December 2016 Mexican Retail Apparel Insights

Liverpool’s Acquisition of Suburbia: Hard To Justify For Mexican Consumers and Apparel Suppliers One of the objectives of the Pena Nieto administration has been to break up monoplies, with the intention of fostering more market competition. However, it would seem that his administration might be turning a blind eye to a pending acquisition which could result in less competition in the Mexican apparel market. The acquisition announced on August 10, 2016 involves El Puerto de Liverpool acquiring the Suburbia chain from Wal-Mart for approximately US$1 billion. At the time of the purchase, Suburbia operated 119 stores in Mexico, while El Puerto de Liverpool operated 80 Liverpool stores and 29 Fabricas de Francia stores. Trendex estimates that apparel accounts for almost 90% of Suburbia’s total sales. While there will be benefits for both companies, especially in the form of economies of scale as a result of the acquisiition, it could pose a detriment to both Mexican consumers and especially apparel suppliers. For consumers it means less frequent sales with smaller price reductions and probably more private label offerings. For apparel suppliers it means that the balance of power between themselves and retailers moves in favor of a retailing organization that, on its own, will control a fifth of the market. Mexican Total Apparel Market The obvious downside with this acquisition is that it will 2015 Pesos Sales result in one retailer controlling a troubling amount of the Mexican apparel market. Trendex’s research conducted Total quarterly during 2015 in fifteen of Mexico’s largest cities Market Womens Mens Girls Boys Infants revealed that the acquisition will result in the new retailing Suburbia 11.2% 12.8% 10.7% 9.0% 7.6% 6.7% organization controlling in excess of twenty percent of the Liverpool/ total Mexican apparel market. Even more troubling in 10.1% 8.7% 12.2% 6.4% 7.1% 10.4% Fabricas some merchandise categories, the acquisition will result in Liverpool controlling more than 24% of five adult mer- Total 21.3% 21.5% 22.9% 15.4% 14.7% 17.1% chandise categories, including 30% of men’s dress ap- parel. - Continued on page 2 Mexican Men’s Retail Apparel Market Liverpool/Fabricas and Suburbia’s Shares Mexican Women’s Retail Apparel Market January – December 2015 Liverpool/Fabricas and Suburbia’s Shares January – December 2015 Categories Liverpool Suburbia Total Categories Liverpool Suburbia Total Dress Apparel 17.4% 12.6% 30.0% Outerwear 6.9% 19.1% 26.0% Outerwear 14.2% 11.6% 25.8% Dress Apparel 12.3% 13.4% 25.7% Shirts 14.0% 10.5% 24.5% Pants 8.3% 13.2% 21.5% Other Tops 12.0% 12.0% 24.0% Tops 8.3% 12.5% 20.8% Pants 11.1% 10.8% 21.9% Lingerie 7.0% 12.5% 19.5% Sports Apparel 9.2% 6.1% 15.3% Sports Apparel 10.3% 4.6% 14.9% Underwear 5.7% 7.3% 13.0% Hoisery 4.4% 5.4% 9.8% Socks 4.2% 6.9% 11.1% *Includes Fabricas de Francia

Copyright 2016 - Trendex North America This bulletin is proprietary to Trendex North America and may not be reproduced or disseminated outside your company without the express written consent of Trendex North America. The information in the bulletin is based on 3,000 in-home personal interviews conducted quarterly in 15 of Mexico’s largest cities. For more information contact [email protected]. Page 1 December 2016 Mexican Retail Apparel Insights

Continued from page 1 Liverpool’s Acquisition of Suburbia Mexican Total Apparel Market The acquisition will also result in Liverpool controlling over 25% January – December 2015 Pesos of the sales of apparel in some metropolitan areas. Specifically Household Purchasers the combined retail conglomerate could control up to 26% of the Retailer Suburbia Liverpool apparel market. Suburbia 58.4% 6.5% There are those who would contend that Liverpool and Suburbia Liverpool* 4.2% 58.1% operate in two totally different segments of the Mexican apparel 1.6% 0.9% market. To which it should be noted that Suburbia competes al- 2.9% 2.5% most directly with Fabricas de Francia. In addition, 11.8% of Zara 3.0% 4.7% Suburbia credit card holders purchase almost 12% of their ap- All Others 29.9% 28.1% parel from Liverpool and 6.5% of the apparel purchases made by households who purchase apparel from Liverpool are made at Total 100% 100% Suburbia

So, should this acquisition be approved by the Mexican govern- Mexican Total Apparel Market ment? The answer is clearly, no! Will the acquisition be ap- January – December 2015 Pesos proved? The answer is almost certainly, yes! The reasons are Credit Card Owners simple. First, Liverpool is clearly one of Mexico’s very best retail- Retailer Suburbia Liverpool ers, with whom the Mexican government does not wish to pick a Suburbia 31.5% 9.3% fight. Second, Wal-Mart Mexico is the country’s largest non- military employer, who perhaps by coincidence, announced ear- Liverpool* 11.8% 30.8% lier this month that it was investing an additional US$1.3 billion in Coppel 2.7% 1.9% Mexico, adding 10,000 more employees. Sears 4.5% 4.8% Regardless of the reasons, this acquisition should not be al- Zara 5.1% 6.7% lowed, unless at a very minimum, some Suburbia and Fabricas All Others 44.4% 46.4% de Francia stores are shuttered or sold off to Liverpool’s com- Total 100% 100% petitors. Mexican Total Apparel Market 2015 Pesos

Total Mexico Mexico City Leon Liverpool/ 10.1% 10.8% 8.6% 15.4% 9.6% 13.3% Fabricas Suburbia 11.2% 15.2% 5.4% 4.7% 15.9% 6.3%

Total 21.3% 26.0% 14.0% 20.1% 25.5% 19.6%

*Liverpool Only

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