E-commerce in Latin America

E-commerce Study in Latin AmericaMay 2012

AméricaEconomía 1

The Boom YearsE-commerce in Latin America practically doubled in the last two years, reaching US$ 43 billion in sales in 2011. This intense online activity is largely attributed to regional economic growth, but it is mainly the work of a myriad of small Latin-American entrepreneurial endeavors.

E-commerce study in Latin AmericaMay 2012

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3, 2, 1, takeoff

UP tReND

Total e-commerce spending in Latin America (in $million dollars)

B2C as a proportion of GDP

Source: AméricaEconomía Intelligence

e: E

stim

ado

Source: AméricaEconomía Intelligence

50,000

55,000

60,000

65,000

70,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

1.20%

1.00%

0.80%

0.60%

0.40%0.52%

0.42%

0.30%

0.18%0.13%0.10%0.07%0.07%0.05%

0.11%0.14%

0.19%0.26%

0.33%

0.11%0.20%

0.36%

0.52% 0.64%

0.54%0.61%

0.20%

0.00%02003 2003

1,692.4 3,065.84,885.0

7,542.110,572.5

15,645.0

21,774.9

30,264.5

43,230.5

54,470.5 e

69,994.5 e

2005 20052008 20082004 20042007 20072006 20062009 20092010 20102011 2012 2013 2011

In 2010, Emerson Andrade, Alex Tabor and Julio Vas-concellos were three pau-listas (São Paulo residents)

with a dream. Today, they are Peixe Urbano, a group-buying company with 1,000 employees throughout Brazil and in several countries in Latin America. Their careers are booming, as they have made e-commerce one of the sources of their success. Not only did Peixe Urbano survive the flood of coupon aggrega-tors that appeared in the wake of Groupon, but successfully competed with them in their own turf. They qualify as a Brazil-ian e-commerce miracle, after three rounds of investment, four acquisitions, and a plan to cover the whole region with expansion initiatives such as the purchase of Groupalia.

“We will become the leaders in all our operational segments,” says COO and founder Emerson Andrade. “The businesses of

0.19% 0.25% 0.29%0.36%

0.54%

0.61%

0.76%

0.32%

0.42%0.54%

0.83% 0.85%

LATIN AMERICAMEXICO

CHILEBRAZIL

1.01%

Customized DeliveryThe Brazilian state-owned mail service company, Correios, made a timely decision in the

past century: in 2000 they created a special division for the shipment of purchases made via e-commerce. In order to promote the new system, they reduced shipping costs by 30 percent and guaranteed parcels to be delivered in three days. In 2006 there were already 4 million e-commerce parcels per year and in 2011 the figure went up to 18 million, almost 20 percent of all packages shipped. From 2010 to 2011 the increase in sales was 36 percent. Its main clients are Netshoes and Walmart, and it is the largest distributor of e-commerce purchased goods in Brazil, with a 40 percent participation in a market where there are close to thirty competing companies. “The buyer pays for shipping,” says Alex do Nascimento, in charge of web purchased parcels since 2000”, but in order to expand their sales, large sellers offer free shipping, which also increases our turnover,” he says. On its website, Correios also has a virtual store to market products that are on sale. Correios has conquered Brazil, but it is out for more. This state company just modified its charter, which today allows extending its successful business model beyond its own country and –given the case– competing with the likes of Amazon.

correios.com

social shopping and e-commerce are ripe for consolidation,” says an analyst who believes e-commerce will make Peixe Urbano grow at least 50 percent this year.

If you multiply this by the thousands, and put them into

innovation, logistic quality, safety and service development enabling atmospheres, you will begin to understand how Latin America doubled its e-commerce volume in the past two years. Total regional B2C (business to consumer) e-commerce sales reached US$ 22 billion in 2009 and US$ 43 billion in 2011, a 98.5 percent increase. Actually, e-commerce has been doubling

in the region every two years since 2003, and in top of that, it is increasing its significance, as it reached 1% of the GDP in Brazil.

