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BMI View: Mexico's retail market is expected to prove the regional
outperformer in the short-to-medium term, with positive economic and labour
trends supporting healthy growth in household income rates, which in turn will
boost spending in a number of retail segments. The country is attracting a high
level of international investor interest and we expect to see a large number of
new retail units opening over the coming months, including the introduction of
major international fashion and electronics brands to the market - reflecting
growing consumer demand for non-essential and higher value items as disposable
income rates rise. While some risk to investors does stem from ongoing security
concerns and a reliance upon the health of the US economy, overall Mexico's
retail market is expected to grow and diversify rapidly and as such presents a
valuable opportunity for a range of retailers.
Key Views & Developments
-Strong growth in labour-intensive sectors such as manufacturing and
construction will lead to higher employment rates in Mexico, which will provide
a valuable boost to average household income rates when measured in local
currency terms in 2016, though we note currency movements will lead to a
shortterm contraction in average household income when measured in US dollar
terms, reflecting the ongoing weakness of the Mexican peso.
-Higher household income rates combined with improving access to credit and low
inflation will in turn support robust growth in total household spending in
2016, again when measured in local currency terms, with total household spending
reaching some MXN5,646bn (USD319bn). Banco de México (Banxico) is expected to
hold the benchmark overnight interest rate at 3.75% when it meets in late June,
supporting our current forecasts.
-A number of high profile retailers have announced plans to expand in the
Mexican market. Luxury brand Dior opened its first store in the country in early
2016 following Bottega Veneta, Bulgari, TAG Heuer and Rolex, which have also
entered the market. Swedish brand Make Up Store has also opened a new store in
Mexico City, alongside other Swedish brand H&M, which has expanded rapidly in
-Further reflecting the expected growth in the Mexican retail segment, Walmart
Mexico announced in May 2016 it plans to open over 1,000 new stores in Mexico
and the wider Central America region over the next ten years.