Global e-commerce has grown by an average of 13% a year over the past five years and it is Latin America that is the fastest-growing region. But while all eyes are on Brazil, it may be Mexico and Uruguay that offers the brightest prospects.
In its 2012 E-commerce Index, consultancy AT Kearney used data on infrastructure, regulations, and retail development to rank emerging markets by their e-commerce potential. Though China came top, Brazil, Chile and Mexico accounted for three of the top five along with Russia, while Uruguay came in at eighth. Overall, Latin America is expected to remain the fastest growing region globally for internet sales, registering a 17% compound annual growth rate over the next five years.
Brazil has 80m internet users who spend US$10.6bn online per year, the largest total in Latin America. With a 4G rollout now underway, Brazil's total online spend is expected to reach US$18.7bn by 2017. These shoppers are price-conscious – they shop online largely to get more bang for their buck – so they demand free shipping and interest-free payment terms. They also frequent group-buying sites to look for bargains. In 2011, 10m Brazilians made more than 20m transactions on Groupon-like websites. Appliances and consumer electronics are the most common products sold online, although fashion sales remain marginal.
Established Brazilian retailers dominate the online market, with B2W (owned by Lojas Americanas department stores) holding 20% of the online retail market. Local electronics retailer Magazine Luiza is increasing its online presence by tapping into Latin America's largest social networking base. The company, renowned for its trailblazing relationship with Brazil’s less affluent consumers, encourages customers to open their own digital Luiza stores on Facebook and Orkut to sell products to friends and family. In return Magazine Luiza pays them from 2.5% to 4.5%in commission.
Although Brazil's e-commerce market is thriving, the country has issues with logistics and online payment security. To try and combat these, the Brazilian government has invested in air and shipping ports and is strengthening its digital commerce laws. That has been necessary because internet retailing has been steadily shifting from the economic hub between São Paulo and Rio de Janeiro to the Northeast region, where the number of internet users has risen the most over the past couple of years.
Challenges remain for delivery companies, with a lack of appropriate road and airport infrastructure as well as difficulty in hiring specialist workers. The task is getting particularly difficult as the online market shifts away from wealthier neighbourhoods to poorer ones, which now account for nearly 50% of deliveries, according to the major delivery specialists. The favelas in particular have few actual streets, which means deliveries have to be made by bicycle, motorcycle or even on foot. Robberies are not uncommon either, although partnership agreements with local groups have helped to reduce these problems.
In the basket
Yet for all Brazil's potential, it is Chile that AT Kearney views as Latin America's hidden gem. Advanced technology and telecoms infrastructure and an active base of online buyers have pushed Chile's online sales up by an average of 27% a year since 2006. Nearly three-quarters of Chilean internet users shop online, the highest of any country in the rankings. But because of the market's relatively small size—just US$749m in sales compared to Brazil's US$10.6bn— it has been somewhat overlooked so far.
AT Kearney predicts that Mexico will be the next breakout star. This is already Latin America's second largest online retail market, with US$1.2bn in sales per year, and it has the fastest-growing internet penetration rate in the world. As more Mexicans obtain internet access, online sales are projected to nearly triple to US$4.4bn by 2016.
Despite its potential, however, Mexico is hindered by poor technology, with most users connecting at slow speeds to avoid paying for broadband. Still, Mexico offers some of the most unique e-commerce innovations, such as the BanWire system, which allows customers to purchase a product online, print a voucher, and pay for the product in person at a nearby convenience store.
Finally, eighth placed Uruguay has a 48% internet penetration rate, with 70% of internet users making online purchases, second only to Chile. A highly urbanised population has also helped improve the reliability of deliveries and Uruguay's online retail market —at US$43m— may be small, but sales are projected to double by 2016.
These factors will help encourage overseas retailers and brands, already casting a covetous eye at Brazil, to make the step into Latin America. The loser in all this could be India, which continues to offer potential but has delivered little in the way of improving the regulations that retailers need to operate effectively.
|E-Commerce Index rank||Country||Online market attractiveness(50% weighting)||Online infrastructure establishment (20%)||Digital laws and regulations (15%)||Retail development (15%)||2012 score|
|Sources: Euromonitor, International Telecommunication Union, Planet Retail, World Bank, World Economic Forum; A.T. Kearney Analysis|