In fact, the high regional figures are heavily impacted by Brazil’s e-commerce perfor-mance. The economic boom the country has experienced lately has direct correlation with its e-commerce market. In 2011 alone,

0.14%

0.10%


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“Brazil is our second priority after China,” states Neil Ashe, president of Walmart Global E-Commerce.

e-commeRce sPeaks PoRtUgUeseCountry by country participation in the total expenditure of regional B2C.Source: AméricaEconomía Intelligence

BRAZIL59.1%

CHILE3.5%

COLOMBIA2.3%

MEXICO14.2%

PERU1.4%

VENEZUELA3.3%

CENTRAL AMERICA2.4%

THE CARIBBEAN6.4%

OTHERS1.21%

ARGENTINA6.2%

jor global players have decided to strongly expand in Brazil. According to internet traffic provider comScore, 70 of the 100 most visited Latin American websites are Brazilian. And 87 percent of the 78 million Bra-zilian internet users visit retail websites to compare prices.

With 173 million credit cards and a population of 195 million, Brazil is fertile ground for e-commerce. However, the previous figure does not mean 80% of Brazilians have credit cards –Brazil is actually more like Spain than any other Latin American country in terms of banking penetration indicators.

the sales in the sector reached US$ 25 billion, accounting for over half of the regional total.

But not everything can be explained by the enormous economic growth. In a short period of time, Brazil has seen the emergence of a new middle class, with bank accounts and internet connections, who have become e-commerce clients. Bra-zil also pro-actively encouraged e-commerce, reducing interest rates, lowering taxes, and adapt-ing its legislation to the Brazilian consumption patterns. Current regulations, for example, allow clients to return free-of-charge products they have purchased online, a decision that has had an impact on consumer trust as well as in companies’ logistics development. “We had to de-velop new systems to adapt to the fact that Brazilians are used to trying out stuff before buying it,” says Alex do Nascimento, head of parcel shipping division in Correios. E-commerce now represents 20 percent of Cor-reios’ total shipments.

Brazil’s size is no secret, and it is attracting global pow-erhouses such as Apple and Amazon, which have announced tentative plans to start operations in Brazil in September, as well as Walmart, that has confirmed it will dramatically broaden its presence through mid-size stores similar to those it operates in Mexico under the Bodega Aur-rera brand. “Brazil is our sec-ond priority after China,” says Neil Ashe, Walmart’s Global E-Commerce president.

It is no chance that three ma-

From Mexico to BrazilWalmart, the world’s largest retailer has taken note that the “big is beautiful” strategy

will no longer help it keep growing with the arrival of mobile e-commerce. “People are making large online purchases and complementing them with small purchases at stores near their homes,” says Natalie Berg, a global researcher at Planet Retail. That should worry this giant that only sells 5 percent of its overall sales online. In order to overcome this weakness, Walmart is currently testing an e-commerce model in Mexico, observing the profit margins of its small store subsidiary, Bodegas Aurrera. A model it soon intends to export to Brazil, the second priority world market for the company’s e -commerce strategy. “We are underway to create the next generation of e-commerce, offering the latest in online innovations to give our customers a unique shopping experience,” says Neil Ashe, president and executive officer at Walmart Global E-Commerce, who arrived to the company from the world of digital contents. Ashe, a former president of CBS Interactive, has as his primary goal the management of the recent acquisition of Yihaodian, a Chinese e-commerce company.

walmart.com


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a prediction Us$ 8 billion shortIn 2009, industry estimates predicted that e-commerce sales in Latin America would reach US$ 35 billion in 2011, a pre-diction that fell US$ 8 billion short. Nobody could foresee the recent dynamic and highly suc-cessful endeavors emerging out of innovation-led and continu-ously improving environments. “Nobody could anticipate the dazzling emergence of coupon aggregators and shopping clubs, whose models are creative, not so much because of their busi-ness models, but for the way in which they have implemented them and the results they have obtained,” says Marcos Pu-eyrredón, president of eInstituto (formerly known as Instituto Lationamericano de Comercio Electrónico, the Latin American E-Commerce Institute). This is the case of undertakings such as Peixe Urbano, Geelbe (ac-tive in Colombia, Argentina and Mexico) or the Ecuadorian

“Nobody could anticipate the dazzling emergence of coupon aggregators and shopping clubs, whose models are the most creative, not so much because of their business model, but how they implemented them, and the results they obtained,” says Marcos Pueyrredón of eInstituto.

