Luxury goods retail sales in Mexico grew an impressive 9% to reach MXN 65 billion (US$3.2 billion) in 2016 making it the largest luxury goods market in the Latin American region and bucking the overall emerging market trend of slower growth that we have witnessed over the past few years.
CONSUMERS
Mexico Bucks Emerging Market Trend but Outlook Remains Uncertain
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Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.
PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.
In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”
The Fondation Cartier pour l’Art Contemparain building in Paris
Luxury goods retail sales in Mexico grew an impressive 9% to reach MXN 65 billion (US$3.2 billion) in 2016 making it the largest luxury goods market in the Latin American region and bucking the overall emerging market trend of slower growth that we have witnessed over the past few years.
This growth is thanks, in large part, to a stable economic performance despite global uncertainty and an expanding middle-class consumer base. Below, Euromonitor International highlights some key trends that will likely shape the industry in 2017, including the impact of the strong US dollar, mobile retailing, and continued company activity in the form of mergers, acquisitions, and expansions.
Luxury goods performance weighs heavily on US economy
Given Mexico’s close economic ties with the USA, Mexico will be one of the most impacted countries from the Trump administration. This in turn will have a profound impact on what was Mexico’s thriving luxury good market.
Mexico’s economy, and with it its luxury goods market, is heavily reliant on the success of the US economy to drive exports progression and remittance inflows. Donald Trump’s surprising victory in the US elections pushed the Mexican peso to historic lows, summoning dangers in store for Mexico’s luxury goods market, given the newly elected President’s proposed protectionist measures.
Although, the viability of his plans seem very uncertain, the start of Trump’s administration haunts Mexico’s luxury goods market given the nation’s strong link to the US economy. Trump’s victory is expected to deteriorate Mexico’s business as well as consumer sentiments, external balances and trade ties with the USA. This is further expected to reduce Mexico’s real GDP growth forecast from 2.7% (according to the Pre-Trump Scenario in Euromonitor’s Macro Model) to 1.6% in 2017.
Impact of the strong US dollar
Largely as a result of international macroeconomic factors, the value of the Mexican peso relative to the US dollar declined by 42% between 2013 and the end of 2016. While the costs of imported luxury goods products have somewhat increased, the value of remittances has also climbed – 26% in current local currency terms in the first 10 months of 2016 compared to 2015, according to the Banco de México. The exchange rate has also had positive implications for Mexico’s tourism market, and those indirectly benefited by it.
In 2015 and 2016, many luxury retailers tried to avoid passing the full costs onto consumers. With the dollar projected to remain strong and inflation expected to increase, many retailers may be unable to continue this strategy. While discretionary purchases such as affordable luxury goods will likely show the biggest impact from reduced spending power, there may be spillover effects on other categories. There are concerns that some lower income luxury consumers may start to trade down in the short to medium term.
Mexico leads the region with mobile retailing
Despite the fact that overall Mexico lags other Latin American countries in terms of total internet retailing, with just 2.5% of all sales being done via the internet in 2016, Mexico leads the region in terms of luxury goods spending online by a large margin but also leads in terms of the prevalence of mobile internet retailing.
In 2016, approximately 24% of all internet retailing sales in the country were carried out via smartphones or tablets, compared to 12% for the region overall. Part of the success of mobile is attributable to access: the penetration rate of smartphones in Mexico in 2016 was 133%, meaning there were more smartphones than households. The arrival of Amazon Fashion in July 2016 further shook up the arena of digital commerce and led players to strengthen their positions in the Omnichanel.
Local retailers in expansion mode
Attracted by the expanding aspirational middle-class, which experienced significant growth over the last 15 years, in recent years a number of international fashion players aggressively entered Mexico’s retail environment, driven by the rocketing expansion of shopping centres in major urban areas. 2016 was indeed a year full of company activity, as domestic retailers sought to take advantage of economic stability in Mexico to grow their footprint and entrench their strategies: Luxury department store Liverpool acquired all Suburbia locations, expanding to a new consumer group, as well as Chilean department store Ripley, expanding to a new market.
Liverpool has established itself as a popular partner for high-end international brands seeking to enter Mexico, and the move gives Liverpool increased negotiating power. Moving forward 2017 will likely bring even more mergers, acquisitions and expansion activity.
Trump’s administration could cause large decline in Mexico’s remittance inflows and exports
Mexico’s economic ties with the USA have amplified considerably since NAFTA took effect in 1994, eradicating most tariffs on goods traded between the USA, Canada and Mexico. Hence, the USA became the Latin American country’s largest trade as well as investment partner. By 2015, 81.0% of Mexican goods were exported to the USA. Elimination of NAFTA will have far reaching consequences for the Mexican economy, via high export costs, reduction of US investments and potential capital flight induced by uncertainty.
Furthermore, in 2015, Mexico was the fourth largest recipient of remittance inflows in the world, accounting for 2.2% of its GDP. These inflows are predominantly from the USA and play a major role in increasing household consumption and reducing poverty. Trump’s anti-immigration policies and his plans of restricting migrant’s remittances will certainly affect Mexican household income and with it their luxury goods expenditure.
Head of Global Luxury Goods Research, Euromonitor
Fflur Roberts manages the research programme for the global luxury goods industry at Euromonitor International, which she joined in June 2000. In her current post, Fflur Roberts has direct responsibility for the content and quality of Euromonitor’s luxury goods research, which provides strategic analysis of the global market and in-depth coverage of the industry in 32 countries worldwide. With Fflur at the helm of Euromonitor’s luxury goods research the company was awarded Luxury Researcher of the Year 2016 by global media company Luxury Daily and in 2017 was on the Luxury Women to Watch list. Fflur has written extensively in the field of business and luxury and in her time at Euromonitor has authored numerous global strategic reports and is often referenced in the international press on the luxury business and has addressed luxury leaders at many leading global luxury conferences around the world. Presently Fflur is co-editing a chapter on the USA and European luxury market for The Oxford Handbook of Luxury Business (Oxford University Press, forthcoming).
