2016 the tipping point for retail e commerce in mexico

2016: The Tipping Point for Retail eCommerce in Mexico

January, 2016

Industry report

A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 2

Content

■This presentation summarizes the

report which A.T. Kearney recently

launched, which:

– Unveils 2016 as the tipping

point for Retail eCommerce in

Mexico

– Debunk the myth that Mexico’s

eCommerce growth is limited

due to poor logistics/internet

infrastructure and low credit card

penetration

– Identify the real challenges for

eCommerce in Mexico and

present the key opportunities

for retailers in Mexico

2016: Tipping point for Retail eCommerce in Mexico


B2C eCommerce in Mexico is expected to grow at a 26% annual rate, both in retail and services

B2C eCommerce in Mexico, 2013 - 2019(USD Billions)

1. Compound Annual Growth RateSource: A.T. Kearney, eMarketer 2015

6.58.5

11.614.5

17.721.0

26.3

3.0

4.6

5.9

7.5

9.4

11.5

14.5

27.1

2016F

22.0

2015F

17.5

2014

13.1

2013

9.5

+26%

2018F

32.5

2019F

40.8

2017F

Services & Other

Retail

+26%

+26%

% CAGR1



Whatsoever, this B2C eCommerce growth will include a combination of different purchase journeys

IllustrativeRetail purchase journeys, as of today

1. Call CenterSource: A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016

Value Creation

Value Capture

C

Store Store

StoreOnline & CC1

Online & CC1Online & CC1

(Store as

secondary option)

Only StoreResearch Off-linePurchase Off-line

ROPOResearch OnlinePurchase Off-line

Click to CollectResearch OnlinePurchase Online

Store Online & CC1

Online & CC1 Online & CC1

Show rooming Research Off-linePurchase Online

Digital / CC onlyResearch OnlinePurchase Online

DiscoverPurchase & Pay

Receive & Activate

Explore & Decide

A

B

D

EOnline &Call Center

Store



Last year, half of Mexican Retail consumers already included iterations online in their purchase journeys

Internet users purchase behavior, 2015(Most common purchase journey used1)

1. Numbers don’t add up to 100 as users might answer several categoriesSource: The Consumer Barometer, 2015

C

Only StoreResearch Off-linePurchase Off-line

ROPOResearch OnlinePurchase Off-line

Show rooming Research Off-linePurchase Online

Core Digital Research OnlinePurchase Online

A B DE

13%

9%

17%

14%

8%

7%

43%

36%

18%

19%

34%

21%

45%

43%

28%

24%

24%

35%

Japan

UnitedKingdom

USA 40%

30%

25%

46%

Mexico 48%

SouthKorea

Brazil

32%



Online expenditure, by market

Online expenditure per Digital Buyer(USD Thousands)

Digital Buyers (% of Internet Users)

Mexico online expenditure is still low, when compared with other international markets

82%

88%

United Kingdom

88%

81%

Mexico

38%

Japan

31%

ArgentinaUnited States

32%

73%

47%

76%

40%

Brazil

74% 75%

48%

South Korea

20152014

$0.5

$0.8$0.8

$1.3

$1.6

$2.7

$3.1

$0.6

$0.9$0.9

$1.4

$1.7

$3.0

$3.4

ArgentinaBrazilMexicoSouth Korea

United States

JapanUnited Kingdom

Source: AMIPCI, eMarketer



Our study debunks the 3 most accepted myths that Mexico eCommerce growth will be limited, unveiling a huge opportunity

• There are global online payment solutions present in

Mexico covering a wide range of alternative payment

solutions (such as cash and prepaid cards) in 14,000+

PoS2 along the urban and rural areas of the country

• Fixed broadband penetration is marginally lower than

Argentina (12.7%) and Brazil (12.8%) …

• … but widely compensated with the higher smartphone

penetration in Mexico (32%) than in Argentina (31%)

and Brazil (24%)

• Mexico’s Logistics Performance Index1 (3.1) is higher

than Brazil’s (2.9) and Argentina’s (3.0)

• Moreover, Argentina and Brazil are larger countries

with weaker delivery time promises (1.4x and 4.3x the

area of Mexico)

Most cited barriers for eCommerce in Mexico

Low access to payment

methods“Mexican households have 0.8

credit cards on average, well below

Brazil (3.4) and Argentina (3.0)”

Weak internet access“Fixed broadband has a low

penetration of just 11.5%” in Mexico”

Poor Logistic

infrastructure“Logistics infrastructure is a barrier

for eCommerce retailers that need

to cover a large geographic area”

1. Logistics Performance Index (from World Bank, 2015) is based on scores on variables such as time to export documents, quality of port infrastructure, liner shipping

connectivity etc.

