Thomas White Global Investing
Mexico
Mexico Stamp
January 5, 2010
A Postcard from the Americas
Mexico: Christmas Fails to Cheer Retailers

Mexico City

With incomes growing, consumer credit is also rising in Mexico. Further, the government recently raised the minimum wage for 2009 by 4.85%. All these augur well for the retail sector going forward.

Last year was not a particularly good one for Mexico. While the global recession battered the nation’s economy, the swine flu outbreak almost devastated its tourism industry. And if these curses were not enough, violent drug-related crimes cast a pall of fear over the nation throughout the year. Amid this gloom, Mexican retailers had been looking forward to the Christmas season for some succor. However, like the rest of the year, the holiday season too seems to have ended on a disappointing note.

Given that retail sales in the country tumbled 4.6% in October over a year earlier and fell 5.3% in the first 11 months of 2009 compared to the year-ago period, retailers were banking on Christmas shoppers to improve their sales figures.

The good news is Mexicans did shop heavily during Christmas, but merchants had to literally drown shoppers in offers and discounts to get them to do so. Prices had to be slashed drastically and despite that, retailers like Wal-Mart, Comercial Mexicana and Soriana found that unusually thrifty customers were not happy until they were offered huge promotions and offers. The discounts and offers have likely left sellers with paper-thin profit margins.

The $1.09 trillion Mexican economy is struggling and is estimated to have shrunk as much as 7.5% in 2009. However, the state of the economy and forgettable Christmas season notwithstanding, all may not be lost for the retail sector. In the third quarter, Mexico reported a seasonally adjusted GDP growth of 2.9% over the previous quarter. Further, a Business Monitor International report forecasts that Mexico’s retail sales will grow from $711 billion in 2008 to $909 billion by 2013. The growing affluence of Mexico’s middle-class is another encouraging trend. And crucially, the country is young. Almost 41% of Mexico’s population falls in the 20-44 age group — the most favorable demographic segment for retailers because of its immense spending potential. So, all may not be lost. All these trends and developments indicate that the retail sector in Mexico may soon start turning the corner.

Worldwide, Christmas and the New Year are traditionally viewed as a season of hope and goodwill, and a time to start afresh. On that note, Mexico would be desperately hoping that the 2009 Christmas season has laid to rest the ghosts of a torrid year. At least, weary retailers would be praying for nothing less.

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