after online research
2014
0% 1% 1%
1%
2%
2%
3%
7%
1% 1%
5%
3%
0% 3%
2%
2%
21%
37%
Mobile
phones
2% 0%
Email
9%
Mail
10%
26%
56%
Television
1%
14%
19%
64%
Home
appliances
Other
Phone
Online
30%
60%
2% 0%
9%
Store
74%
72%
60%
Clothing
and footwear
Makeup
Groceries
Sources: Google’s Consumer Barometer; A.T. Kearney analysis
the United States and Brazil.6 We considered the three stages of an online purchase—website
experience, purchase experience, and delivery and retention—and the features within each
stage that affect the online buying process (see figure 6 on page 7). The average total score in
the sample for the three stages in Mexico was 63. The highest score for a retailer was 88, and
the lowest was 45. We drew several important conclusions at each stage.
Website experience
In this stage, the average sample score for Mexican retailers was 73. Qualities such as website
look and feel and pricing transparency were close to U.S. and Brazil benchmark levels. Mexican
retailers also offered a secure shopping experience via security certifications, similar to that
offered by e-commerce market leaders in other countries. However, for Mexican online
merchants, other qualities such as product search tools and cross-selling capabilities are still
below global leaders. Most Mexican retailers earned low scores for product search because
they usually do not include full product descriptions or pictures of products from different
angles on their websites, making it difficult for customers to make buying decisions online.
Mexican retailers scored below 50 on online help and contact information because only three
players offered online chat with immediate and high-quality responses. Some retailers may
consider online chat services unnecessary because they assume their target customers, who
are higher-income individuals, would rather shop in a physical store. However, given the
Most large traditional Mexican retailers have online stores, but we selected the top seven retailers based on traffic volume.
6
2016: The Tipping Point for E-Commerce in Mexico
5
The Usual Suspects: Are Infrastructure and Payment Methods Really Barriers?
Mexico’s retailers lament the
country’s outdated delivery
infrastructure and limited online
payment options, often saying
e-commerce would be more
successful if these barriers were
addressed. But are these really
the problem?
Infrastructure
Using 2014 World Bank’s
Logistics Performance Index
(LPI), we analyzed Mexico’s
international freight forwarding
system, including the efficiency
of customs, the quality of trade
and transport infrastructure,
and the competence and quality
of its logistics services. Mexico
received a score of 3.1, which is
higher than Brazil and Argentina,
countries with a larger
percentage of digital buyers.
Payments
Credit cards are required to buy
online, and Mexico has an average
of 0.8 credit cards per household—
well below Brazil, Argentina, and
Chile, which have three or more
credit cards per household (see
figure). However, Mexico has more
debit cards per household than
other Latin American countries in
our sample, except for Brazil. In
fact, the number of credit and
debit cards is similar to the United
Kingdom, which has 1.8 credit
cards and 3.4 debit cards per
household.
Traditionally, debit cards are not
widely supported by main online
payment gateway aggregators,
mainly because of higher fraud
risk. With low credit card
penetration and a relatively high
debit card penetration, some
Mexican e-commerce sites
accept debit cards as well as
cash and bank payments to
attract online customers. Cash
payments in particular can
represent up to 40 percent of
total purchases on several
categories, especially those of
smaller average price per item.
According to the Asociación
Mexicana de Internet (AMIPCI),
Mexican Internet users do not buy
online because of security and
trust issues, and debit cards pose
a higher fraud risk. Credit cards
are often cloned, and banks do
not always forgive unexplained
charges. Yet, some e-commerce
players have developed payment
solutions adapted to Mexican
needs that reduce these issues
(AMIPCI recognizes 11 payment
methods).7 They may not be the
most efficient solution, but they
are effective in easing Mexican
customers’ mistrust.