The Midnight HourDiscount sales website Geelbe does not stop registering yearly two-digit growth

figures in Colombia, Mexico and Argentina. Its core business is to sell leftover stock via the Internet at low prices. It is what in the brick-and-mortar world is called a markdown store. From leftover Ray-Ban shades and Tommy Hilfiger watches, to Lacoste shirts or thermostat coffee mugs, everything can be on clearance. Agustín Pallotti, its CEO, is amazed that the best strategy has proved to be sending an email with its products of the day at midnight. “I am still not certain why that is the moment where we have the greatest response”, he says. But he has stopped testing other hours of the day. Another secret of his is packaging the products as if he were sending them to himself. According to Pallotti, Colombia has a cheap and high quality mail service, but Mexico and Argentina still need to take Introduction to Logistics I and II.

which reality exceeded expec-tations. Online gaming players Vostu and Mentez are interesting cases, selling games for under US$ 1 per unit, and seemingly paving the way to this segment’s explosion. It is similar to what happens in the Apple virtual store, with over half a million software applications for any of the company’s products. People begin downloading free games, then start downloading songs for 99 cents, learn to trust the website, and almost without re-alizing it, end up buying a US$ 2,000 MacBook Pro.

The intensity of Latin Ameri-cans’ online activity, as evi-denced in how much they use it for entertainment and the presence they have in social networks, has made social commerce open new channels for online transactions, even for lower-middle class consum-ers that were not on anyone’s horizon two years ago. Video on demand, for instance, has started finding its niche through highly popular global and Latin American companies such as Netflix and Netmovie.

But of course, attention today is focused on the mothership of social networks.

Facebook took up 30% of the time Latin American inter-net users spent online in 2011, an increase of 9.5 percent over the previous year, according to comScore figures. Facebook now wants to take that immense mass of users to its own pur-chasing channels. In this way, the company’s public offering (IPO) fetched US$ 11.6 bil-

geelbe.com

Cuponaso, which are revolution-izing consumption patterns in the markets where they are present.

The emergence of these completely unexpected players,

together with the dynamism of the online gaming and digital content markets, make social commerce a new relevant actor, and explain the US$ 8 billion by


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lion to invest in expansion and acquisitions such as its recent US$ 1 billion purchase of photo sharing app Instagram, that may turn out being an e-commerce landmark. Such a massive injec-tion of capital may help answer Facebook’s big question of how to generate a clear monetization scheme.

Commerce through Facebook is being called f-commerce these days. Yet there are analysts, such as Sucharita Mulpuru, of Forrester Consulting, who are not sure that e-commerce will be the company’s sorcerer’s stone. “It is still to be proven that the platform can be a suit-able place for shopping, since, its stores do not allow to fully replicate the brand experience of the official websites of the potentially interested compa-nies,” she argues.

Still, there are many prepar-ing for its arrival. LAN Airlines, for example, is testing its in-corporation into the Facebook platform, replicating Delta’s model. “For now it is only a small-scale test, but we want to be prepared, to understand what is effectively happening with the platform and to confirm if transactions are effectively being made there,” says Lan.com manager Elías Senerman.

A key issue that companies are seeking to better understand is how to maintain and increase conversion rates; the percentage of visitors to a website who ac-tually make a purchase.

the gift of ubiquityMany continue to believe that

“It is still to be seen if Facebook can be a suitable place for shopping, since its stores do not fully

replicate the brand experience of official company websites,” says Sucharita Mulpuru of Forrester.

e-commeRce oN the maPCountries/selected blocks, B2C in $million dollars.Source: AméricaEconomía Intelligence

