The department store industry in Mexico functions just like the majority of department stores around the world. They target the middle to upper class people with money to spend on popular brands, food and entertainment. While the department store chains in many countries tend to focus on one line of products (e.g., clothing), the department stores in Mexico have diversified products and services that helps to decrease direct competition, but it also makes it more difficult to predict a competitor’s next move. As the middle class population grows in Mexico, the market becomes more attractive, but many possibly new entrants are kept out by the high barriers of entry.
Porter’s Five Forces Assessment
There were many department stores that opened up in Mexico, but now less than ten competitors remain in the industry. With Grupo Carso and Liverpool dominating the market, companies in the industry must monitor changes in their strategies and react accordingly. Figuring out the right response to competitors actions is slightly challenging due to the blend of Mexican and predominantly foreign department stores in the industry, but the main players have been able to learn the rules of the game from their two or more decades of past competition. Because the market is not very saturated and is experiencing growth, department stores in Mexico have more control over their strategies. Strategic stakes are relatively low for competitors in this industry because they are in Mexico for the sake of expanding profits instead of achieving a goal that would drive a larger corporate strategy. However, constantly finding ways to diversify product lines and services is extremely important in the department store market in Mexico because it keeps the department stores from having a tight cost competition. Although department stores in Mexico will generally try innovative strategies to attract customers instead of directly competing, effective innovative strategies can be easily adapted by other companies. After Sears Roebuck brought their store card to the market, Liverpool created a Liverpool branded credit card that became immensely successful. While competition may not be direct, there is a silent force to innovate. If a department store does become unsuccessful over time, they are likely to try to stay in business as long as possible because of the high cost of exiting the industry. Department stores that are competing with scale would have lots of money tied up in expensive inventories, land, and buildings that would have to be handled, leading to a high exit barrier. Substitutions
The department stores in Mexico carry a variety of designer clothing at different prices and do not have much pressure to adjust their strategy. Although they all sell clothing of some kind, they are able to command the loyalty of their customers by the particular brand names they hold, or another service that they provide such as credit cards or food courts. Some of the more brand conscious Mexican consumers would even cross the border into the U.S. to find clothes when their preferred clothing is not available in the department stores in Mexico. This point emphasizes that there is no substitute for some of the target market, especially the wealthiest segments, which is why department stores like Saks Fifth Avenue can successfully operate in the country. The fact that department stores tend to target the less price sensitive segment of the Mexican market allows for them to do business in an environment with a manageable level of substitutions and competition. New Entrants
New entrants have to worry about acquiring popular brands to bring customers into their stores, but it is very hard to do in Mexico, where designer labels don’t have as much interest. Mexico’s middle to upper class population makes up approximately 40% of the country, and popular brand labels want to be able to find as many customers from...