Group Axo is formed by a group of specialists who care for each brand, providing a full service such as financial, marketing, legal, human resources, accounting, information technology, administration, logistics, imports, and among others. KITE Invest met with Carlos Miranda the Vice President of Grupo Axo to discuss the potential of foreign partnerships and the strength behind the Mexican consumer market.
KITE Invest: Mexico is experiencing a historical moment marked by a period of macroeconomic stability and high growth expectations in the short term. Last year hit a record in the attraction of foreign direct investment, reaching USD $38 billion. What is your opinion about the current moment that Mexico is experiencing and do you think that the perception of the country’s international image is damaging Mexico’s brand positioning?
Carlos Miranda: Clearly we have a trajectory for several decades that comes from an economy that was 100% closed and slowly over time we have opened to the world. For example, we entered the GATT in 1985 and signed the free trade agreement with the United States and Canada in 1994. Today we have signed 46 free trade agreements. However, during the last presidential administrations the country was unable to align and coordinate political forces in order to make the structural reforms that were done over the last eighteen months. As previously discussed, what President Peña Nieto has achieved insofar as introducing and approving of the 11 structural reforms is unprecedented. This certainly has created a high expectation for the country as well as presented two major challenges.
On one hand, the creation of the reforms through secondary laws and Congress are all structural but and in turn must be executed.
On the other hand, there are the circumstances or external and internal forces that we are encountering. The issue of the falling oil prices, which we came down nearly 50%, coupled with that we are living in a difficult global financial situation as the growth of the economy last year and this have been weak. Now there is talk of growth between 2.2% and 3.2% for 2015. The Bank of Mexico survey gives us an average growth of 2.8%, which certainly is lower than what we are looking for. There are also a couple of internal situations in the country are not favourable. On the one side, there is social instability resulting from the economic and political situation. On the other, the war against organised crime, coupled with the election year, which raises many issues, such as corruption, among other things.
The foundations that these reforms have created certainly are very good and definitely put us on the right track. The circumstances that are happening are not necessarily as good as we would like, which has led to an impasse of time, but after everything these reforms should have a positive impact on the economy and politics.
Undoubtedly organized crime, as well as the issue of corruption, affects the country’s image but this is part of the growth process for our country. One of the reforms addresses the issue of transparency, which hopefully will help us clarify and eliminate the issue of corruption.
We would like greater speed and efficiency in the implementation of reforms, but there are external and internal factors that slow the process, but I insist that we are on the right path.
KITE: A priority for Grupo Axo is to convey the philosophy of each brand worldwide at the local level. Briefly explain the trajectory of Grupo Axo and what have been the main achievements and major challenges that the company has faced up to this day?
CM: Group Axo is 21 years old, we were founded in 1994, and since then our mission has been to replicate the DNA of brands that operate in Mexico and now in Chile too. This replication is from the point of view of not only customer service, but also the assortment of products, the look & feel of the shops, and the prices as well. What we want is that the shopping experience of our customers in our stores is as good or even better than the experience they could have abroad.
We started with Tommy Hilfiger, focusing especially on the wholesale business particularly, because at the time retail was undeveloped in Mexico. Over time retail began to develop, which allowed us to open our own stores. Also we were adding more and more brands to our portfolio so that as of today we have very good balance between the retail and wholesale component, and between the kinds of brands that we have in our portfolio.
One of the important challenges and achievements for us has been diversification in terms of socioeconomic and demographic level of the customers we serve. We just announced the 50% acquisition of Promoda, which is an off-price company that has 100 stores across Mexico. On the other side, we are keenly focused on the teen market with brands like Hollister and Abercrombie & Fitch. There is an interesting fact that says the age segment of 15-24 year olds of the Mexican population, equals 18% of the population, and accounts for 28% of consumption in the garment industry and fashion accessories. We have also managed to diversify in terms of the type of products we sell; before we were very focused on clothing and footwear, and a few years ago we decided that we could capitalize on our business model to enter other types of products. As a result, we entered the furniture and home accessories markets with Crate & Barrel and the beauty product market with Victoria’s Secret Beauty & Accessories, for instance.
