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What: Retailers scramble behind Amazon and MercadoLibre to capture their share of expanding e-commerce in Latin America. This happens despite difficult payment and delivery challenges.
Why it matters: Experts predict e-commerce trends will grow by 19% in the next five years. They see it rising 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. That’s because it allows them to offer products to consumers outside of major cities who don’t have many shopping options.

E-Commerce Trends Heating Up

E-commerce trends in Latin America provide no place for the timid. The challenges are well-known. Experts say they include 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 don’t stop leading players. For example, MercadoLibre is diving into the e-commerce market and thriving.

One expert remarks the challenges are “daunting.” But competitors like Linio are finding ways to outperform. 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. That means beyond just selling product. The strategy now includes things like creating its own delivery fleet. Linio also sells its hard-earned expertise to brands like Aeromexico who create their own online retailing presence.

To succeed in Mexico, Linio built partnerships with VISA to prevent credit card fraud. Consequently, it also joined arms with third-party payment channels. They include the convenience store chain Oxxo. Linio aims to provide the unbanked with cash-payment options.

Mexico, according to Sieuzac, offers the “worst of both worlds.” Mexico suffers high levels of online payment fraud and a low level of cooperation from banks.

As a result, Linio developed a proprietary algorithm with VISA as a response to reduce credit card fraud. Consequently, Linio also now offers its own credit card with a loyalty program. The loyalty program awards cash back on purchases.

Linio 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 amount to 15 percent of the cost of what’s sold online—well above other regions, according to Miriam Dowd, Marketing Manager at FOCUSECONOMICS.

Merchants experience the impact of “limited” access to credit card-based payment methods. 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 vary among countries. Merchants have and limited access to secure, credit-card based payment methods,” Dowd explains.

Online sales are expected to grow by 19% in the next five years. As a result, that is well above the global average of 11%. They are foreseen to double in value to $118 billion in 2021.

But on the positive side of the ledger, experts say market penetration is low compared to other regions. As a result, that represents lots of opportunity. Consequently, the market also offers higher growth rates.

“Online sales are expected to grow 19% in the next five years – well above the global average of 11%. As a result, they will double in value to $118 billion in 2021. Consequently, two of the three fastest-growing eCommerce markets in the world are in Latin America. They are Colombia and Argentina,” Dowd said in an email to Portada.

E-commerce trends forecaster eMarketer found even with this expected high growth rate, nearly 75 percent of the market of 650 million consumers expected to shop online is untapped.

E-commerce trends working for e-retailers

MercadoLibre boasts status as the undisputed leader in Latin America. Its huge geographic footprint and logistics expertise “have helped it to hold the lead,” Dowd said.

Amazon leverages 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 proves critical to its success, according to General Director Sieuzac.

Linio seeks 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 offers free returns in its strategy of building customers’ confidence.

“We’re not leaving customers alone in a face-to-face situation with the seller,” Sieuzac said.

Linio’s strategy provides its online expertise to brands. They then create their own online shopping sites, a key component of Linio’s competitiveness.

As a result, 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.

Linio also partnered with the micro-financing company ConCredito. ConCredito provides a huge presence in rural zones not necessarily within Linio’s geographic footprint.

Linio publishes its catalog of products on ConCredito’s website “Creditienda.” Linio spokesperson Paulina Maza said the company supports the ConCredito e-commerce site with specific promotion campaigns. They include digital marketing, logistics, fast delivery of products, and returns.

What lies ahead

The lack of brick and mortar retail outlets in Latin America actually plays into the hand of e-commerce retailers. That’s because they can offer products to consumers outside of major cities where consumers don’t have many shopping options. Sieuzac told Portada, “It’s a massive opportunity. You have people that simply don’t have access to products, even from a normal shop.”

A “key component” of e-commerce growth in Latin America proves to be shopping online with a mobile phone. As a result, a report by yStats.coMobile commerce reveals experts expect it to increase at a faster rate than e-commerce.

Brazil offers the largest consumer e-commerce market in Latin America. The report found experts predict Colombia to show a 20 percent growth rate through 2021.

A summary of the report reveals experts predict: “Rising internet and smartphone penetration rates, greater online payment security and development of MCommerce to contribute to the growth of online retail sales.”

What: Online fashion retailer Dafiti has been granted a $70M USD investment to continue building its business in Brazil.
Why is it important: This significant injection shows that, despite inflation and stagnant growth, foreign investors are confident in Brazil’s e-commerce potential, and leads the way to an investment chain reaction in other Latin American markets.

As reported by sources such as Reuters and TechCrunch, online fashion retailer Dafiti announced it will receive, via a cash-for-equity transaction, $70 million USD from Canada’s Ontario Teachers Pension Plan (an independent organization that pays defined benefit pensions and invests plan assets on behalf of over 300,000 school teachers of the Canadian province of Ontario). OTPP is known for its investments in other tech ventures, such as Chinese e-commerce site 360Buy.com.

The Teachers‘ investment will help Dafiti expand its catalog, increase its warehouse capacity, strengthen its customer service and automate operations.

Brazil‘s e-commerce market is regarded by foreign investors and venture capital groups as a segment with great possibilities, due to “a growing middle class, huge consumption potential and significant growth in online and mobile access“, as Wayne Kozun, a senior vice president at Teachers, said.

Philipp Povel, one of Dafiti’s founders, said in an interview that “when we look at Brazil, we don’t think only of GDP growth, but also a middle class and disposable income that continue to grow. And most encouraging is online potential”. And he added: “The overall size of the Latin American market for Dafiti is worth more than $100 billion.”

As Reuters’ Esteban Israel writes, “e-commerce represents only about 1 percent of all commerce in Brazil, compared with a level closer to 10 percent in the United States, Great Britain and elsewhere in Europe. Overall internet penetration is also relatively low, at about 50 percent of the population. Both factors represent a large untapped market.”

The investments –says Israel– have enabled the retailer, based in São Paulo, to consolidate its position as Brazil’s top online fashion outlet, with 30 percent of the market. Dafiti first opened for business in Brazil in 2011, and it has also ventured into other big Latin American markets, including Argentina, Chile, Colombia and Mexico.

TechCrunch’s Ingrid Lunden learned that Dafiti gets over 25 million monthly unique visitors, with 2,000 brands and 125,000 products across its five sites. She also says that in Brazil alone, sales from e-commerce sites, led by those specializing in fashion, are projected to grow 25% in 2013, having added 10 million consumers in 2012. It is predicted that by 2015, 39% of internet users in Brazil (31.6m people) will be making at least one purchase online.

Economic analysts expect Brazil’s economy to grow by little more than 2 percent this year, compared with the 7.5 percent growth posted in 2010.

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