The retail sector in Mexico and other developing countries tends to be dominated by millions of traditional small-scale businesses that fail to adopt modern business structures. It is important to investigate approaches to modernizing the retail sector given the prevalence of traditional retail firms in urban centers, the large proportion of workers that are employed in traditional retail across developing countries, and the critical logistics role that retailers play in distributing goods from international suppliers to local consumers. We propose two novel approaches to effectively induce retailers to modernize their businesses: an “external or customer-facing” approach and an “internal or product-facing” approach.
We evaluate the impact of the two approaches on modernization levels and performance via a randomized control trial. In our RCT, 1154 small retailers in Mexico City are randomized into three groups of equal size: control (n=384), “external” treatment (n=385) and “internal” treatment (n=384). Over 6 weeks, junior fellows (i.e. top university students majoring in business, economics or related disciplines) partner with retailers in one of the two treatment groups and work with them to implement relevant modernization structures through 12 site visits. Each site visit is 2.5 hours long, so the program amounts to 30 hours of direct implementation of modernization structures. Retail firms in the “external” treatment group only implement external modernization structures, while retail firms in the “internal” treatment group only implement “internal” modernization structures, with help from their junior fellow.