2005 2006 2007 2008 2009 2010 2011

BRAZIL 2,269.9 3,540.5 4,898.7 8,572.6 13,230.4 17,851.4 25,552.8

MEXICO 567.1 867.6 1,377.0 2,010.0 2,624.9 4,330.5 6,137.1

THE CARIBBEAN 731,0 949,3 1.104,9 1.244,7 1.455,9 1.895,5 2.752,0

ARGENTINA 240,9 378,1 561,5 732,8 875,0 1.797,6 2.695,3

CHILE 242,8 471,8 687,5 919,5 1.027,9 1.141,6 1.489,9

VENEZUELA 253.4 489.6 821.5 787.8 906.1 1,117.8 1,418.4

CENTRAL AMERICA 189,2 359,9 499,0 563,9 637,2 729,6 1.051,0

COLOMBIA 150.3 175.0 201.3 301.9 435.0 606.8 998.0

PERU 109,1 145,5 218,2 250,9 276,0 426,9 611,0

OTHER 131.3 164.8 203.0 260.9 306.5 366.9 525.0

LATAM + CARIBBEAN 4,885.0 7,542.1 10,572.5 15,645.0 21,774.9 30,264.5 43,230.5

Will you Marry Me?All the e-commerce strategies in LAN Airlines’ web platform aim at client engagement,

more than at selling tickets. Even at the cost of losing profit margins, something the system would allow if its focus was offering cheaper prices. In fact, what you pay online almost has no difference with the store. According to Elías Senerman, Lan.com manager, “we are more focused on increasing customer loyalty in the long term than in obtaining profit quickly.” In 2009, Lan.com implemented what it calls its “fingers” advertising strategy, a graphic way of showing its desire to empower the client, making him or her feel that with just a couple of strokes on the keyboard he or she can travel anywhere in the world cheaply. They began using Facebook, and are heavily preparing programs for smartphones, both for their clients checking in from them, and being able to use them at the airport in the way of a GPS taking them to the boarding gate and to his or her seat. In that way, the strategy points at the platform, which apart from selling airplane tickets, will encourage loyal customers to, for example, make hotel and rental car transactions there.

lan.com

consumer online purchases are made through conventional channels like a desktop or laptop

PC, but that is no longer so. A growing number of experts think that, starting this year, online

consumption will be intimately related to mobile consumption, thanks to smartphones and tab-


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lets. “The current challenge is having a simple website in which clients may shop from their mobile phone,” says Armando Arias, Walmart’s e-commerce manager for Latin America.

Why is there so much interest

in smartphones and tablets when sales through those channels are marginal? Simply because the industry is changing at a diz-zying speed, and innovations such as coupons or digital goods can suddenly change the entire

market. All indicators suggest that the future is in smartphones and tablets.

“It is a phenomenon we dis-covered mid last year and have already confirmed. The Latin American consumer is gener-

ally very receptive to discount offers, and the massive market penetration of internet devices is strengthening the power of price comparison and instant shopping,” says Alejandro Fosk, comScore vice president for Latin America.

It is not farfetched then, to assume that in two years, when this study is conducted again, mobile online use will infuse dynamism into the e-commerce market.

But the shift of consumers towards mobile technology by way of smartphones and tablets is not the only new trend. Ac-cording to Alejandro Prince, of the consulting firm Prince & Cook, many Latin American online consumers are growing increasingly impatient with delivery times and are opting to pick the packages up them-selves from distribution points. “Logistic problems begin to have a solution with the emergence of services that allow consumers to pick up what they bought,” says Prince.

One example is Falabella Argentina, with e-commerce representing 10 percent of its sales. The majority of products purchased online are picked up at the store by the customer, ac-cording to e-commerce manager Patricia Jabsen. Argentina has the highest shipping costs in Latin America and consumers prefer to go the distance to pick the product up rather than pay-ing more for it to be delivered at home. It comes as no surprise that the logistical solution for regional e-commerce stems from strong consumer demand. “There are

shoPPiNg caRtMost relevant factors when buying online (from 1 to 4)Source: AméricaEconomía Intelligence survey

groupon.com

The Coupon Guy Doesn’t Kill the StarThe top player in early sales of products and services at a discount hit the region, willing

to dispute the common knowledge assessment that a Latin American man would never invite a woman for dinner to then pay the bill with a 50 percent discount coupon. Against all forecasts, the annual 55 percent growth of Groupon in the region shows that common knowledge was wrong. The company started operations with four employees less than two years ago, and it now has 360 employees in Uruguay, Argentina and Chile. And Groupon’s expansion has been swift in order to not give eventual competitors time, and to know the particular aspects of each market. Thus, the company acquired the Chilean Clandescuento.cl after it had been in operations for only four months. According to Federico Malek, CEO of the division grouping those three countries, “people are eager to buy something and are only waiting for greater offers.” So far, so good. But, Malek is surprised how different the countries in which he directs the operation are, a fact that hinders general solutions. For example, in Chile an iPad can almost be bought at the same price than in the United States, while in Argentina, it is still not possible to import Apple products in order to force Apple to set up an assembly line in the country, as they did with BlackBerry.

