Amazon enters Mexico

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Amazon is a relative newcomer to the Mexican market since introducing Kindle in 2013, but the company has spent the past several years growing its business south of the U.S. border, outpacing rivals such as Wal-Mart.

Currently ranked as the nation’s third-largest online retailer, Amazon posted $253 million in sales in Mexico last year, more than double the year before, according to market research firm Euromonitor International.

In response to that success, Amazon.com, Inc. is preparing to open a 1 million square-foot warehouse near Mexico City, according to a report in Reuters, as the American retailer boosts its presence in Mexico’s e-commerce industry.

The new warehouse will likely be built in the Tepotzotlan municipality, which is roughly 25 miles (40 km) north of the Mexican capital. According to four Mexico City real estate professionals familiar with the plans, who said it should be completed next year, the facility would triple Amazon’s distribution space in Mexico, home to around 120 million potential customers.

Amazon’s Mexico push comes amid talks to revamp the North American Free Trade Agreement, which could benefit the Seattle-based retailer if the United States persuades Mexico to raise a $50 limit on the value of online purchases that can be imported duty-free, according to the Reuters report.

Even though online shopping comprises only 3 percent of all retail sales in Mexico in comparison with more than 10 percent in the United States, the company seems willing to forge ahead anyway.

“Much of the reticence of Mexican shoppers to make purchases online is uncertainty,” said Carlos Hermosillo Bernal, an analyst at Actinver. “Will I get the product? Is it what was being offered? What guarantee do I have?”

But as Mexico’s middle- and upper-class millennials gain purchasing power, that reluctance may go by the wayside.

“Amazon is not afraid to plow into a new market in a very big way, take a big hit, but say, 10 years down the line, this is going to be big and profitable,” said Neil Saunders, managing director at the GlobalData Retail research firm.

Amazon spokesman Julio Gil said the company’s Mexican unit is aiming to expand its product offerings, offer faster deliveries and make the purchasing process as smooth and secure as possible to inspire consumer confidence.

“We’re trying to eliminate any friction,” noted Gil. Amazon currently operates two distribution centers in Mexico totaling more than 500,000 square feet (46,452 sq m), he said. Both are in Cuautitlan Izcalli in the state of Mexico, adjacent to the autonomous district of Mexico City, whose metro area is home to more than 20 million people.

The new warehouse will be constructed about 7 miles (11 km) from the existing facilities. All are located along the so-called “NAFTA” highway, an industrial belt that runs through Mexico’s factory regions to the U.S. border.

The new facility would likely employ 2,000 to 3,000 people to handle the shipments and could also serve as a distribution point for products going north to the United States, according to the report.

Mexican industries, such as textiles and footwear, are none too happy about new competition. “We have to find a middle point that does not damage our economies with extreme liberalization,” Mexico Economy Minister Ildefonso Guajardo said at the conclusion of NAFTA talks in Mexico City early this month. The next round is scheduled for Ottawa in late September.

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