João Del Valle, co-founder and chief operating officer, Ebanx
A historian might write off the legend of El Dorado as a myth, but a smart businessperson would be quick to disagree. Rather than searching its lakes for a lost city of gold, today’s brands and retailers have started to find that Latin America’s real treasure is hidden online.
While still relatively young, e-commerce throughout Latin America is booming, thanks to the region’s expanding internet connectivity and high demand for foreign products and services. For businesses across the globe, this has opened the door for exciting new opportunities.
But before chasing Latin America’s digital gold, there are a few things retailers should know:
How does Latin America stack up overall?
The opportunity for e-commerce in Latin America has yet to reach the same level as other markets like the United States, but it’s starting to catch up. In absolute terms, online sales in Latin America are expected to reach $118 billion in 2021—just behind the amount that the United States sold online in the first quarter of this year.
Surely, more mature markets like the U.S. have the advantage in this regard. But the total value of e-commerce sales doesn’t paint the full picture.
Despite how it appears, the opportunity in Latin America is actually far greater. Latin America currently leads the world in e-commerce growth. It also has twice the population of the U.S., with a similar number (but much lower proportion) of individuals shopping online. This means that retailers ultimately have much more room for growth in Latin America than they do elsewhere.
Even more, purchasing power is rapidly expanding throughout the region, with Latin America’s middle class having doubled in size over the last decade. Since there are often so few options for consumers in their home countries, many choose to travel to the U.S. to make purchases—or make purchases online. Just consider, for example, that Brazil, the largest e-commerce market in Latin America, imported over $30 billion worth of goods from the U.S. in 2016, accounting for about one-fifth of the total import volume of the country. In Mexico, the region’s second-largest e-commerce market, U.S. goods made up almost half of the country’s imports.
So, considering individuals’ current preference for foreign goods, online retailers have major untapped potential to sell their products and services in Latin America.
What are the top e-commerce markets in Latin America?
Due to its ever-growing market and high acceptance of foreign products and services, Latin America is becoming an attractive destination for online retailers as a whole. But in some places, it already is one. Brazil is currently one of the world’s top ten e-commerce markets. Three-quarters of Mexico’s online population purchased online in 2017. And Argentina and Colombia are two of the three fastest-growing e-commerce markets in the world.
For online retailers looking to enter Latin America, these might be the best places to start. Most of all, retailers will find that consumption habits in Latin America are quite similar to the habits of buyers in the U.S. and Europe. This means that North American retailers don’t need to adapt their products in major ways when entering Latin American markets.
What’s the best way to reach Latin American consumers?
Internet access throughout Latin America is expanding fast. As a point of reference, 80 percent of Argentina’s population uses the internet. Other countries throughout the region trail not too far behind.
But rather than accessing the internet via desktops or laptops, most Latin Americans use their phones, making mobile the most important channel for online retailers. Smartphone penetration in the region is quickly approaching 50 percent, and is as high as 87 percent in countries such as Brazil. Even more, mobile commerce is actually growing at twice the rate of traditional e-commerce. For brands and retailers, this means that websites should be accessible on both mobile and desktop formats.
Additionally, it’s important to leverage social media to promote their products and services—particularly through Facebook and Instagram. In Brazil, for instance, these two social media channels together have a penetration of nearly 70 percent among internet users, meaning that posts can go viral in an instant. As such, retailers should be sure to solicit help from local partners who understand the intricacies of the region.
What are some of the major challenges in Latin America?
Certainly, all of the opportunity in Latin America doesn’t come without its unique challenges. Most countries in the region speak Spanish; however, the largest market, Brazil, speaks Portuguese. This has major implications for retailers’ marketing and customer service efforts, as they need to hire locals in each market to “speak” to customers in a way they can relate to, rather than using their normal English-speaking teams.
Second, payment methods vary widely across countries. The region has a large underbanked population, meaning that most use cash payments. Currencies are also different in each country. So, in terms of user experience, retailers must offer the correct local payment methods, which they can do with the help of local partners, and be sure to show prices in local currencies. Dollar prices can fluctuate a lot, so people may not be sure how much they’re going to pay for something.
Finally, logistics costs can sometimes be expensive due to weak infrastructure, and run up to about 15 percent of the cost of the sold merchandise. However, partnering with local transportation companies can help reduce logistics costs and overcome these issues as well. For merchants of digital goods, logistics isn’t much of a challenge, since their products are delivered entirely online.
At the end of the day, Latin America offers retailers and other merchants from across the globe new and exciting opportunities for growth—but only if they go about it the right way. This starts with thinking of Latin America not as a single market, but as a collection of unique markets. So, when setting out on a quest for the modern El Dorado, companies should use this as a map for their journeys.
Ebanx provides online payment processing in Latin America, including enabling clients to accept some 100 payment methods.
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