E-Commerce
Vast Expansion of E-Commerce in Latin America
E-commerce is soaring in Latin America. According to a BBVA report that quotes IDC data, this industry tripled its size between 2011 and 2017 in the region. Moreover, 2018 was the first year ever when the total volume of operations in this sector reached $40 billion. And growth seems to be accelerating. A report by Business Insider Intelligence states that between 2014 and the end of 2019 it is projected that this digital commerce in Latin America will have achieved a 17% compounded annual growth, effectively turning our region as the second-highest in growth worldwide behind Asia Pacific.
Within Latin America, Brazil is, by far, the largest E-commerce market, as the tropical country alone accounts for 42% of all the operations regionwide. However, in that country, this industry is growing at a 12.5% annual rate, an outstanding number, that is still below some of its neighbors’. The second market in terms of size is Mexico, which in 2018 accounted for 12,3% of all operations in the region, with a total volume of $11 billion. It is forecasted that this country will continue to grow fast, as in 2019 it may expand a 15.6% according to analysts. The third-largest market in Latam is Argentina. And while its market today accounts for 8.9% of the region’s operations, it’s rapid growth might place it above Mexico by the end of 2019. Other countries like Chile, Peru, and Colombia are also registering a rapid expansion of their online commerce sector.
A Booming Industry
There are many reasons for this explosive growth. On one hand, E-commerce in the region started to take off later than on other more developed markets, which means its logical Latin America would grow faster as it catches up. On top of this, Latin American countries have much higher rates of connectivity than other developing regions of the world, which makes this process much easier.
In South America for instance, 68% of all inhabitants have access to at least one form of Internet Access. In Central America, this figure is a bit lower, at 61%. These numbers, however, are higher than those in other regions like Southeast Asia (58%), East Asia (57%), South Asia (36%), West Africa (39%), East Africa (27%) and South Africa (51%). Mobile adoption in our region is also high, as penetration is 115% in South America and 96% in Central America. As in other emerging markets, where the Internet got a little later, most Internet connections occur through mobile devices and networks, rather than on computers and wired connections.
In some countries like Argentina, connectivity is even higher. Today, 78% of the country’s population has access to the Internet, and 73% connect through a mobile device (alone, or as a complement to a home connection).
When we add this good connectivity to the fact that Latin American entrepreneurs have been able to develop different payment solutions very well adapted to its own realities, the E-commerce boom can be easily explained. As of 2019, 45% of Argentines and Brazilians, and 43% of Mexicans have done an online purchase at least once, and half of them have done so at least once from a mobile device.
And this is great news, as for many years, there were some insurmountable barriers that pushed against E-commerce growth. We are speaking about the public’s lack of trust in online payment methods and the fear of purchasing from what they perceived as unaccountable entities that had no physical presence and thus did not inspire confidence. But years of great offers and low prices, combined with a positive word of mouth and the investment of millions of dollars in advertising by the largest stores in the region, worked as incentives to beat fear and drove many users to buy online and experience all its benefits first hand.
This is especially visible in some verticals like travel, where online operators manage to displace traditional travel agencies to the point where even some of the largest and most traditional players in the field, like Argentine operator Asatej, had to reconvert their service to an online-first business model, and even rebrand its services to Almundo.com. According to the Argentine Electronic Commerce Chamber (CACE), travel is the leading category in terms of online spending, although it should be noted this has to do as much with the much higher average ticket price this category boasts, as with its ubiquity. In any case, a study by that entity has revealed that users prefer to purchase their plane tickets and reserve their hotels online. This has to do with the ease at which they can reserve whenever they want, to save time, and to get discounts and special fares.
But what occurs with travel is not true for every sector. In retail, for instance, online sales account for only a small fraction of all operations. According to the US Commerce Department data (reported by CNBC) by 2019 non-store retail sales (made up mostly by online sales, but also by sales by catalog) accounted for 11.8% of the total. This means that 88.2% of all purchases are still done in brick and mortar stores. This number, however, was much higher in the late 1990s, when 95% of all purchases were done in physical locations, which shows that E-commerce’s relative volume is growing, and regulators believe it will continue to do so.
The Impact of Mobile Devices and Social Networks
But just because online sales represent a fraction of all business, does not mean that digital channels do not have a huge impact on brick and mortar sales. The growth of mobile has started a revolution that has changed the way people research their purchases and connect with all kinds of stores.
Today, more than half of the Internet’s traffic is mobile. This means more and more e-commerce purchases happen on mobile devices. By 2019, 39.6% of all online sales worldwide were made to users buying on a smartphone or a tablet. And while on some categories like travel — where people traditionally used these devices to research but preferred to buy on desktop — a study by Google has shown that people are less and less skeptical about purchasing even these kinds of products and services directly from their phones. In Brazil, for instance, 67% of respondents claimed they would feel comfortable researching flights and hotels on their phones and placing their reservations right from those screens. But mobile’s impact goes well beyond this.
Today mobile plays a decisive factor in purchase decision making when people buy at physical locations. According to Google, over the last decade visits to brick and mortar stores have fallen by 57%. However, each visit’s value has tripled. This happened because people have changed their research habits, and now research products on their phones and visit the store when they are ready to buy. At the same time, social networks are helping users discover more products, brands, and services in every category, making it easier for companies to reach out to the right consumers with their offers.
Users are also using their smartphones to find stores nearby, to check out their opening hours, what’s the available stock of the products they want, and even to research prices from within the point of sale. Far from being a disadvantage for traditional commerce, these new technologies are creating new ways for them to reach new clients. For this reason, one of the big challenges of these times is to correctly attribute online advertising its impact in physical sales, as users may see an ad, not react to it online, but then visit a store and buy.
All the while, technologies like Machine Learning and Big Data are allowing companies to collect large volumes of data about their customers (and potential customers), their habits, preferences, and lifestyle, and use it to target the right people with the right message at a much lower price than it was ever possible through traditional media.
At the same time, Social Networks also offer new spaces to build relationships and trust, as well as very powerful platforms to reach adequate consumers with relevant offers that can seal the deal. In the same line, many companies are starting to rely on instant messengers as sales and customer support channels. Today, messengers like Facebook Messenger, We Chat and even WhatsApp for business are helping brands expand their presence through amicable channels that, thanks to the incorporation of automation tools like bots, can cut down the cost of providing great support and sales experiences at lower costs, provided that they are well implemented.
Online channels are becoming an extension of physical stores, and brands and retailers are in dire need of new solutions that allow them to create omnichannel consistent brand experiences.
There are many business opportunities in the realm of digital commerce. Some have to do with the possibility to learn more about the client through the generation of data, others with the development of new online sales solutions, the development of automated sales and customer support channels, and with the creation of new platforms that can make it easier for brands to reach out to consumers and ultimately sell more across all their sales channels.
