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Mexico Enters the Limelight

As Brazil's fashion market gets ever more crowded, Latin America's smaller giant to the north begins to finally shine.
Museo Soumaya in Mexico City, home to many of the capital's luxury retailers | Source: Shutterstock
By
  • Robb Young

MEXICO CITY, Mexico — It's one thing to make the inevitable comparison between two rivals. But it's quite another to aggravate it with a dodgy metaphor. Such was the folly of one Brazilian businessman a few years back when he tried to explain why foreign fashion brands were investing the majority of their Latin American budgets in Brazil rather than Mexico.

Leaning over a catwalk, at a Paris fashion show where he sat within earshot of a Mexican counterpart, the Brazilian chose a mischievous musical analogy to tease his Latin neighbour: Mexico's fashion market, he declared, was swaying to the languid beat of a mariachi band. Brazil, on the other hand, was strutting to the sound of the samba, he said, and proceeded to ask who could blame people for wanting to make money to the rhythm of a faster beat.

This may have been little more than harmless bluster or a bit of playful banter, but it did highlight Mexico's very real predicament before it became the rising star that it is today.

With vistas as breathtaking as its nightlife is electrifying, this country of 120 million has not always been as economically dynamic as it is now. But after several decades in the slow lane, Mexico's fashion market is finally beginning to look as lively as the rest of the country.

One important moment came this summer when the good and great of the global fashion industry descended on Mexico City to attend the Financial Times Luxury Conference, singing the praises of a visibly booming market. There have been many milestones in the months since then, but it is the frenetic pace of retail activity which perhaps best sums up the expansionist fever felt on the ground.

Dolce & Gabbana's recent roll-out of three stores in a year was outdone by this month's opening of two Prada boutiques within a mere week, one in the nation's capital and another in Cancún. Saint Laurent is said to be planting a flagship here next year and the domino effect will no doubt continue thereafter.

"Mexico is definitely ranked the number one fashion market among Latin Americans. Well, excluding Brazil that is," says the editor-in-chief of Harper’s Bazaar Mexico & Latin America, Brenda Diaz de la Vega. "If I were to advise a brand on how to enter the Mexican market right now, I would start by setting expectations and comparing the market with Brazil."

The Mexican market has indeed played second fiddle to Brazil's for quite some time. Mexico is Latin America's second largest economy, its second most populated country and the market with the second highest number of millionaires and billionaires to boot. Under different circumstances, such 'seconds' would have probably been understood for what they really are — incredibly attractive statistics. But until now, kept either in the shadows of the US or Brazil, the opportunity in Mexico hasn't been fully appreciated.

Changing Fortunes

"Brazilian sales are huge, but the profit isn't huge due to high duties and taxes to import the collections," explains Diaz de la Vega. "It's also more of an image-building market, because brands know that Brazilians are shopping in Europe and the US, so they might not close the transactions at home, but they are definitely impulsing them there. In Mexico, it's less expensive to import so the profits that can be made are bigger."

With Brazil still reeling from the social unrest that erupted ahead of the recent World Cup and a climate of political uncertainty, Mexico seems perfectly poised to steel some of Brazil's thunder.

"Compared to other Latin American countries, Mexico is particularly well positioned for business. Today, we have 10 different free trade agreements with 45 countries in the three main continents and have modified tax rates with certain regions outside of these treaties," says Carlos Salcido, chief marketing officer of upmarket department store chain Palacio de Hierro.

Over the past couple of years, Mexican president Enrique Peña Nieto has ushered in a raft of economic reforms that, if implemented correctly, bode well for this second pillar of the Latin American fashion market.

"Growth had been very slow up until 2012, when President Peña Nieto took office, because although the Mexican economy has been very stable for the past two decades, insecurity and violence deterred faster growth. It wasn't until Peña Nieto reinstated peace and security that things really started to pick up and we saw the arrival of many luxury and high street brands," says Diaz de la Vega.

Kelly Talamas, editor-in-chief of Vogue Mexico & Latin America, believes that the middle market and high street segments will continue to be strong, citing the arrival of an H&M store, in 2012, as a milestone. The store was H&M's first foray into Latin America, though the company wasted no time in expanding its Mexico presence further, swiftly opening eight more stores in the country within the next couple of years, in part to fend off the advances of other new arrivals like Forever 21, but also to play catch-up with Zara-owner Inditex, which has been active in the Mexican market for much longer.

"I'd say that luxury is the most exciting at the moment, however, as we’ve seen an increase in expansion in this segment," Talamas continues, pointing to developments at the Antara Fashion Hall and department store giant El Palacio de Hierro’s Moliere location in Mexico City. "Centro Comercial Santa Fe has also been aggressive with its new luxury section. This mall houses all three of the country’s top department stores, El Palacio de Hierro, Liverpool and Saks Fifth Avenue."

Luxury brands and department stores alike are expanding at breakneck pace in affluent, stylish cities such as Guadalajara in the west and Monterrey in the north, while shopping malls are mushrooming around the country in second tier cities like Querétaro and Puebla.

Distribution of international brands in Mexico is dominated by its three main department stores and Grupo Axo, which is being steered by vice president Carlos Miranda. Grupo Axo has a strong presence in malls such as Antara with a brand portfolio that includes Marc by Marc Jacobs, Theory, Emporio Armani and Coach. Liverpool is a department store founded in 1847, which focuses on diffusion, middle market and high street brands, and covers the breadth and width of the country with dozens of branches across most of Mexico's 31 states.