Availability of Products

2.93

3.29

3.31

3.36

3.39

3.43

3.44

3.45

3.49

3.52

3.52

2.60 2.70 2.80 2.90 3.00 3.10 3.20 3.30 3.40 3.50 3.60

Transaction Speed

Ease of Use

Security

Prices

Delivery Options/ Shipment

Product Arrival Guarantees

Payment Options

Supply Diversity

Discounts

Post Sale Services


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a lot of people willing to buy, but what is still missing in the region is supply,” Fosk states. According to the Argentinean Chamber of Electronic Com-merce survey, complaints by consumers about lack of sup-ply in 2011 increased 7 percent over 2009.

One of the key factors for the increase in demand has been the decrease in transactional security breaches, one of the biggest historical problems with e-commerce in the region. Ac-cording to Guillermo Rospigliosi, Latin American general manager for CyberSource –a payment processing management and anti-fraud security company acquired by Visa in 2010 with over 370,000 clients wordwide, “the boom is intimately related with an increase in consumer trust, e-commerce is already considered to be more safer.” In 2011, 63 percent of Mexi-cans declared trusting online payment methods, as opposed to 2009, when the figure was at 55 percent.

childhood’s endHow long will Latin American e-commerce be able to maintain the current rate of growth, which reached 42.8 percent between 2010 and 2011?

In a constantly evolving industry, it is very difficult to predict. However, estimates predict a 26 percent growth in 2012 and a 28.5 percent in 2013.

Many believe the industry is soon to reach maturity. “Latin America consolidated its com-mercial power through the inter-net and its consumption patterns

are approaching those of coun-tries like the United States”, says eInstituto’s Pueyrredón. Annual growth probably will not stay at the current 50 percent rate that has been the trend for the past decade, he adds, but “for

at least the next three years we will maintain double-digit an-nual growth and surpass the 19 percent world average”.

Latin America’s participa-tion in global e-commerce will continue to grow, and its growth

rate will keep surpassing that of the United States, which in 2011 reached a 14.4 percent over the previous year.

According to a Goldman Sachs report, e-commerce will generate US$ 2 million in online

falabella.com

Off and Online Co-existenceFalabella, the Chilean company with the highest listed stock exchange value, and with operations

in Chile, Argentina, Peru and Colombia, has taken note of the mobile customers’ new habits and will launch its smartphone and tablet platform this year. “People can already enter from their mobiles, but they can’t make transactions,” says Patricia Jabsen, its e-commerce manager in Argentina. “This year we will first perform an upgrade of our electronic platform and immediately afterward we will launch it for mobiles,” she says. Jabsen is also president of the Argentinean Electronic Commerce Chamber of Commerce, and she believes that “it is a false dichotomy to say that one has to opt between developing the online sales channel or physical stores, since the offer online has to be complementary to the stock at non-virtual stores”. According to her, this complementary character helped Falabella win the award for the best e-retail company of the year awarded by eInstituto.

LATIN AMERICAMEXICO

CHILEBRAZIL

towaRDs the balaNce PoiNtPercentage term variation of e-commerce spending in Latin AmericaSource: AméricaEconomía Intelligence

140.0

120.0

100.0

80.0

60.0

40.0

20.0

0.0Var 04/03 Var 05/04 Var 06/05 Var 07/06 Var 08/07 Var 09/08 Var 10/09 Var 11/10