2. Point of Sale

Source: A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016



1. Survey conducted (n= 1680) by Google Consumer Survey2. Point of Sale3. Open discussion. Not part of A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016

On the other hand, several key questions arise, on Corporate Trust and Omnichannel strategies

Barriers for Online Purchase in Mexico, Nov 20151

11%

15%

22%

37%

47%

No good prices or discounts

Shipping is expensive or not appropiate to my needs

Don’t feel comfortable giving away credit card data

Can’t find what I’m looking

Don’t trust that shipment will arrive

Open discussion

• Which pay on delivery methods might be more efficient?

• How the delivery can be leveraged with current PoS2?

• Which alternative payment methods would be suitable for first and subsequent iterations with clients? (cash payment, coupons, prepaid cards, …)

• Which is the best combined assortment strategy on the online and offline PoS2? (long tail vs high rotation)

• Which is the best combined pricing strategy on the online and offline PoS2?

• Which is the best combined service level and post-sales strategy on the online and offline PoS2?

Key questions3


Corporate Brand & Trust

Omnichannel strategy


Today in Mexico, achieving global standards on Omnichannel Customer Experience is a winning competitive advantage

A.T. Kearney score for online purchase, Mexico 2015 EoY1

1. Sample of low scoring features during the online purchasing process2. A.T Kearney recommendation based on international best practices reviewSource: A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016

61.9

33.0

23.8

50.0

57.1

66.7

57.0

42.9

42.9

14.3

14.3

52.4

42.9

42.9

38.1

57.1

Detailed Help and recommended topics

Data required for registration

Store Pick up delivery option

Express delivery option

E-mail confirmation with product description and deliver

Online chat availability and answer promptness

Brand Assortment

Product pictures

Product assortment

Response time

Regular delivery time

Scheduled delivery option

Time for solution (Reimbursement or change)

Easy to follow return process

Self tracking process

Detailed Return Policy

Minimum 85 points to become globally competitive2

Purchase Experience Delivery & RetentionWebsite Experience



Therefore, based on the findings of our paper, we recommend to tropicalize 3 key international Omnichannel strategies

1. A.T. Kearney proprietary methodology Source: A.T. Kearney

Winning Omnichannel strategies for Mexican retailers(A.T. Kearney selected global best practices analyzed)

Coherent pricing &

assortment strategy

Seamlesscustomer

experience

Alternative payment methods

• Adjusted online / store pricing and

assortment, consistent with (if relevant):

– Cross-migration strategy between channels

– Different price sensitivity of customers

– Different assortments (long tail & niche

products vs high rotation SKUs)

• Alternatives to the pure online payments

(e.g. credit card in the web):

– Cash payments in convenience stores

– Pay on delivery

– Pick up on store

• Excellence on integrated

user experience:

– Multi-device platform,

but mobile first

– Implementation of PCE1

(Pivotal customer

events) strategy

– Strong website

performance


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Leaders that have effectively integrated their channels have realized three key benefits

Integrated Channel Engagement Benefits

1. Source: J.D. Power customer satisfaction ratings of select players – leaders achieve top quintile customer satisfaction; in addition, companies that implemented integrated multi-channel distribution have realized top quintile improvement in customer satisfaction

2. 77% of consumers surveyed prefer bank offered P2P payments over PayPal (Source: Fiserv consumer survey)3. increased channel migration to self service can reduce average over-the-counter costs by 68% (Source: Tower Group)4. As cost of acquisition is significantly higher than cost of retentionSource: A.T. Kearney