Figure
Mexican shoppers have more debit cards than credit cards
Credit cards per household
3.5
3.4
6.7
Average
4.1
4.2
3.0
1.8
0.8
Debit cards per household
7.7
Average
5.0
3.8
2.8
Chile
Peer markets
2.2
Brazil
2.3
0.6
Argentina
Developed markets
3.4
3.4
3.1
1.5
Mexico
Colombia
4.8
South
Korea
United
States
United
Kingdom
Source: A.T. Kearney analysis
Payment methods offered in Mexican e-retailers’ shopping carts, E-Commerce in Mexico 2015, Asociación Mexicana de Internet
7
2016: The Tipping Point for E-Commerce in Mexico
6
Figure 6
Mexico’s retail leaders face an array of challenges
Product images
61.9
Product assortment
33.0
Brand assortment
23.8
Online chat availability
and answer promptness
50.0
Detailed help and
recommended topics
57.1
Data required for registration
66.7
Email confirmation with
product description and
delivery details
57.0
Store pick-up
42.9
Express delivery
42.9
Scheduled delivery
14.3
Self-tracking process
14.3
Regular delivery time
A minimum of
85 points is required
to be globally
competitive
52.4
Detailed return policy
42.9
Easy-to-follow return process
42.9
Response time
38.1
Time for solution
(reimbursement or change)
57.1
Website experience
Purchase experience
Delivery and retention
Notes: Sample is based on low-scoring features during the online purchasing process. Minimum score is an A.T Kearney and Google Mexico joint
recommendation based on a review of international best practices.
Sources: Google Mexico; A.T. Kearney analysis
country’s growing young and middle-class population, offering 24/7 online support that
includes a chat feature could boost consumers’ confidence in online shopping, drive online
sales, and contribute to the overall growth of Mexico’s nascent e-commerce market.
Purchase experience
Mexican retailers show a medium to slightly higher degree of development in this stage, with
an average sample score of 82. Retailers in general had a clear and easy-to-follow shopping-cart
process, and purchase confirmation notifications rated higher. Most Mexican retailers offer
more alternative payment methods than retailers in more mature markets. Beyond debit- and
credit-card payments, they offer shoppers money orders from their bank accounts and
convenience stores (the preferred option for Mexicans who do not have bank accounts)
2016: The Tipping Point for E-Commerce in Mexico
7
and cash payments at the time of delivery. They also offer interest-free monthly payment
installments, an option that is popular in Mexico but not necessarily offered by leading
retailers in the United States and Brazil.
Delivery and retention
Scores for this stage were the lowest at an average of 47. In general, Mexican retailers offer
few delivery options. For example, only two offer in-store pick-up service, and only three offer
express delivery (with a surcharge). Delivery times are below those of global leaders. Most
Mexican online retailers deliver in between 10 and 15 days, and only two offer standard delivery
within five days. While this stage challenges e-commerce the most in Mexico, improving it via
standardized return policies and faster delivery times also poses the greatest opportunity that
the country’s retailers have for boosting their online success.
Product search tools and cross-selling
capabilities are still below global leaders.
Mobile Eases the Need for Traditional Telecom
Beyond young Mexicans’ penchant for using their mobile phones, there is another important
way that smartphone usage is having a dramatic effect on retail’s future online prospects.
Mobile is supplanting traditional telecom infrastructure, making that system less crucial to
e-commerce every day.
Fixed broadband is still an important component, but mobile devices are rapidly becoming the
primary means for Mexicans to go online, a trend we also observed elsewhere in Latin America.
Mobile usage has been soaring in the past couple of years and is expected to reach 73.4 million
users in Mexico in 2019, from 45.1 million in 2014.
Smartphone purchases drive this trend. They are the second-most-used device for
connecting to the Internet after laptops and before PCs, according to eMarketer. In 2015,
Mexico had 38.5 million smartphone users and a penetration rate of 31.8 percent, outpacing
Argentina (30.7 percent) and Brazil (24 percent). Some 62 million Mexicans are expected
to have a smartphone by 2019.