32.1

70.3

64.370.1

76.1

56.0

40.2

75.0

54.3

34.9

43.1

59.3 48.0

39.2 39.042.8

12.6

58.7

30.6

65.0

41.7

132.6

94.3

38.433.8

11.811.1

30.5

46.0

53.054.4

54.4

International License PlateCar sales classified ads pages are booming in Venezuela and Colombia. “They are two very

different markets, but the platform works the same in both,” says Venezuelan Ignacio Caride, its CEO, through a business model that allows to evenly grow at a 40 percent annual rate, no matter if Venezuela has a 30 percent inflation rate, while in Colombia it does not go beyond an annual 8 percent.” The webpage started out in Caride’s home country, competing with the classified ad pages of newspapers, and winning because, according to him, at Tucarro.com “the ad stays on until the car is sold without a time limit.” Every person placing an ad pays between US$ 22 and US$ 32 to be on the page until the car is sold or the sale is suspended. “Over time I discovered that the key to the business is to take a picture of the car from the same angle to give every offer the same exposure,” Caride assures. The page has its associated websites Tulancha.com and Tuavion.com, where placing an ad costs up to US$ 100.


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The estimates by AméricaEconomía Intelligence for the elaboration of this study for 2010 and 2011 were realized from information provided by the official sources in each country (electronic commerce chambers or associations), which were homologated and complemented from industrial analyses, expert opinions, and the information supplied by a survey specifically created by AméricaEconomía Intelligence and its own estimations, considering other variables related to electronic channel sales.For the effects of this study, we define (B2C) electronic commerce as those commercial transactions executed online, ending in, at least, a purchase order being sent to a natural person. We included the

transactions held between consumers and retail enterprises, tourism companies and airlines, between consumers (C2C) and transactions with governments (online tax payment) in the definition. The amounts in dollars were obtained using the exchange rate valid on the last day of the year for every respective year. We thank the following information sources for their collaboration: AMIPCI, Camara-e.Net, CACE, Cavecom, CCS, FMI, eInstituto, World Internet Statistics, Cepal, World Tourism Organization, the Colombian Chamber of Electronic Commerce, Receita Federal, Banxico and many other experts and e-commerce area leaders in the region, who helped us gather the necessary information.

tucarro.compurchases per second in 2012. This depends basically on the market behaviors of China and the United States, but Latin America will keep gaining posi-tions, as long as it maintains its economic and online population growth rates.

There are other elements that indicate the pace is not going to slow down. “If e-commerce only consisted of retail and tourism, in the United States the proportion would be 63 to 37 percent,” says Fosk. “But in Latin America it is the other way around, which is anomalous given the great po-tential retail has in the region.” The presence of giants such as Walmart and global Latin Ameri-can retailers of amazing growth have to be taken into account as well. All of them are much more powerful and have many more clients than any individual actor in the regional tourism industry.

There are still other regional gaps to fill. According to eInsti-tuto, 70 percent of Brazilians, Argentineans and Chileans spend less than 10 percent of their annual budgets on online shopping, only half of what citi-zens in developed countries do. That gap could become smaller as smartphone penetration in-creases throughout the region. It is estimated that 50 percent of mobile phones in Latin America will be smartphones by 2015.

There are also new devel-opments gaining momentum worldwide that should soon take hold in Latin America. One of them is digital wallets, an innovation that offers a safer and simpler way to pay, which

does not require the consumer to enter their information for every transaction. The speed of the digital wallet payment systems is an important factor as it also reduces the premature abandon-ment of online shopping carts.

“The adoption of mobile technology, social networks and the increase in digital goods purchases are changing our way of communicating and our con-sumer behavior, both online and in brick-and-mortar stores,” says

Carolina Forero, Visa’s execu-tive director for innovation and e-commerce, refering to this platform that offers businesses greater conversion rates and increased security.

Every day has its way. The sentence applies to what lies ahead for e-commerce, as digital wallets and other innovations that are just being conceived, come to the region, are tested, and keep feeding the industry’s bloom and boom.

Publisher & EditorElías Selman Carranza AméricaEconomía IntelligenceJaime Contreras S., directorRodrigo Dörn, researcherDalomy Switt, researcher

Art direction & designÁlvaro Araya Urquiza

IllustrationsPatricio Otniel

EditorsAndrés Almeida F.Samuel Silva (English version)

WriterPablo Rosendo Gonzalez

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