Mexico has all the right ingredients for an e-commerce boom: a young, tech-savvy population, rapidly increasing Internet penetration, and access to the world’s biggest e-commerce retailers, namely Amazon, Walmart, and Alibaba. In fact, Amazon and Alibaba have been vying for territory in Mexico’s e-commerce space for the past three years, betting on explosive growth.
While Mexico accounts for 12.6% of Latin America’s online purchases, only 1.6% of Mexico’s retail spending is conducted online. As Latin America’s second-largest e-commerce market, Mexico is poised for an online retail boom as Internet services reach more and more of the population.
Mexico’s strategic location close to the United States has a lot to do with this market’s growth potential. As one of three partners in the US$1.2 trillion NAFTA trade deal, Mexico is uniquely well-connected to the US and Canada, making international e-commerce much more available to the population.
Amazon set up its first distribution center in Mexico in 2015 and debuted Prime membership there in early 2017, taking bold steps to capture the market before it takes off. Already 60% of Mexican online shoppers are using international retailers, taking advantage of a simplified clearance process for low-value commercial goods at the border.
In comparison with Brazil and Argentina, shipping logistics in Mexico are considerably simpler, with Amazon already conducting one-day delivery. However, extremely low levels of financial inclusion in Mexico, especially in rural parts of the south, make online payments tricky. More than 60% of Mexicans do not have access to credit cards, and many international retailers do not yet accept payments in pesos via Mexican debit cards.
A few creative companies have gotten around this barrier already; Walmart offers cash payments on delivery, and beer retailer Anheuser Busch-InBev allows customers to make payments in cash at local convenience stores. Mexican startup Payback has also developed a points-accumulation service to help streamline online purchasing for consumers. Clip, a Mexican startup similar to Square, is helping small vendors accept payments via card, and online, so they can compete with the e-commerce giants.
Mexico’s business environment also presents fewer barriers than Argentina’s or Brazil’s, meaning homegrown e-commerce startups are plentiful. Companies like El Puerto de Liverpool, have been selling online since 1997, opening the market for newer retailers like Linio, Andrea.com, and Cinepolis.com.
The popular delivery startup, Rappi, has also expanded to Mexico, joining the race to provide Mexican consumers the goods they need on-demand, copeting with companies like Cornershop. Other innovative startups have popped up in Mexico’s e-commerce space, including Luuna, selling budget-friendly mattresses, AZAP, a flower delivery company, and Rigs Inc., an online auto parts retailer that is helping Mexicans buy auto parts online. Check out my podcast with Rigs Inc’s Nestor de Haro, on my Crossing Borders podcast.
With up to 70% of Mexican shoppers buying online, large international retailers like Walmart are investing heavily in their online platforms as well. Last year, Walmart spent up to 10% of its Walmex budget on creating their online platform, targeting smartphone users specifically.
Alibaba is also building relationships in Mexico, signing an agreement with the Mexican government last year to sell more Mexican goods on the platform. Nonetheless, the biggest share of the e-commerce market still belongs to regional giant MercadoLibre.
These online vendors are beginning to displace smaller brick-and-mortar vendors in Mexico who cannot compete with the convenience of credit and faster shipping options.
Mexico is on the brink of an e-commerce revolution. Currently, only about 50% of the population has access to the Internet, and the enormous economic disparities between the urban and rural areas are holding the market back from exponential growth.
With Mexico ranking 49th on the World Bank’s Doing Business report, compared to Brazil at 125, and Argentina at 117, the e-commerce market does not face as many barriers as it does in the Southern Cone.
Even though the online retail market is still far from maturity in Mexico, both international and domestic companies are taking a bet on Mexican e-commerce, projecting high growth over the next decade.