Mexico's Household Goods Market Positioned For Growth

Fitch Solutions / Consumer & Retail / Mexico / Mon 04 Jul, 2022

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Key View: We hold a positive outlook for Mexico's household goods sector over the medium term (2022-2026). This is based on an attractive demographics and incomes profile, plus the growing working-from-home trend driving the demand for functional household goods. However, we do note that low relative disposable incomes will constrain spending to more affordable products.

Protracted Growth In Consumer Spending On Household Goods

We hold a positive outlook for the Mexican consumer over both the short and the medium term. We forecast total household spending to grow from MXN20.4trn (USD981.4bn) in 2022 to MXN21.9trn (USD1.1trn) in 2023, surpassing pre-pandemic spending levels, of MXN17.7trn (USD921.1bn) in 2019. In real terms (at 2010 prices), we forecast total household spending to grow at an average of 2.3% a year, out to 2026.

Medium-Term Consumer Spending To Surpass Pre-Pandemic Spending

Mexico - Total Household Spending, MXNbn (2018-2026)

e/f = Fitch Solutions estimate/forecast. Source: OECD, Fitch Solutions

Mexican Consumer Spending In Sector Positive For Household Goods Retailers

We hold a particularly positive outlook for household goods spending in Mexico, in line with consumers spending more on non-essential items. Retailers in the household goods sector will benefit from increasing consumer spending, which we forecast will grow by a five-year CAGR of 8.4% by 2026. In nominal terms, we forecast consumer spending on household goods to grow from MXN1.3trn (USD61.8bn) in 2022 to MXN1.7trn (UDS76.5bn) by 2026.

Spending on technological items like, audio-visual, camera and computer equipment (which accounts for 32.9% of household goods spending in 2022), as well as household appliances (20.5%) and furniture and furnishings (15.4%) will constitute the majority of what Mexican consumers spend on household goods in 2022. By the end of 2026, spending on household appliances and furniture and furnishings will decrease marginally, to 19.7% and 14.6% of total household goods spending respectively. Audio-visual, camera and computer equipment spending will increase from 32.9% in 2022 to 35.4% by 2026. As more professionals and businesses transition to and maintain a Hybrid Work model, as a result of the global Covid-19 outbreak in 2020 and concomitant policy restrictions on mobility, the necessitated demand for items that enable and promote remote work productivity, among the growing middle-income urbanised population, is supported by the availability and access to such products offered by home retail stores. Looking at the country’s demographic and income profiles, we believe this trend will continue amongst consumers that do work from home (typically white collar, urban consumers).

Hybrid Work Driving Sales On Household Goods

Mexico - Total Spending On Non-Essential Household Goods, MXNbn (2019-2026)

e/f = Fitch Solutions estimate/forecast. Source: OECD, Fitch Solutions

Growing Household Disposable Income Among The Middle-Class

The medium-term economic outlook for Mexico is attractive. Mexico's stable average real GDP growth rate of 2.0% y-o-y over the medium term, combined with a low unemployment rate, at an average of 3.9% of the labour force over the 2022 to 2026 period, will see the average household disposable income in the country grow from MXN237,400 (USD11,414) in 2022, to MXN301,500 (USD13,368) by 2026, a five-year CAGR of 5.6%. Over the same period, inflation is forecast to average 4.9% a year, suggesting that households will experience real growth in disposable incomes over this period.

Household Disposable Incomes Are Rising

Mexico - Households Disposable Income Breakdown, % y-o-y Of Total Households (2021-2026)

e/f = Fitch Solutions estimate/forecast. Source: National statistics, Fitch Solutions

In the short term, this growth in disposable income will mostly be enjoyed by lower-middle-income earners (those with disposable incomes of USD5,000-USD10,000) who will form a significantly large proportion (36.6% of total households) of the country’s total population in 2022, followed by middle-income earners (31.0% of households earning between USD10,000-USD25,000). By the end of the medium term, those in the lower-middle-income bracket will decrease to 34.1% of all households in 2026, as middle-income earners grow to 37.2% of total households, indicating a positive trend in Mexico’s growing middle-class. While not as proportionally large, there will also be good growth in the size of the upper-middle-income bracket (households earning between USD25,000-USD50,000), forecasted to grow from 5.6% (or 1.8mn households) in 2022, to 7.7% (or 2.7mn households) in 2026. Upper-income earners or those within the middle-to-upper-income class constitute a large segment of workers whose professions enable them to work remotely, thus necessitating furniture and equipment to set up home office spaces, such as computers and ergonomic desks and chairs. This forms an important growth driver for household goods over the medium term.

Burgeoning Middle-Class Driving Demand For Household Goods

Mexico - Households Disposable Income USD10,000-USD50,000, % y-o-y (2022-2026)

f = Fitch Solutions forecast. Source: National statistics, Fitch Solutions

Mexico's Demographic Base Presents An Opportune Target Market For Household Goods Retailers

In 2022, 31.4% (or 41.3mn people) of Mexico's total population will consist of people in the ages of 20-39-years old. By 2030, this will decrease to 30.7% (or 43.2mn people), as the number of 40-64-year old increases from 26.9% of the total population in 2022, to 28.7% in 2030. An aging population (with a forecasted median age of 33 in 2030, from the median age of 30 in 2022) suggests that, along with a growing economy, a falling unemployment rate and an increase in disposable income across households, a large majority of the Mexican population will be of working age and in the labour force. Although the number of 20-39-year old Mexicans are decreasing as a share, the actual number of Mexico's population increasing. In 2022, Mexico's total population will amount to 131.6mn people and will grow to 140.9mn people in 2030.

An increase in the working age population of Mexico's consumers is also associated with an increasing rate of urbanisation in Mexico. By 2030, we forecast the number of urbanised individuals in Mexico to grow from 81.3% of the population in 2022, to 83.5% by 2030. Associated with growing disposable incomes as well as further urbanisation across the total population, Mexico's metropolitan areas will become increasingly occupied by a working-age middle-class population that will purchase household goods in order to meet the functional requirements for hybrid-work. Mexico's demographic profile is beneficial for household goods retailers.

Urbanisation Of Mexico's Population

Mexico - Urban vs Rural Population, '000 (2020-2030)

e/f = Fitch Solutions estimate/forecast. Source: UN, Fitch Solutions

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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