E-commerce is alive and well in Latin America. It is the region with the second fastest growing e-commerce sector globally, behind only Asia-Pacific, with a developed digital economy despite relatively low internet and credit card penetration, and a large unbanked population. As an immense and diverse region, there are plenty of opportunities for foreign retailers to make inroads into Latin America, but entering this market comes with some significant challenges as well. Let’s take a look at some of these challenges and opportunities.
With estimated online sales totaling $79 billion, the Latin American e-commerce market is still relatively small, ahead of only the Middle East and Africa. But like many developing markets, today LATAM is in its early high-growth phase: Business Insider predicts a 17% compound annual growth rate (CAGR) over the 2014 – 2019 period, with growth then slowing to approach the rates of more established regions such as North America and Europe (12.2% and 13.6% respectively).
This means that merchants looking to stake their claim in the Latin American market would be wise to make their move before the high-growth window closes in 2019 and the major players become established and entrenched.
While Brazil accounts for 42% of the entire region’s online sales, its growth rate over the last 5 years has been the lowest in Latin America. Though less than a third of the size, Mexico‘s e-commerce market is the region’s second largest and accounts for over $10 billion in annual online sales.
Argentina, currently the third largest e-commerce market in LATAM, is the fastest-growing with an annual increase in market size of 50%.
|Year-over-year Growth by Country|
Latin American Consumers
Infrastructure in Latin America is still limited. Internet penetration in the region is only 61%, while only 30% of consumers own credit cards. Furthermore, many people remain unbanked, relying on cash transactions for their basic needs. In Mexico and Argentina, online retailers are only able to compete by offering their customers cash-on-delivery as a payment method. Since this is challenging, if not impossible, for foreign e-tailers to offer, domestic sellers tend to dominate in these countries.
Logistics are also suffering from poor infrastructure in most of LATAM, which contributes to the popularity of cash-on-delivery: because it often takes products week or more to ship, Latin American consumers are uncomfortable paying up front for their online orders. As e-commerce penetration increases in the region, offering faster delivery times or otherwise compensating consumers (ie. offering free shipping or cost-free returns) can be a major competitive advantage.
Consumers in LATAM turn to e-commerce most often for apparel, appliances and accessories. Foreign retailers have had the most success in selling electronics and computer hardware, while media and travel products are also popular.
Top Target Markets
Overseas investment in Latin America is almost always focused on Brazil. The largest market by far, Brazilian consumers are attractive to retailers because of their high adoption of cross-border e-commerce, tolerance of long delivery times, and regionally high credit card penetration. The most popular local payment method is Boleto Bancário, a printable, bar-coded invoice regulated by the Central Bank of Brazil and payable by consumers online or offline.
See also: Cross-Border E-Commerce in Brazil.
As a member of NAFTA, Mexico is unique among Latin American countries. With one of the world’s largest GDP and a land border with the US, Mexico’s barriers to entry are among the lowest for foreign retailers. MercadoLibre, the Argentinian retailer that dominates domestic markets in most other Spanish-speaking LATAM countries, has a low market share in Mexico, making it easier for new market entrants to compete. The local payment method OXXO, an invoice that can be printed with a barcode and paid in any one of the 13,000 OXXO convenience stores located throughout the country, is widely used to pay for online purchases and even utility bills.
See also: Cross-Border E-Commerce in Mexico.
- Colombia and Chile
Colombia and Chile are unique for having some of the highest internet penetration rates in the region. Compared to the larger South American markets of Brazil and Argentina, these two countries have a more mature infrastructure and fewer regulatory barriers to entry. For example, in Brazil it 119 days to open a business; in Colombia it takes 13. Brazil is notorious for the “Brazil cost” a collection of import fees and taxes which force cross-border retailers to inflate their prices. Similarly, Argentina is virtually void of cross-border investment because of the prohibitive costs involved. In comparison, the cost of operating an e-commerce business in Colombia or Chile is very low.
E-commerce in Latin America is in its early growth phase, a point at which the population is rapidly adopting online shopping and the local infrastructure, payment technologies and internet networks are rapidly maturing. Now is the time for cross-border retailers to enter the market and get a foothold on a new population of digital consumers before the market floods and leaders begin to emerge.
For more information on specific domestic markets in Latin America and the world, keep an eye on our Country Spotlight series on the Payza Blog.