The increased number of queries made from mobile devices also points to the rapid growth
of mobile Internet usage in Mexico. Google queries have risen from 16 percent of all mobile
Internet searches in 2012 to 55 percent in 2015, while YouTube queries have risen from
10 percent to 70 percent in the same period.
Mexico’s mobile Internet usage is similar to countries with higher Internet penetration rates,
including the United States, South Korea, and the United Kingdom. Similarly, mobile YouTube
queries surpassed those made in the United Kingdom, Japan, and Brazil.
Thus, mobile penetration and usage suggest that if broadband infrastructure were ever
a relevant barrier, it is becoming less relevant as more people use mobile devices to
connect to the Internet—and to shop that way, too.
2016: The Tipping Point for E-Commerce in Mexico
8
Opportunities on Sale Now
In short, Mexico’s retailers are missing the opportunity to offer their customers the added value
of a great shopping experience online and on their phones. If consumers do not perceive an
advantage to buying online in terms of a pleasant experience, time savings, competitive prices,
and broad product availability, then they will continue to shop elsewhere.
Improve the experience
The main opportunity lies in offering a pleasant encounter, using online stores to complement
physical stores and create a seamless omnichannel experience. Linio, which sells many
products from electronics to furniture, is a good example. Most products on their website are
showcased with clear descriptions and multiple photos, each emphasizing a different angle and
a zoom-in feature. Customer interaction is notable, based on the ability to leave reviews. There
are as many as five reviews for many products, including comments and star ratings.
The main opportunity lies in offering
a pleasant encounter, using online
stores to complement physical stores
and create a seamless omnichannel
experience.
Offering a wider choice of products and brands, which reflect the full range presented in
physical stores, and developing better search tools to improve cross-selling recommendations,
are also good ideas. Sanborns, the large restaurant, retail, pharmacy, and department-store
chain, excels in this area. Its website features strong cross-referral of products. Three tabs on
its home page highlight most sold items, new items, and best offers. When a shopper chooses
a product, complementary products appear before the customer adds a preference to the
shopping cart.
Targeted promotions set online retailers apart as well. Take Dafiti, a fashion retailer that uses a
dynamic promotion strategy. If unregistered shoppers scroll down a Dafiti web page but take no
action after five to seven seconds, a coupon worth 100 Mexican pesos pops up to encourage
them to make a purchase.
Retailers can take these recommendations one step further by applying them to a platform for
mobile—or beginning with a mobile-first platform. Cornershop, which lets Mexicans shop online
for groceries from a number of retailers, designed its user experience first for smartphone users
and secondarily for desktop users. The company also offers an app that improves the search
and purchasing experience on cell phones.
Speed up delivery
Mexico’s e-commerce retailers could bring shipment and delivery services up to par with
those in more mature markets by introducing guaranteed standard delivery times of fewer
2016: The Tipping Point for E-Commerce in Mexico
9
than five days, helping make online shopping an attractive alternative to a store visit. Offering
options such as scheduled deliveries, in-store or mailbox pickup, and express services would
all advance the online shopping experience. Best Buy offers delivery options to its online
customers in Mexico, including pick-up at a store or at a FedEx location, home delivery, and
pay-on-delivery.
Prepare for new competitors
Given the coming competitive pressures posed by Amazon’s entry into the Mexican online
marketplace and the expected reaction of other retail heavy hitters such as Walmart, online
retailers will have customers’ changing expectations to contend with.
For traditional retailers, the challenge is to compete with pure online players that have a leaner
cost structure. The value of physical stores’ traditional role—as standalone venues accountable
only to customers on-site—has changed. Stores have become less productive and profitable.
Yet they remain at the heart of retailers’ relationships with consumers, so it may be a long time
before general consumer purchasing behavior shifts online. Successful retailers understand
how each customer touch point adds value and know how to approach the new market strategically. They develop omnichannel strategies—with stores as the foundation—that maximize
customer satisfaction and profitability.8
Stores remain at the heart of
retailers’ relationships with
consumers, so it may be a long time
before general consumer purchasing
behavior shifts online.
