Since its spectacular economic collapse in 1994, Mexico has been struggling to get back on track in terms of GDP growth and a stable currency. But in the last two years, the benefits from the country’s membership in NAFTA (North American Free Trade Agreement) – which include closer economic links to the U.S. and Canada, and an influx of multinational corporations pumping money into the country to secure consumer marketshare – have begun to take form and make a difference. Licensors and licensing agents working in Mexico feel that the biz is on the cusp of sustained growth.
It’s true that Mexico is a small territory compared to the mighty U.S. licensing market. The last tally from EMP Communications’ The Licensing Letter pegged Mexican retail sales of licensed goods at US$325 million in 2001, with 60% of those revenues being generated by character/entertainment properties. But there are a number of other factors turning children’s property owners on to the region.
Mexico has a population of 104 million people, and 33% of these inhabitants are children under age 15. Mexico also has the highest annual per-capita income (US$6,000) of any country in Latin America, and it’s estimated that at least 22% of its population is in a position to purchase higher-priced imported goods.
Mexico’s large proportion of children and, in particular, babies has pushed a number of licensors to look south. In fact, Sesame Workshop chose Mexico rather than the U.S. as the lead-off market for its newest line of infant-centric apparel, toys and accessories. Plaza Sésamo Primeros Pasos debuted in 330 Mexican Wal-Mart outlets in mid-September. (Sesame Beginnings is its English-language counterpart that will roll out in the U.S. this spring.) Plaza Sésamo is well-established in Mexico and has been airing on pubcaster Televisa for the past 30 years. The Workshop’s director of international licensing for Mexico and Latin America, Francisco Arenas, says Primeros Pasos will appeal to parents who grew up watching the show and are now guiding their preschool-aged kids towards the franchise.
Anchored by an apparel line from Mexican licensee Bebe Creysi and branded diapers courtesy of Procter & Gamble, Wal-Mart cross-merchandised the line by bringing the goods together in one location and using merch islands and endcaps to round out the space, which was highlighted by POP signage. The retailer also held mommy-and-baby events in 60 of its supercenter locations, positioning Primeros Pasos as the centerpiece of its self-created Baby Month annual celebration.
The growing scale and frequency of in-store retailtainment promos such as this Plaza Sésamo stunt is also appealing to licensors. Arenas and Warner Bros. Consumer Products’ VP of Latin American licensing, Salvador Viramontes, both say Mexico boasts a fairly sophisticated retail landscape, and retailers there have been seeking out more and more event opportunities – especially over the last five years.
The Mexican retail market itself is also experiencing a growth spurt. According to ANCTAD (Mexico’s National Association of Retail Stores), sales have been increasing by 8% to 10% annually for the past three years. Its most recent report for July 2004 shows that members’ per-store sales had increased by 4% over last year, and total sales were up 9.9%.
And there is a wide variety of retailers out there to serve consumers. In Mexico, says Viramontes, you can find all tiers of retail, from luxurious boutiques and mid-tier department stores, to discount retailers such as Wal-Mart. Wal-Mart de Mexico rules the mass market, moving an estimated 50% of that channel’s goods. In order to compete with the retail giant, local competitors Gigante, Comercial Mexicana and Tiendas Soriana have banded together to form a holding company that negotiates large-volume buys.
But there is also a fairly strong mid-tier market, dominated by department stores Liverpool and Sears. This channel, says Viramontes, is particularly good for apparel, which is often a driving category for kid-targeted licensing programs in the Mexican market.
What further differentiates the Mexican retail scene from that of its neighbor to the North is the existence of roughly 500,000 independent mom-and-pop stores that are spread wide throughout the country. While these shops aren’t viable for higher-end products, Viramontes says they can be ‘tremendously important’ for licensed beverages and foodstuffs. The key here, he says, is hooking up with Mexican licensees that either have their own distribution network of wholesalers servicing these retailers, or the right contacts to tap into someone else’s.
The busiest shopping periods for kids products are back to school in the fall, Christmas and the month of April, which culminates in the celebration of Children’s Day on April 30. Kids get the day off school, and it’s customary for them to receive gifts from family members.
Mexican kids are drawn to U.S.-based properties, perhaps even more so than kids in other territories due to their proximity to the States. For Warner Bros., which opened its Latin American office in Mexico in 1999, Viramontes says Batman, Looney Tunes, Scooby-Doo, Harry Potter and The Powerpuff Girls perform best in the Mexican market. Diego Barassi, Mexican commercial director of leading Latin American agency Exim, says Disney’s Finding Nemo dominated the market in 2003, and this year has been all about Spider-Man 2.
For property owners and their agents, the most important kids merch categories at retail are apparel, back-to-school accessories and stationery, publishing, home videos and toys. Royalty rates are comparable to U.S. ranges, with apparel commanding 15% (and up to as much as 20%, if the license is super-hot) and toys netting between 8% and 15%.
As with many developing markets, executing licensed toy programs in Mexico is challenging. In fact, Kenton Selvey, VP of international licensing for Discovery Consumer Products, says that unless you can swing a Latin America-wide deal for toys, the economy of scale just isn’t there. The cost of toy development, including manufacturing 3-D molds and models, can’t be borne by Mexican sales alone. It’s better, says Selvey, to start with local deals for apparel and other soft lines if your property doesn’t have pan-regional appeal.
Beyond retail, licensed promos remain an important category in Mexico. Barassi, Arenas and Viramontes agree that the promo market has been picking up, especially with North American manufacturers and food companies, who already understand how licensed promos can boost business and are looking to make their mark in the Mexican market. United Media’s director of international licensing for Latin America and Europe, Carla Silva, says that advertising/
promo licensing is by far the most important category for Snoopy and Peanuts in the country. She points to an ongoing QSR promo with McDonald’s in Mexico that has moved more than 50 million Snoopy premiums over the past seven years as an example.
As hopeful as licensors and agents are about the Mexican market, two major drawbacks give cause for concern – price point and piracy. According to Discovery’s Selvey, due to lower levels of disposable income and intense retail competition, the market will only bear so much in terms of price. He says licensed videos/DVDs sell for half the price they do State-side, and comparable apparel is priced 30% to 40% lower in Mexico than in the U.S.
‘I think licensors need to be comfortable with not bringing in their high-end products, and going [into the Mexican market] at different price points that make the goods more accessible,’ explains Selvey. He points out that keeping prices down is one of the keys to fighting Mexico’s rampant piracy problem.
According to Exim’s Barassi, piracy is an issue for most categories, but particularly videos, video games and music. He says for every legitimate video sold, a pirated version sells as well. And the price of a pirated video game in Mexico, which runs around US$5, has made it almost impossible to sell legitimate licensed games that retail for roughly US$50. Given the choice and their limited income, Barassi notes, it’s not likely that Mexican children or their parents will opt for legal products.
That said, it looks like the situation is slowly starting to change. Viramontes says Warner Bros. goes after pirates aggressively and has always received cooperation from Mexican authorities in prosecuting offenders. And for his part, Selvey has seen piracy levels consistently drop since he began working on Mexican programs in 1997. Optimistically, he’s gearing up with Discovery’s Latin American agency Exim to build a broad merch program for Decode Entertainment’s preschool series The Save-Ums!, which airs on Discovery Kids Latin America. Mexico will be a focus, and Selvey is looking to put a Discovery rep on the ground there to help oversee implementation of the program in 2005.