As part of the institutionalization of the company over time an important milestone was the adding of two partners to the group who are very important to us. One is Evercore that we partnered with in December 2010 and the other, Alsea, in June 2013.
Another important milestone was beginning the company’s regionalization process; last year in October we began operations in Chile. We continue launching other brands in Chile and we are growing in Latin American, and undoubtedly we are interested in entering Colombia and Peru.
KITE: Grupo Axo represents a large number of brands in the beauty and accessories market, designers, luxury, lifestyle, and sportswear. Could you tell us the strategy of expanding its portfolio of brands for the short term?
CM: Today we have 19 brands with the off-price concept like Promoda. We are continuing to grow in the retail and wholesale, and for 2015 we are ending with more than 300 stores and over 2,300 shop-in-shops, corners, or wall units in department stores.
A few months ago we launched an e-commerce Tommy Hilfiger page and we will certainly continue to grow in the segment of e-commerce.
Thirdly, as I mentioned before, is the growth into Latin America.
KITE Invest: Is there a common denominator that you could highlight amongst the brands Grupo Axo represents?
CM: I think the brands we represent are very robust brands in terms of their DNA. That is, they have a clear and strong personality; they are distinct from others. They are also demanding companies from the point of view that the execution of their operations is done correctly. They are brands that already have a significant position in the consumer’s mind; in general, we work with brands already known by our market. We work with strong companies that are quite institutional, and well cemented with sustained trajectories.
KITE: What do you consider to be the main competitive advantage that differentiates Grupo Axo from others? Tell us about the actions that need to be taken to achieve market penetration for the brands Grupo Axo represents.
CM: One of our competitive advantages is our ability to execute and the ability to create DNA replication with the strength and the seriousness with which we do it. This ensures the success of the brand in our markets.
Another advantage is the economy of scale; that is, today we have bargaining power due to the 19 brands that we represent, which certainly gives us strength. We also have practices in the different functions of the operation to have a high expertise.
A feature of our company is the passion with which we see and operate our business. We are very passionate about what we do, and entrepreneurs at heart. We are a company that knows how to move and knows how to move fast.
Finally, the seriousness we give to our relationships with the brands. We seek close and long term relationships.
KITE: The aim of KITE Invest’s communication campaign is to showcase local Mexican players for their good practices, establishing them as perfect partners for British companies that are coming to operate in Mexico in the coming months. How important is it for Grupo Axo to create strategic alliances with other firms internationally?
CM: This is the foundation of our existence, establishing strategic relationships or long-term alliances with each of our brands. With them we define a clear growth strategy and brand positioning for the future. Without these relationships with the brands we would not exist. Today we seek partnerships that have regional potential, partnerships that are not only just or Mexico, but also for the rest of Latin America. For quite some time the brands that we work with, as well as some that we do not, have expressed that their interest is not only in Mexico, but that they are looking to leverage our alliance and our relationship for the purpose of operating their brand in other countries in Latin America.
KITE: The year 2015 is a historic year for bilateral relations with the United Kingdom, where Mexico sees the British community as the perfect partner to strengthen some of its most important economic sectors. What do you think about this new approach with the UK market? What are the biggest opportunities you see in this new era between the two countries?
CM: I believe that, without being an expert on issues of investment, there are certainly many attractive sectors for investors, one of which, obviously, is energy.
From the point of view of the retail and accessories industry the potential is still quite large. Today we are getting a lot of foreign and local investment, direct and indirect either via new brands of clothing and accessories in new shopping centres, especially in the interior of the country where it is not well developed yet.
On the other hand we are dealing with a consumer who has a strong purchasing power, who is very interested in the subject of fashion and brands. Mexicans are faithful followers of brands. Hence all those brands that want to come to Mexico have great potential, in addition to the fact that there is a middle class that will continue to grow.
KITE: What final message would you like to give to the British audience about Mexico and your company?
CM: Certainly I want to stress that Mexico is on the right track. We recognize that there are issues that harm our image, but clearly there are many more positives than negatives, and above all there is a great future for foreign investment in our country. It is not in vain that some international consultants consider Mexico as one of the 10 most attractive markets for industries such as clothing and accessories.