Formal Jobs, Rule of Law and Straightforward Regulations

Q: What is ANTAD’s role in the retail business?

A: ANTAD represents the interests of its members to the government and addresses certain topics that are of common interest for our associates. Part of our job is to come up with alternative proposals to certain regulations. We want is our opinions to be heard so the government can make the most informed decisions. We often look toward international markets for best practices. For example, we participate in the discussion of regulations regarding processed-food labeling, not because our clients manufacture the product but because they sell it. The issue of plastic bags is also a concern. Bags are often conceived as a single-use product but in Mexico we also use them to take out the trash. In Singapore, for instance, they prefer plastic bags, given the recycling system they have that also helps in energy production.

We make our recommendations based on expert opinions and evidence. Within the association, we have 14 committees focused on different topics where all of our members can participate. Big players have representations in most committees and small players distribute their activities according to their priorities. Each committee has its own rules and can make its own decisions, which makes things easier and faster for everyone. Major issues are brought to the board. Our structure allows us to attract specialized people from each of the sectors we cover. In addition, 89 percent of our resources are self-generated and only 11 percent are quotas. We also add value to our members by organizing trainings and events.

Q: What role do ANTAD’s members play in the Mexican economy?

A: Together, our members account for 3.8 percent of Mexico’s GDP, which is remarkable considering the contribution of other sectors. For instance, agribusiness contributes with 3.5 percent, mining with 4.7 percent and electricity and gas with 2.2 percent. In terms of retail sales, 51.9 percent comes from ANTAD members. We have grown around 7.6 percent on average over the last few years, which is three times more than the Mexican economy. Companies participating in an industry that is growing at a 7.6 percent rate can disregard the uncertainty present in other sectors, even more so when considering we take care of our suppliers’ development.

Q: What challenges do ANTAD members face to increase competitiveness in the sector?

A: The excessive number of permits and administrative procedures influences this. A single store can take up to three years to get all the necessary legal permits. We had a member that took three years just to remodel a store. These processes are really expensive in Mexico. In other countries, everything is digital, easier and faster. Under this informal scheme, productivity does not grow and people working in the sector do not have enough money to save.

We need a law at the federal level that establishes mechanisms for all these legal and administrative procedures and make them easier. If we were to put stores on opposite sides of a street, the companies would have to comply with different regulations. Some of our members have said it is easier to transfer operations from one country to another in Central America, than changing locations from city to city in Mexico. All these costs are passed on to the end consumer. According to the OECD, all these regulatory practices eat up about 8 percent of Mexico’s GDP.

A second element to foster competitiveness is the partnership between companies and universities. We keep graduating professionals in areas we do not need. For many years we have contributed to dual-education programs in the country. We also designed 12 working skills standards in which people are being trained to participate in the workplace. For instance, butchers who are very good at chopping meat get a certificate for this skill, which they can use to transfer from city to city. These elements are boosting the sector’s competitiveness.

A third element to boost competitiveness in the sector is to invest in infrastructure and technology. In our sector, investments totaling around US$3.2 billion were allocated 38.1 percent in new stores, 31.3 percent in remodeling, 14.9 percent in logistics and distribution, 10.5 percent in systems and technology and 5.2 percent in training and development. We need to invest more in infrastructure. The government has a pending agenda to launch an investment program with the private sector for infrastructure development.

Lastly, the government’s approach toward the energy market is also raising concern among our members. It seems that those who participated in cogeneration projects will face a change in regulation. Electricity costs are around 2 percent of our total operations after the German Cooperation Agency helped us to perform a diagnosis on energy efficiency. Many of our members started to invest in generation and cogeneration projects and some already generate 100 percent of their energy. Now, it appears the rules might change.

Q: What strategies has ANTAD implemented to promote the formal economy?

A: One of the biggest challenges for our economy is informality and the fact that very few of us actually pay taxes. We know that it is often cheaper to be in informality. However, this practice also incurs in illegality, which society has allowed to happen by buying in that informal market. In figures, for a country of 130 million, just 20 million out of 60 million economically active people are affiliated to IMSS and are part of the formal economy.

There are two elements that drive formality. First is the implementation of best practices and second is the hyper competition in the sector. Consumers choose the stores where they are going to spend their money based on price. After that come added values like cleanliness, facilities and quality of service. Often, we see consumers choosing formal businesses over informal markets when they realize the former are cheaper and more comfortable. It is a very simple zero-sum game: If you have a greater offering, consumers will follow.

On the government’s side, we need to remove all regulations that are not necessary for the economy, which would not only improve GDP but also incentivize the creation of more formal businesses. We need regulatory improvements and tax incentives. In sum, we should get creative in all the elements that are needed to create new formal businesses, including digital strategies.

Q: What are the elements that are hindering consumption in the country?

A: Contrary to what it might seem, consumption grew 3.9 percent above inflation in 2019, which is a nominal growth above 7 percent. If we consider that the Mexican economy contracted a negative 0.1 percent, our sector greatly outperformed the economy. Disaggregated sales show that the Mexican consumer bought home appliances, which indicates that the economy might not be as bad as we think. This reflects that the sector is behaving efficiently and it is being competitive. However, it remains true that there is a downward trend in the sector. Our job is to prevent this from happening. To do this, we need to generate conditions for investments to stay in the country and to attract new investments through training, infrastructure and other conditions investors need.

Today, there is a great opportunity in attracting Chinese investments to the country. We need to focus our efforts on electronic payments and digitalization to foster competitiveness in our sector.

The National Association of Retailers (ANTAD) is a Mexican association that groups the largest retailers in Mexico. Combined, its members own more than 62,119 stores in the country and represent 3.8 percent of Mexico’s GDP