STORY INLINE POST
Many years ago, I started taking time to reflect on the prior year as the year-end approached, both professionally and personally. As executives, we are so focused on where we are and what comes next, we forget to reflect on all that has been achieved in the past year, and most importantly to celebrate our accomplishments in a challenging environment.
As we built our plan for 2022, we still faced uncertainty of what impact COVID-19 would have on the year. At C&A Mexico, we were still working from home as the year began and only returned to the office as of March 1. It is hard to describe the emotion I felt as I welcomed our 300-some employees back to our central offices in Guadalajara. It felt like having family come home for Christmas. We continue to work with a hybrid strategy but I am convinced that there is no substitute for working shoulder-to-shoulder when it comes to creating a team, collaborating on a project, understanding how areas are inter-connected and just having fun.
It was many months later that we took the final step of removing the requirement of wearing masks in the offices, and that truly was a day for celebration. It was when COVID started feeling as if it was in the past and we could begin to work and celebrate together in a way we hadn't for over two years. And having a real posada, complete with dance floor, piñatas and a raffle, was the final sign we had made it to the other side of COVID.
Although COVID retreated this year, another uninvited guest arrived: inflation. We had to make difficult decisions at the beginning of 2022 to raise prices on some key programs as the impact of increasing costs put too much pressure on margins. The impact on our customers, and middle-class Mexicans has been even greater. The family budget has been challenged in the face of inflationary prices on food and gasoline, leaving much less discretionary income for items like clothes and shoes. We have seen consumers change their purchasing behavior within our sector of retail fashion. The consumer continues to purchase for significant events and takes advantage of promotional activity but maintaining those sales levels is definitely a bigger challenge than in previous years. That is also seen within the competitive landscape, where there has been no shortage of promotions and large, red signs in storefronts throughout 2022 as we all seek to hit sales targets and move inventory.
2022 also saw a significant return of customers to physical stores, even more than in 2021. We see much more traffic in malls as customers return to pre-pandemic activities and that has also been reflected with a smaller increase in online sales this year. No doubt COVID accelerated digital acceptance in Mexico, but this has not replaced the Mexican consumers’ desire to spend time in the mall. This makes the integration of channels and strategies even more relevant as a focus for the future.
As we focus on those last few weeks before Christmas, which are so important to us retailers, we also are mentally preparing for what lies ahead in 2023. No doubt, 2023 will be a difficult year for retail in Mexico, and, I believe, difficult for Mexico in general.
No doubt, inflation will not disappear overnight and the uncertainty of whether or not the gasoline subsidy can be maintained much longer will drive additional inflationary pressures next year. All of this means the family budget, especially the middle-class Mexican family budget, will continue to come under great pressure. The minimum wage increase of 20 percent in January may help some families but it also increases the cost of products that may be passed onto those families as well. We are also seeing a greater reliance on credit for Christmas purchases and those will have to be paid off next year at higher interest rates than last year.
Inflation is also affecting companies, putting pressure on margins, and increasing expenses. At C&A, we are planning on increasing expansion of physical stores and adding additional marketplaces in 2023. This will allow us to increase sales to cover higher fixed expenses without having to raise prices as we know our customers will have less discretionary income next year. Consumers will also continue to trade down to lower cost alternatives and we want to be accessible to the Mexican consumer, providing them with a budget-friendly wardrobe that makes them look and feel good at the same time.
Companies will continue to confront the shortage of talent in 2023. Whenever I am talking with other businessmen and women, the subject of attracting and retaining talent always comes up. This is especially true in relation to digital and technical profiles. Since COVID accelerated the digital adaptation among Mexican consumers and significantly increased online shopping, there is a significant demand for resources to help companies develop and improve their e-commerce solution as well as the processes behind it to service the customer. These require more integrated ERP solutions. With companies continuing to offer their employees the option to work virtually, geography is no longer a limiting factor and we are competing for talent not only with other companies in Mexico but also American companies that are looking to Mexico for talent as they face a similar situation.
Of one thing I am sure, 2023 will be another exciting year! Every year is challenging in retail, yet every year the challenge is different from the one before. The key will be to create an organization that is agile, flexible, and empowered to adjust strategies as needed as we lead our companies in 2023. To be successful our business strategies must be focused on our customers and offering them solutions to the ever-changing challenges they will be facing next year.
Happy Holidays to everyone and hoping you all find time to relax and celebrate with friends and family!