Brazil Still Top Latin American E-Commerce Market

Online retailing in Latin America will continue to grow at a rapid pace, reaching $580 million by the end of 2000, according to a report by The Boston Consulting Group (BCG) and Visa International.

The report, “Online Retailing in Latin America: Beyond the Storefront,” finds that the high growth has come as a mixed blessing for online retailers. While sales will increase more than 400 percent in the space span of a year, online retailers have been struggling to ensure that their infrastructure can support increasing demand.

“US online retailers spent the last six years cultivating their online retail industry,” said BCG Vice President Thomas Wenrich. “In Latin America, pure-play and bricks-and-mortar retailers alike are having to compress this process into the space of one to two years. Not only do online retailers need to iron out some of their operational difficulties, they also have to develop business models suited to the unique challenges and characteristics of the Latin American market.”

According to the report, Brazil continues to be the largest online market in Latin America, accounting for $300 million in revenues and just over half of the entire market. The Mexican and Argentinean markets, however, have grown out of their nascent stages and this year will generate $91 million and $82 million in sales, respectively.

One of the more surprising findings of the report is the weakness of US English-language players in the Latin American region. Their market share is expected to drop from 32 percent of the market in 1999, to a mere 7 percent, or $40 million in sales, in 2000.

The report also found that online retailers are experiencing operational difficulties. Mystery shopping exercises in Argentina, Brazil, and Mexico revealed that many Latin American e-tailers need to improve their product selection, customer service, and on-time delivery performance in order to succeed. For example, 52 of 118 sites tested did not respond to email inquiries. In addition, 42 percent of the goods ordered arrived after their promised delivery date.

Other findings of the report include:

  • The popularity of consumer-to-consumer auctions has surged dramatically, making it the largest category in the Latin American market. These transactions will likely reach $192 million by the end of 2000. Their success can be attributed, in part, to their massive marketing campaigns and the fact that they do not require elaborate delivery and payment infrastructure.
  • The second largest category, computer hardware and software, accounts for $72 million in sales. Financial services follow, generating $61.5 million — a reflection of the aggressive moves by financial institutions (particularly in Brazil).
  • Books-music-video is the fourth-largest category, at $59 million, representing a staggering 800 percent growth rate.

The Latin American market today is highly concentrated among a few retailers, with the top 20 players accounting for roughly 73 percent of total online sales. This concentration will decrease as the market begins to mature and more traditional retailers migrate their offering online, the study found. It is clear, however, that the market will not be able to support all 1,300 Latin American online retailers currently in operation. Only the top performers among these will survive.

While Internet access costs in the last year have fallen 23 percent, 20 percent, and 8 percent, in Argentina, Brazil, and Mexico respectively, these declines are not enough to entice a critical mass of consumers online. Even with WebTV and free ISPs, more than half of the population will not be able to afford online access.

Other factors appear to be holding back e-commerce in the region. Building an online brand is expensive. Marketing costs currently account for 64 percent of revenue, almost three times the level in the US. This restricts the number of players who can afford to build a strong brand online. Pan-regional plays are proving to be much less attractive than originally anticipated. In most cases, they are too difficult to implement. The cost of entering a number of Latin American markets at once will not generate the kind of scalability that leads to profitability.

The survey is based on data from surveys of 85 online retailers, as well as 80 in-person interviews with both current and potential e-commerce players across the region.

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