The State of Omni-Channel in Mexico

Last week I had the opportunity to present to a large group of Mexican retailers on the state of omni-channel. It was an interesting topic, because the local industry’s interest in omni-channel has taken a sharp tick upward, thanks to Amazon’s recent ramp-up of operations in the country.

Mexico is a unique opportunity for both eCommerce and omni-channel. It’s the second-largest economy in Latin America, but nearly 80% of the population is located in urban areas — and one large urban area in particular, centered on Mexico City in the interior of the country. eCommerce is a small percentage of overall retail sales — only 2-3%, based on multiple estimates. But, typical these days, there is a high penetration of smartphones, encompassing nearly 60% of the population.

That speaks of an enormous opportunity, as more and more of these consumers turn to online — increasingly through mobile. However there are two major barriers that stand in the way of rampant adoption of eCommerce: payment and delivery. A clear majority of Mexican consumers don’t trust online payment methods, and many Mexicans don’t have a credit card anyway. And even if they do pay online, the Mexican Post is neither speedy nor reliable, both critical ingredients to eCommerce success.

Walmart has embraced this eCommerce environment, and a native marketplace site, MercadoLibre, has also enjoyed early success in the Mexican market. Into this environment, Amazon recently announced a vast expansion of the categories it sells online in Mexico, which, as it has in many countries (including the US, Amazon’s home market, as recently as this year), has led to some critical self-examination by established retailers in the country. Will Amazon successfully translate its model into the Mexican market, or will some of the country’s unique characteristics cause it to stumble? And one way or another, how should established retailers respond?

If you take a look at MercadoLibre’s site and Amazon’s site side by side, you’ll see some clear differences quickly. MercadoLibre is a true marketplace site, and as such is designed more to facilitate a transaction between a seller and a consumer. To that end, every product on the site is listed as separate item, even if they are fundamentally the same item. Amazon, on the other hand, lists the item first, and then marketplace sellers compete head to head for the best price. This makes it easier for the consumer, but harder for the seller.

MercadoLibre addresses the two big concerns of Mexican consumers right up front — payment and shipping. In fact, the site features these things before it gets to the product description, it’s that important on their page. The marketplace has also developed its own proprietary payment method, MercadoPago, and partners with a national convenience store chain, Oxxo, to take payment and as a delivery end-point. Amazon focuses much more on product information, and in fact you have to create an account with Amazon before you can even see payment or shipping options (though the retailer does surface shipping costs from marketplace sellers next to the item price).

As far as payment and delivery goes, Amazon has learned a lot from Brazil and India. The company is in a trial with Oxxo itself to take payment and make deliveries, and after it finishes spending the $2 billion it is currently investing in building out its own delivery capability in India, it will have a lot of lessons learned that it can take to the Mexican market.

But Amazon does still have a lot to learn, and this means there is a significant window of opportunity for store-based retailers that now have to figure out what it means to operate in an eCommerce environment that must compete with Amazon. The window won’t last forever, but Mexican retailers actually have something of an advantage over their American counterparts. In the US, Amazon sort of crept up on retailers. They were annoyed and paying attention long before 2011, but it really wasn’t until that year, when Amazon launched its price-checking mobile app to compete with store-based retailers at the shelf, that US retail really woke up to the reality of operating in an Amazon world.

By the time that happened, eCommerce was a significantly larger chunk of the market in the US than it currently is in Mexico. The competition was already well-established, and store-based retailers were already behind when more was at stake.

Mexican retailers have an opportunity to leapfrog – to learn now the lessons of the US market, and prepare to attack Amazon on its weaknesses before it becomes a dominant force in the country’s market. But this means doing several things now, even before it would seem like there is a business case for it (because eCom is still such a small part of the overall retail market). Those things can be divided into two categories: Differentiating From Amazon, and Keeping Pace With Amazon.

Differentiating From Amazon

Store-based retailers have one thing Amazon does not, and that is stores. In Mexico, where payment and fulfillment are trust issues for consumers, stores become even more of an opportunity to differentiate from Amazon than they are in the US. They can be a payment point, where consumers can go to pay for online orders without worrying about trusting their credit card to the internet — or without needed a credit card at all. Stores can be a fulfillment point, where consumers can go to pick up their orders, with the trust and reliability of the retailer’s own fulfillment system

Stores are also places where employees are — employees who can help customers, something notoriously difficult to find at Amazon. But this means that store employees have to be just as capable and connected as the best call service agent — someone who can intercept an order, alter it, take payment on it, create new orders, etc., all without necessarily having the inventory to fill that order in that store. That’s a capability that even the retailers most experienced in dealing with Amazon don’t have today.

And in terms of speed of fulfillment — something Amazon is already very good at — store-based retailers can potentially leverage their in-store inventory, positioned much closer to the consumer than a unit sitting in a distribution center, to meet customer needs, getting what the customer wants into her hands faster, without having to build out a complete home delivery model to get it there.

Keeping Pace With Amazon

Just because stores can mean a big differentiator in competing against Amazon doesn’t mean that Mexican retailers can ignore their eCommerce capabilities. There are two areas in particular where Amazon is very good, and these are both areas that retailers tend to ignore in their focus on speed of delivery — that’s related to personalization and product information.

Amazon has an enormous amount of product information, and a lot of times a lot of that information is generated by consumers themselves, through reviews, pictures and videos they take of the products, questions they ask of each other, and the answers they give. There are plenty of products on that have only 1-2 reviews currently, simply because the site is so new, but the company is bringing in reviews from its US site and offering those up to help bolster the consumer-generated product information on the site.

Amazon also provides a lot of data about products — where it ranks as a bestseller, how it relates to other products based on what people bought, what they viewed, and what else they might’ve purchased after buying the item in question. All of this is presented as a form of personalization that is also quite extensive. It’s this personalization — both a sense of curation and a way of exposing what like-minded shoppers ultimately did – that store-based retailers need to embrace, not only online, but also in stores.

I don’t know that any retailer can compete with Amazon’s assortment. Because of its marketplace expertise, the company is always going to have an enormously large assortment. But store-based retailers, especially specialty retailers with more focused assortments, can take on that assortment breadth by providing a rationale and a story behind their assortment. They can help make their assortment less intimidating than Amazon’s sometimes tens of thousands of results for a product search. They can take what they know about their shoppers and embed that learning into their own sites so that their online shopping experience is just as good as Amazon’s.

Then they can take it one step further and make it even better, by integrating stores into that experience, first through store inventory visibility, and then through enabling online shoppers to reserve services in stores, something that online shoppers in Mexico seem more amenable to — even more amenable than purchasing, for all the reasons outlined above. Last I checked, you couldn’t reserve a set of items to try on, pay for and take home from an Amazon store. For store-based retailers, that would not only keep pace with Amazon, that would create some powerful differentiation.

It Is Not The End Of The World As We Know It

At the end of the day, Amazon is a formidable competitor, but it is not an invulnerable one. And it’s important to remember that Amazon is not a profitable retailer, either, by most estimates. The company definitely plays the long game when it comes to its strategy, but the way to compete with Amazon is not by trying to beat it at its own game — that game loses money! Retailers need to find a far more sustainable path to meeting consumers’ needs. And ultimately, that means focusing on the consumer. The store still plays a critical role in her life — an overwhelming percent of transactions still occur there. Meet her needs consistently and conveniently, and you’ll win her loyalty, no matter what Amazon does.