Liverpool's more upmarket rival, Palacio de Hierro, has been operating for over 125 years at the top end of the market and now represents one of the biggest designer distribution channels in the country. From cities like Villahermosa in the deep south to Acapulco on the Pacific, Palacio de Hierro has taken over a considerable portion of the real estate pie in Mexico beyond the country's capital. Through a separate business unit dedicated to freestanding boutiques, the group boasts a total of over 140 boutiques under its ownership and operation, representing names like Michael Kors, Mango and Tory Burch.

"If we were to talk about specific partners who have helped us achieve this transition from high-end retailer to luxury, Louis Vuitton, Tiffany & Co and Salvatore Ferragamo were our pioneers," says Palacio de Hierro's Salcido, whose team is in the midst of rebuilding the firms's Polanco store, dubbed "the flagship of flagships." Next on the agenda is an overhauled business model that blends online and offline.

"We plan a full relaunch in 2015. A strong omnichannel presence is important to us and initiatives like a flawless click-and-collect service are paramount, since the Mexican client is deeply rooted in a brick-and-mortar consumption culture," says Salcido.

Indeed, fashion e-commerce has been very slow to catch on in Mexico because of an unreliable postal service and fears about online credit card fraud. But recent entrants like Rocket Internet, which launched e-tailer Dafiti in Mexico two years ago, are making gains. Dafiti now reports an average of 5 million monthly visitors from the country.

Future Prospects

Mexico is part of what is arguably the most exciting group of emerging market economies since the arrival of the BRIC country cluster (Brazil, Russia, India, China) a decade ago. Dubbed the 'MINT' (Mexico, Indonesia, Nigeria and Turkey), these four economies are being watched closely by leading analysts and investors for their favourable future demographics, critical market mass and juicy wealth indicators.

The first half of the decade saw the Mexican economy grow between 4 percent and 5 percent annually until last year when it slipped to a lacklustre 1.1 percent. In May, the Bank of Mexico revised its 2014 growth forecast to somewhere in the middle, between 2.3 percent and 3.3 percent. But while the macroeconomic growth picture may be less rosy than it was a few years back, analysts still consider the country to be a prime target for investment.

According to Credit Suisse, the number of USD millionaires in Mexico stands at around 186,000. This puts the number of Mexican millionaires higher than those in India, for example, even though India has ten times the population. And while the gulf between Mexico's rich and poor is certainly a drag on its development, social mobility does appear to be gradually improving.

A 2013 report by Ernst & Young predicts that, at current rates, the number of households with annual disposable income in excess of US$50,000 will have grown to 7.1 million people by 2020. That amounts to a 50 percent increase in the size of Mexico's middle class in less than a decade.

While, for most global fashion brands, Brazil still remains the single most important and developed market in Latin America, Mexico is beginning to nip at its heels. It is estimated that Mexico's apparel and footwear market is currently worth $29.6 billion, but, in just four years time, Euromonitor projects that the size of the Mexican market will swell by $10 billion more. The ready-to-wear designer slice of the market will grow by 50 percent during the same period, from $1.9 billion this year to $3.0 billion in 2018.

Alternative Voices

"For the most part, Mexican consumers tend to lean toward recognised brands and labels, as opposed to more discreet fashion labels, whatever their price point. They're more conservative in style than other markets like Brazil or Colombia. Due to our proximity to the US, generally speaking anyway, Mexicans tend to follow American trends and styles closely [but] those hailing from Spain have also proven to work well here," says Talamas of Vogue.

It is this aspect of the market that Beatriz Calles finds most frustrating. 'Malinchismo,' she calls it, meaning an unfair love or fixation with all things foreign. As director general of Mercedes-Benz Fashion Week Mexico, Calles leads the nation's designer showcase, which celebrated its 16th edition last month. Mexican designers like Alejandro Carlin, Lorena Saravia and Alexia Ulibarri have made strides abroad, though find it hard to tap into the domestic market. "We've learned to be cautious but things are changing," she says.

Impressive renovations continue around Mexico City's swish Avenida Masaryk where boutiques like Frattina and Bloom have become part of the fabric of the Polanco luxury district. But at the same time, in trendy, bohemian neighbourhoods like Condesa and Roma, among others, a slew of independent boutiques are popping up.

Common People has created a distinctly Mexican interpretation of the concept store for the capital while Cañamiel cherry picks some of the freshest young designers from around Latin America and men's specialty retailer Silver Deer stocks progressive international labels, such as Thom Browne.

"One of the things that happens in D.F. (Mexico City) is that you can gather people with edgy or alternative style with cool, hipster types and I think we all interact in a pretty harmonious way. The places and neighbourhoods where I move are definitely more about having and developing your own style than about throwing big fashion names around," says Fabiola Zamora, the founder of the magazine 192, which was launched as a showcase for Mexican creatives.

Alternative voices are growing louder in Mexico's fashion scene, led by Enrique Gonzalez and Denise Marchebout whose landmark boutique Clinica boasted some of the most experimental streetwear and thought-provoking designer gear in Mexico City for five years before they shuttered it to develop their own labels.

"People come to Mexico City looking for the freedom of expression it offers," says Gonzalez, whose own brand EGR is fast becoming a sensation in designer streetwear circles abroad. "And you can see it in the clash of styles on the streets. It's on a smaller scale than in the fashion capitals but it's there. It's definitely already there."

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