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Mexico is the second largest economy in Latin America and the 11th most populous country in the world. Over the past few years, Mexico has seen strong growth in its retail industry with a stable economic environment, controlled inflation and increase in credit facilities. The market potential is clearly visible from the fact that the retail giant Wal-Mart (WMT) operates close to 2,500 stores in the region. Although the economic growth has suffered in the recent past, lower interest rates and diluted tax reform should have a positive impact on consumer confidence going forward. Even the prevailing economic weakness bodes well for Costco's growth since the retailer provides its customers with a valuable cost saving shopping option.
Our price estimate for Costco stands at around $125, implying a premium of about 5% to the market price.
Mexican Retail Market Holds Good Potential
Historically, Mexico's retail industry has remained strong as the region has sustained its economic growth and kept inflation under control. What's promising is that the retail market growth exceeded the country's GDP growth last year.
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