Magazine article SourceMex Economic News & Analysis on Mexico

Domestic Manufacturers Turning to Informal Economy to Sell Toys & Other Products during Holiday Season

Magazine article SourceMex Economic News & Analysis on Mexico

Domestic Manufacturers Turning to Informal Economy to Sell Toys & Other Products during Holiday Season

Article excerpt

To compensate for declining sales at traditional retail outlets, some Mexican manufacturers have turned to the informal economy to sell their products. Retail sales are down because of a downturn in the Mexican economy. Some forecasts indicate Mexico will experience flat or negative growth this year (see SourceMex, 2001-10-31, 2001-11-28).

Some manufacturers have established distribution agreements with street vendors in Mexico City, Guadalajara, and other large cities, in anticipation of slow sales at department stores and other retail establishments during the normally busy holiday season.

The large-scale sale of domestic products via the informal economy is a fairly new trend, since street vendors have primarily offered items smuggled into Mexico from China and other countries.

"[The informal economy] has become an important channel of distribution," said Karl Beissner, a marketing director at Mexican toy manufacturer Janel. Other companies using distributors to sell toys for the holidays are Naviplastic, Fantasias Miguel, and Distribuidora Rubens, said the Mexico City daily newspaper Reforma.

The Mexican toy industry projects total sales at retail stores this year to increase by 5% from 2000 to about US$1 billion, despite Mexico's economic downturn. Some of this increase is credited to the sales via the informal economy. Still, Helioz Eguiluz, president of the Asociacion Mexicana de la Industria del Juguete (AMIJU), said total sales would be even higher were it not for the competition from contraband products from China.

Street vendors account for large share of seasonal sales

An estimate by the Camara Nacional de Comercio, Servicios y Turismo (CANACO-SERVYTUR) said the informal economy could account for as much as 55% of the products sold in Mexico City during this year's holiday season, which includes Christmas Day in December and the Feast of the Three Kings in January.

Beissner said items provided by his company to street vendors are high quality, compared with the smuggled products, which are generally of poor quality.

Street vendors say they trust the items provided by the Mexican manufactures. "We make the purchases in good faith," said Fernando Sanchez Ramirez of the Confederacion de Comerciantes y Organizaciones Populares, which represents more than 100,000 street vendors in Mexico City. "We pay good money, and assume that the products we receive are of good quality."

There are no accurate statistics on the number of street vendors in Mexico, but the government statistics agency Instituto Nacional de Estadisticas, Geografia e Informatica (INEGI) estimated in August 2000 that one in three Mexicans relies on the informal economy to make a living. Some experts suggest the numbers have grown in recent months because of the significant loss of jobs in Mexico during the past year.

The INEGI study also estimated that the informal economy accounts for 12.7% of Mexico's annual GDP.

A recent study from the Secretaria de Economia (SE) suggests that economics is not the only reason why vendors choose to sell their goods on the street. The study, released in early December, said excessive paperwork and documentation have become the principal obstacles to Mexicans opening their own businesses. "In Mexico, one has to meet 15 separate federal, state, and municipal transactions, spend about 24,000 pesos (US$2,625), and wait as much as 112 days to open a business," said the report. …

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