“In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.” This quote, by Klaus Schwab, Founder and Executive Chairman of World Economic Forum, sums up how dramatically the digital economy has reshaped the retail market.
Mainland China has seen its online retail industry skyrocket. Out of the estimated 5.6 trillion retail sales in the Mainland in 2019, 2 trillion were online. ASEAN’s growing wealth is also driving online sales, which are forecast to reach US$102 billion by 2025, according to Anson Bailey, Head of Consumer & Retail and Head of Technology at KPMG.
Speaking at the Chamber’s roundtable luncheon in December, Bailey explained that while the Mainland and ASEAN consumers are comfortable shopping online, Latin American shoppers still preferred bricks and mortar shops. However, LATAM’s e-commerce market is primed to take off, thanks to its demographics and the high penetration rate of mobile phones in the region.
In 2019, out of LATAM’s 386 million population, 155.5 million were using online platforms. Low data costs in the region have enabled two out of three Latin Americans to have an internet connection, representing more than 10.4% of all users around the world.
“Since 2016, the growth of e-commerce sales in LATAM has been steady, rising from US$49.8 billion in 2016 to an estimated US$79.7 billion in 2019,” said Bailey.
Brazil and Mexico are the two largest and most populous economies. According to research firm eMarketer, Mexico’s retail e-commerce sales in particular are skyrocketing, growing by 35% in 2019. At the same time, Argentina’s e-commerce sales grew 18.8%.
The vast size of Brazil is one of the challenges facing e-retailers, as logistics services and infrastructure are undeveloped, especially in remote areas. The types of products that consumers buy online are also very different from country to country in the region. For example, in terms of best-selling e-commerce products, Brazilian’s top-selling products are personal care (16.4%), fashion (13.6%) and houseware (11.1%). In Mexico, by contrast, online purchases of fashion goods accounted for 59% of all online orders.
Hurdles to development
Bailey said that distribution networks and online payment options are key hurdles to e-commerce in LATAM. However, these issues are not very different from those faced in the Mainland market before ecommerce took off. Rapid adoption of digital technologies, social media and tribe marketing are catching on in LATAM.
Cash is also still king for many people, with fewer than 20% of adults owning a credit card in LATAM. Consequently, cash and other alternative payment methods make up 22% of total e-commerce spending. While digital payment systems are expanding, it will take time for people’s confidence in online payment options to increase. At the same time, an answer needs to be found for the question of cross-border payments.
A number of e-commerce platforms have sprung up to work around these hurdles. They also provide opportunities for overseas sellers to test local markets. However, sellers usually have to find their own delivery service providers and choices are currently limited. Correios, Brazil’s state-owned courier, also provides an e-commerce platform and is one of the most commonly used international delivery platforms for overseas shippers.
Louis Chan, Assistant Principal Economist (Global Research) of Hong Kong Trade and Development Council, also spoke at the roundtable. He recently conducted a research trip to Brazil, and said that B2W Digital was the second-most popular e-commerce website in the country, taking a 28% market share in 2018.
In March 2019, it launched a cross-border e-commerce platform riding on its newly launched platform operated by subsidiary Americanas Mundo.
“The system allows overseas sellers, including Hong Kong companies, to sell directly to Brazilian consumers,” said Chan. “Although sellers are required to ship the products directly to consumers, the recommended postal service shipments should not be a very complicated delivery process for companies to manage.”
An added benefit is that sellers can test market demand without having to follow complicated import procedures, such as testing and certification requirements, and as prices are set in US dollars, their exchange rate risks are minimized.
“Compared with other international e-commerce platforms, Americanas is well-recognised and trusted by Brazilian consumers,” Chan said. “They also tailor their platform to suite Brazilian consumer spending habits, which include payments in Brazilian reals, buyers can pay in up to 12 instalments – which is quite common in Brazil – and also faster delivery than other e-commerce platforms.”