• Top quintile improvement in customer satisfaction1

• Up to 33% higher x-sales

• Multi-channel shoppers spend up to 4X

• Retention improvement of ~5% (which has a multiplier impact on profitability)4

• Cost reductions on transactions of up to ~70%

• Productivity improvements of up to 30%

Improved Consumer Engagement

• Consistent customer experience across

channels

• Improved customer satisfaction and loyalty

Higher Growth

• Higher share of wallet

• Higher retention and lifetime value

• New revenue sources2

Optimized Cost to Serve

• Optimized product to channel mapping

• Developed self direction capabilities3

• Smoother channel migrations

Demonstrated Results (Global Examples)



From our point of view, Omnichannel requires a solid foundation from strategy to organization, systems and supply chain

Source: A.T. Kearney

Omnichannel key strategic issues to be addressed

Our toolbox to succeed in Retail eCommerce in Mexico

• Defining digital value chain opportunities

• Reshaping business strategies with e-business

• Defining an Omni-Channel program objectives

• Defining the role of each channel

• Communicating a new message to the consumer

• Aligning the organization

• Defining products and services

• Establishing a unified pricing strategy

• Balancing service levels with cost and customer lifetime value

• Keeping up with dramatic growth

• Developing an operating model

• Incenting the entire organization

Strategyalignment

E-Business MarketingValue Proposition

alignment

PricingAssortment Service

Level

Organization Systems Supply Chain

Adapting corporate strategy

Execution strategy

1 2 3

Online and offline channels can not be considered separately !!!

A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 13Source: A.T. Kearney analysis

The 2015 Global Retail E-Commerce

Index™

A.T. Kearney 2015 Global Retail E-

Commerce Index ranks the top 30

countries in both developing and

developed markets for their online market

attractiveness.

Connected Consumers Are not

created equal: A Global

Perspective

This study looks at the

“connected consumers”

motivations, shopping behaviors,

and how they differ in developed

and developing countries.

Back to the Basics in

Omnichannel Retailing:

Delighting Your Customers

The Omnichannel Consumer

Preferences study is the

newest in our series of

breakthrough research in retail

innovation.

On Solid Ground: Brick-and-Mortar is

the Foundation of Omnichannel

Retailing

The report summarizes the findings of

the study, input from a variety of retailers

and property developers, and

A.T. Kearney retail sector analysis

Other A.T. Kearney studies Retail & eCommerce (I of II)

Our Digital think tank and Omnichannel publications


E-Commerce - Next

Frontier in Global

Expansion

Online shopping is changing

how retailers develop their

global expansion strategies.

Our E-Commerce Index

reveals which emerging

markets hold most potential

for online growth.

Source: A.T. Kearney analysis

Beauty and the E-

Commerce Beast

The world of e-commerce

has long been the "beast"

that beauty retailers and

brands were trying to avoid.

But time has come to tame it

and stakes are high for those

that miss the opportunity

A Fresh Look at Online

Grocery

Online food retail again tops

the agendas of grocers as

more shoppers surf the Web

to buy fresh foods and

packaged products. The

leaders "deliver the goods"

using smart, customer-

friendly strategies.

China's E-Commerce

Market: The Logistics

Challenges

As China's growth continues,

conditions for e-commerce

are improving. But logistics

remains a major challenge

for e-commerce players. Will

logistics bring down the e-

commerce industry

Engaging Multichannel

Consumers

As more people interact with

more companies in more

channels—from websites and

mobile apps to in-store online

kiosks—chief information

officers (CIOs) are delivering

value from cross-channel

integration

Digital Marketing: Don't

Miss the Forest for the

Trees

Connecting with today's

customers requires a 360-

degree perspective. They

expect real and relevant

interactions, so online and

offline cannot be one-or-the-

other propositions

Other A.T. Kearney studies Retail & eCommerce (II of II)



Other A.T. Kearney studies Digital Business



Thank you for your interest!Please refer me further questions to:

Jaume [email protected]

A.T. Kearney, S.A. de C.V.Av. Santa Fe 481, Piso 18Santa Fe05349, México, D.F.+52 55 5089 9308 Direct

mailto:[email protected]


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