Retailers, Experts see “Massive” E-commerce Opportunity in LATAM Despite “Daunting” Challenges
What:Retailers are scrambling behind Amazon and MercadoLibre to capture their share of expanding e-commerce in Latin America despite difficult payment and delivery challenges.
Why it matters: E-commerce is expected to grow by 19% in the next five years – well above the global average of 11%. The lack of brick and mortar retail outlets in Latin America actually plays into the hand of e-commerce retailers who can offer products to consumers outside of major cities who don’t have many shopping options.
The e-commerce landscape in Latin America is no place for the timid. The challenges are well-known, including lack of infrastructure, consumers without credit cards or bank accounts, high rates of online payment fraud, and obstacles to delivering product—to name just a few.
But the barriers to success haven’t stopped leading players like MercadoLibre from diving into the e-commerce market and thriving.
In the words of one expert, the challenges are “daunting,” but competitors like Linio are finding ways to outperform as they chase what Linio’s General Director Olivier Sieuzac says is a “massive opportunity” in expected e-commerce growth in the region.
Linio has learned it had to expand its online business model beyond just selling product to include things like creating its own delivery fleet and selling its hard-earned expertise to brands like Aeromexico who are creating their own online retailing presence.
To succeed in Mexico, Linio has built partnerships with VISA to prevent credit card fraud, and joined arms with third-party payment channels like the convenience store chain Oxxo to provide the unbanked with cash-payment options.
Mexico, according to Sieuzac, offers the “worst of both worlds”: high levels of online payment fraud and a low level of cooperation from banks.
Linio has responded by developing a proprietary algorithm with VISA to reduce credit card fraud and now offers its own credit card with a loyalty program offering cash back on purchases.
Linio has also created its own fleet in Mexico to handle the delivery of over-sized items like refrigerators and other home appliances.
Infrastructure, payment obstacles
Lack of infrastructure in Latin America makes delivering product a particularly difficult part of the e-commerce business.
Logistics and related issues alone can amount to 15 percent of the cost of what’s sold online—well above other regions, according to Miriam Dowd, Marketing Manager at FOCUSECONOMICS.
Access to credit card-based payment methods is “limited,” and banks often don’t allow debit cards to be used for online payments.
“E-commerce in Latin America faces many challenges, the most daunting of which are logistics, traffic and infrastructure; regulations and rules that vary among countries; and limited access to secure, credit-card based payment methods,” Dowd explains.
Online sales are expected to grow 19% in the next five years – well above the global average of 11% – and are foreseen doubling in value to $118 billion in 2021.
But on the positive side of the ledger, market penetration is low compared to other regions—representing lots of opportunity—and the growth rate is higher.
“Online sales are expected to grow 19% in the next five years – well above the global average of 11% – and are foreseen doubling in value to $118 billion in 2021. Two of the three fastest-growing eCommerce markets in the world are in Latin America: Colombia and Argentina,” Dowd said in an email to Portada.
And even with this expected high growth rate, nearly 75 percent of the market of 650 million consumers expected to shop online is untapped, according to forecasting by eMarketer.
What’s working for e-retailers
MercadoLibre is the undisputed leader in Latin America. Its huge geographic footprint and logistics expertise “have helped it to hold the lead,” Dowd said.
Amazon is leveraging its international recognition to become a leading player in Latin America.
And for Linio, expanding its business model and offering consumers a trusted, predictable and “formal” online shopping experience have proven critical to its success, according to General Director Sieuzac.
Linio is seeking to set itself apart from other online retailers by rigorously vetting its product providers to make sure what they offer Linio’s customers meets certain standards.
Linio’s strategy of building customers’ confidence also includes free returns.
“We’re not leaving customers alone in a face-to-face situation with the seller,” Sieuzac said.
Offering its online expertise to brands creating their own online shopping sites is also a key component of Linio’s strategy.
Linio entered into a partnership to build and operate Aeromexico’s Club Premier online shopping experience.
Mexico offers the worst of both worlds: high levels of online payment fraud and a low level of cooperation from banks.
And it has partnered with the micro-financing company ConCredito which offers a huge presence in rural zones not necessarily within Linio’s geographic footprint.
Linio offers its catalog of products on ConCredito’s website “Creditienda.” The company supports the ConCredito e-commerce site with specific promotion campaigns, digital marketing, logistics, fast delivery of products, and returns, according to Linio spokesperson Paulina Maza.
What lies ahead
The lack of brick and mortar retail outlets in Latin America actually plays into the hand of e-commerce retailers who can offer products to consumers outside of major cities who don’t have many shopping options. “It’s a massive opportunity. You have people that simply don’t have access to products, even from a normal shop,” Sieuzac said.
Shopping online with a mobile phone will also be a “key component” of e-commerce growth in Latin America, according to a report by yStats.coMobile commerce is expected to increase at a faster rate than e-commerce.
Brazil is currently the largest consumer e-commerce market in Latin America, but Colombia is expected to show a 20 percent growth rate through 2021, the report found.
“Rising internet and smartphone penetration rates, greater online payment security and development of MCommerce are projected to contribute to the growth of online retail sales,” a summary of the report says.