After a period of great success that saw its stock price grow above $1000, Amazon is set to build a 1 million-square-foot storage facility near Mexico City. The turnover includes $13.7 billion of Amazon Prime and Whole Foods, making it its most profitable period ever. According to several inside sources, the plan is part of the company’s efforts to boost its presence in the country’s competitive online retail industry.
Amazon is growing much faster as compared to its rivals. It is the third-largest online retailer though it is a relative newcomer to the country’s market. The company first entered the Mexican market in 2013 by opening its Kindle e-book site. Two years later, it expanded into physical goods sales. The plan has come at the right time as the US seeks to persuade the other two member countries to increase the value of online purchases in the forthcoming NAFTA talks. The talks are likely to see Mexico increase its amount of online purchases imported duty-free from its current $50 billion limit.
Where Is Amazon Moving and Why?
Amazon is opening a warehouse near Mexico City to boost its presence in Mexico’s e-commerce industry. According to the experts familiar with the mega-plan, the new storage facility is expected to be constructed about 25 miles north of Mexico City in the Tepotzotlan municipality.
The facility is expected to start operating in 2018 and to improve sales in this 120-million potential customers market. This is because the new facility would triple the company’s distribution space. Additionally, the new project will help Amazon to compete with other e-commerce companies including the Alibaba Group Holdings, Argentina’s MercadoLibre Inc, Linio, and Wal-Mart.
With the new facility slated to be 1 million square feet, the warehouse would ease the distribution of bulky products. These include furniture and small items like microwaves and books. Moreover, the new storage facility will also act as the distribution point for products shipping north to the U.S.
The new warehouse can store 15 million products if about 85 percent of its space is used for storing small products. This will enable the company to make up to 1 million deliveries across Mexico. The new project is likely to create 2,000 to 3,000 job opportunities by employing those who will be involved with shipments.
What Is Amazon Hoping to Accomplish? What Are the Risks Involved?
Amazon is hoping to boost its sales in Mexico and the neighboring countries. This is done by overcoming the competition from other e-commerce industries that are operating in the region. Online purchases comprise 3 percent of all the retail sales in the country. Amazon is hoping to boost the popularity of online shopping among Mexican customers. This could be a profitable venture, but duplicating its success style in the US would be more robust.
Online shopping in the United States comprises over 10 percent of sales. Mexico would be a convenient place for the company to expand because the country shares a 2,000-mile long border. Moreover, the country is comprised of a large population of potential customers.
Amazon is hoping to expand its product offerings in Mexico and ensure those customers can enjoy faster deliveries. The move is also expected to inspire consumer confidence by making the purchasing process secure and as smooth as possible. According to the statistics from Euromonitor International, the company recorded sales worth $253 million in Mexico. This was more than double the value that was posted in the previous year. This explains why Amazon is willing to risk getting into the new market in a big way as the move will be big and profitable in the end.
Amazon accomplishing its objectives will not consist of entirely smooth sailing. This is because very few Mexican customers own credit cards, and many are wary that any online dealing could be fraudulent. However, some analysts argue that the company is ready to take this risk. This is because it is racing up to face fast-growing rival companies in foreign markets such as Alibaba Group Holdings Ltd.
What Laws Does this Affect?
In the recent past, Mexico has embarked on modernizing its judicial and legal systems. This has led to the introduction of fair regulation laws and improvement of the enforcement of its laws. Thus, Amazon’s plan to move will affect some rules for the company to follow the Mexican legal requirements.
However, the legal system has improved since the country became a member of major trading blocs. These include WTO, NAFTA, and the Asia-Pacific Economic Cooperation. Some of the laws that Amazon’s planned move will affect include corporate law. The law includes steps for incorporation before the approval of the company by the foreign investment authorities. Finally, the move touches on the labor law that states the benefits of employees including requirements to form trade unions, severance of payments, and the fiscal policy.
What Does This Mean for Other Companies?
Amazon is currently the third-largest online retailer in Mexico. The company’s planned move means that other companies should be ready to face stiff competition from the American giant. Thus, they should come up with elaborate ways to enhance their services to maintain their customers. The move should also worry Mexican companies in some industries including the footwear and textile industries as Amazon would now be able to make fast deliveries.
The move by Amazon is expected to create great shock waves in Mexico’s online retail industry in 2018. The move is expected to get a boost if the talks favor it. The talks are focusing on lifting the limit of the value of online purchases imported duty-free incorporated into NAFTA. This will allow the company to reap big rewards after its plan to move to Mexico as it will give it the edge over other fast-rising e-commerce companies. However, the company is yet supposed to overcome the hurdles posed by online retail challenges in the Mexican market. These include winning the confidence of customers who are wary of fraud and encouraging more Mexicans to get credit cards.