The Covid-19 pandemic prompted substantial growth in Latin American e-commerce, as more and more consumers stayed home and turned to online shopping via mobile devices. Countries in the region responded by boosting regional initiatives to foster e-commerce, leading to vibrant market development for both domestic and foreign traders. In 2020, Latin America became the world’s fastest-growing region for e-commerce, with major companies like Amazon and Mercado Libre emerging as the big winners.
With the easing of Covid-19 restrictions, Latin America is once again set to experience promising growth in the short to mid-term. The region is expected to grow no less than 2.5% annually over the next 10 to 15 years, outpacing the US, Europe, and East Asia. The renewed confidence, increased disposable income, and rapid adoption of technology among Latin Americans has made this region more ready than ever to take part in a global marketplace, and major international e-commerce companies are beginning to take note.
Last year, over 400m potential e-commerce users were online across 17 countries in the region. The Covid-19 pandemic has only accelerated the growth of this figure, which rose to around 20% in online sales and mobile subscriptions in Latin America expected to extend to 484m users by 2025.
Retail e-commerce in Latin America is still in its infancy, relatively speaking, and still represents only 2.5% of all retail spend, compared to 10% in the US and 20% in China. The sector should be fuelled by the entrance of international competitors and falling prices: in addition to the growing expansion of Amazon, the entrance of Chinese retailers such as AliExpress, Wish and Deal Extreme will make products more and more accessible and affordable to Latin American consumers.
In this article we’ll take a look at some of the trends characterizing e-commerce in Latin America today, which no company looking to enter this promising marketplace should overlook.
The state of e-commerce in Latin America today
Brazil and Mexico are the biggest e-commerce markets in Latin America, both in terms of GDP share (33% and 25% respectively) and population (200m and 130m respectively). Meanwhile Chile has the highest per capita income among the top 10 Latin American economies (US$13,000), followed by Costa Rica ($12,000), Argentina ($8,500) and Mexico ($8,500, just above the region’s average per capita income of $8,100).
The Brazilian e-commerce market, often considered a bellwether for the region, rose by 5.29% in June 2022, mainly driven by the tourism, cosmetics and marketplace sectors, which rose by 14.3%, 11.9% and 6.3% respectively. According to the SEO agency Conversion, access to e-commerce via apps has grown significantly over the past few months, with combined visits via apps and websites totalling 24.3bn over the past 12 months.
Conversion’s study also notes that the most notable e-commerce brands and sectors among Brazilian consumers – i.e. those with the greatest Share of Search and overall market participation – are Amazon (59%, Imports sector), Petz (44%, Imports sector) and Stanley (42%, gifts & Flowers sector). This reflects a more optimistic scenario attributed to overall growth the Brazilian e-commerce and physical stores, and an economic rebound.
Meanwhile, a monthly regional survey has ranked the leading e-commerce retailers in the country in terms of audience share, both overall and by category. The current overall ranking is as follows:
- Mercado Livre (13.7%)
- Shopee (9.6%)
- Amazon Brasil (5.6%)
- Americanas (4.9%)
- Magalu (4.8%)
- AliExpress (3.6%)
- iFood (3%)
- Casas Bahia (2.8%)
- Netshoes (1.9%)
- Shein (1.4%)
Horizontal vs. Vertical E-commerce in Latin America
E-commerce in Latin America can come in all shapes and sizes and still be successful. One example of this diversity is the difference between horizontal and vertical e-commerce businesses operating in the region.
Simply put, horizontal e-commerce businesses sell products from a wide range of categories. Amazon.com is probably the most well-known example, as it sells books, furniture, food, grocery, apparel, toys, software, music, gadgets, and much more besides. Horizontal e-commerce businesses are often marketed to the consumer as a “one-stop shop”, and highlight convenience as a selling point while typically leveraging supply chain and scale advantages to be able to offer the best prices in the market.
One such example in Latin America is MercadoLibre, an Argentinian e-commerce giant with operations in 18 Latin American countries, which is often touted as the “Amazon of Latin America”. Like Amazon, it started off as a strictly e-commerce operation, and has since moved into different areas – such as payment platforms – to create a holistic digital ecosystem.
On the other hand, vertical e-commerce businesses are specialists: think of companies which only sell baby products, or only sell shoes, for example. These companies rely on being able to better showcase their specific product than their horizontal counterparts, by focusing on one, or few, product categories and highlighting its special features. An online pharmacy for over-the-counter products, for example, should (in theory) be able to provide more accurate and pharma-appropriate product descriptions than a major, multi-category retailer, and this specificity works in their favour among consumers.
Petz is an example of a thriving vertical Latin American e-commerce company – a retailer of pet products whose shares have appreciated 96.2% and market value jumped from R$ 5.1 billion to R$ 10.6 billion over the last 12 months, thanks to advances in digitization and their multichannel footprint in multiple Latin American countries.
The importance of mobile apps
Last month, 74% of visits by Brazilian consumers to e-commerce platforms were made via smartphones. This trend is set to grow due to the region-wide expansion of fast internet for Latin Americans on the move. 20.8% of these visits came through dedicated e-commerce smartphone apps.
These days, mobile apps play an increasingly important role in building relationships between businesses and their customers in Latin America. Mobile e-commerce apps provide better insights into customer requirements and profiles than their web or mobile web equivalents, and can be used by business owners to target customers anywhere, at any time.
Developing mobile eCommerce apps lends e-commerce companies greater brand visibility, and allow them to better connect with their customers, most of whom spend a great deal of time surfing the web on their mobile device. But mobile apps can come at a price if the user experience is poorly thought-out: small screens tend to make users irritated faster than experiences via desktop or in-person, and around one third of mobile users will uninstall an app if they don’t find it easy to use. This explains why the e-commerce leaders have invested in offering a high-quality mobile app experience to their customers, and why marketplace pretenders should aim to follow suit.
The average online buyer in Latin America tends to use Android over iOS by a margin of about 80%, although iPhone users tend to be more loyal. And consumers don’t spend much time window-shopping online: almost half of all internet users in Latin America never go past page one of the Google search results, with almost 20% never looking past the top three results (whether or not these results are ads). This means brands need to make sure their name is at the very top of the first of the Google search results, by using SEO (search engine optimization) and ASO (App store optimization) tactics.
For most foreign investors, Latin America is associated with ‘old economy’ industries such as oil production and basic materials. But as we have seen, the region is also a hotbed for e-commerce and private entrepreneurship, which are increasingly stealing the spotlight. Advances in digitization have resulted in a growing e-commerce marketplace which shouldn’t be overlooked, as well as distinct consumption habits among Latin Americans which newcomers to the region need to take into account.