From new entrants’ perspective
For pure online players entering the Mexican market, both local and international, it will be
important to focus on warehouse location and logistics to offer competitive prices and short
delivery times, which are essential for gaining Mexican customers’ trust.
Understanding Mexican customer behavior and adapting business models to the market will be
vital for international players as well. For example, Mexico’s online shoppers appreciate having
payment options such as cash on delivery, convenience-store payments, and no-interest
monthly installments. Retailers will need to incorporate these elements into a customer-centric
strategy to attract and retain customers in the short and mid-term.
E-commerce in Mexico is expected to take off and become one of the most attractive online
markets in Latin America. For both traditional retailers and pure online players, quickly closing
the gaps in website execution, purchasing, and delivery can help them begin to realize greater
For more information about omnichannel strategies, see Recasting the Retail Store in Today’s Omnichannel World and On Solid Ground:
Brick and Mortar Is the Foundation of Omnichannel Retailing at www.atkearney.com.
8
2016: The Tipping Point for E-Commerce in Mexico 10
revenue from online sales now, just as Mexico’s youthful population—armed with cell phones
and a fondness for the Internet—realizes what consumers have found in more mature markets:
online shopping, especially on a cell phone, is one of the easiest ways for consumers to get
what they want. Investing now in an attractive value proposition will build Mexican customers’
confidence and eagerness to make purchases online—and keep Mexico’s retailers first on
consumers’ shopping lists for years to come.
Authors
Eduardo Pacheco, partner, Mexico City
eduardo.pacheco@atkearney.com
Jaume Sues, principal, Mexico City
jaume.sues@atkearney.com
Alejandro De la Vega,
consultant, Mexico City
alejandro.delavega@atkearney.com
Angela Reyes, consultant, Mexico City
angela.reyes@atkearney.com
The authors wish to thank Mike Brown and Maria Molina for their valuable contributions to the paper.
2016: The Tipping Point for E-Commerce in Mexico 11
A.T. Kearney is a leading global management consulting firm with offices in more
than 40 countries. Since 1926, we have been trusted advisors to the world's foremost
organizations. A.T. Kearney is a partner-owned firm, committed to helping clients
achieve immediate impact and growing advantage on their most mission-critical
issues. For more information, visit www.atkearney.com.
Americas
Atlanta
Bogotá
Calgary
Chicago
Dallas
Detroit
Houston
Mexico City
New York
Palo Alto
San Francisco
São Paulo
Toronto
Washington, D.C.
Asia Pacific
Bangkok
Beijing
Hong Kong
Jakarta
Kuala Lumpur
Melbourne
Mumbai
New Delhi
Seoul
Shanghai
Singapore
Sydney
Taipei
Tokyo
Europe
Amsterdam
Berlin
Brussels
Bucharest
Budapest
Copenhagen
Düsseldorf
Frankfurt
Helsinki
Istanbul
Kiev
Lisbon
Ljubljana
London
Madrid
Milan
Moscow
Munich
Oslo
Paris
Prague
Rome
Stockholm
Stuttgart
Vienna
Warsaw
Zurich
Middle East
and Africa
Abu Dhabi
Doha
Dubai
Johannesburg
Manama
Riyadh
For more information, permission to reprint or translate this work, and all other
correspondence, please email: insight@atkearney.com.
The signature of our namesake and founder, Andrew Thomas Kearney, on the cover
of this document represents our pledge to live the values he instilled in our firm and
uphold his commitment to ensuring “essential rightness” in all that we do.
A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea.
A.T. Kearney operates in India as A.T. Kearney Limited (Branch Office), a branch office of A.T. Kearney Limited,
a company organized under the laws of England and Wales.
© 2016, A.T. Kearney, Inc. All rights reserved.