To conduct our global eBusiness research at Forrester, we rely heavily on support from our multilingual group of Research Associates and Researchers. Recently, one of our Research Associates, Lily Varon — whose family originates from Peru — spent two weeks in the country and emailed us with her take on the state of eCommerce. Given that an increasing number of our clients are eyeing the online retail markets of Latin America, I thought it would be interesting to hear Lily’s observations of what’s happening in the region’s sixth-largest economy.
“Here are a few high-level findings from my travels:
Consumer adoption of online shopping in Peru remains low. The lack of online shopping is largely due to the fact that it’s just not customary, but also due slightly to the fear of putting personal financial information on the web. Retailers are encouraging consumers to overcome these barriers by prominently displaying payment and security information on the website, as well as educational information such as FAQs, step-by-step shopping, and payment instructions or YouTube videos explaining the shopping and checkout processes.
Last Sunday my washing machine broke down. And for a family with young children, a washing machine is right up there with shelter and food in Maslow's hierarchy of needs.
As the shops are closed on Sundays in the Netherlands, I turned to the Internet to look for a new one. And because I wasn't very satisfied with my old brand, I was looking for another with similar features but (hopefully) better quality. Within minutes I was completely lost in washing cycles, special programs, and all the other fancy features washing machines have nowadays. I clicked picture after picture, trying to enlarge to see the controls, with little success. But I was saved by video. I came across a site that shows a video of each of the products they sell — how they work, what they do, the control panel, explaining what the fancy features mean, and so on. This information, together with the price, helped me decide which washing machine to buy (at that site, of course).
China has become the leading emerging market for many Western brands and retailers. For many businesses, the growing spending power of high-income consumers and the middle class in China has become a compelling growth engine. For luxury brands, China is already a huge growth market, and many Western companies have had a brand presence in China for many years, albeit often with counterfeit products and even whole counterfeit stores. But as the economy grows in China and consumer thirst for foreign brands increases, companies will be compelled to consider an online direct-to-consumer presence due in-part to the following factors:
The scope of the Chinese market is immense. Not only is China one of the largest in the world by area, it already had more than 171 cities with more than 1 million inhabitants as of the country’s last census, which has likely increased markedly in the last 10 years. While launching physical stores in core markets such as Beijing, Shanghai, Chengdu, Guangzhou, and Shenzhen may be feasible, reaching even just the top-tier cities is extremely challenging operationally, particularly for a Western brand or retailer. eCommerce presents an important way to reach consumers across the entire country while complementing any decision to invest in core physical retail operations.
It seems online marketplaces are cropping up everywhere. Retailers, software companies, media companies, and consumer electronics makers are using marketplaces as a means to enhance and augment their own offerings with products made, owned, and distributed by third-party retailers, distributors, developers, and brands. The most successful examples of these today are of course Amazon’s Marketplace, eBay, Apple’s App Store, and Valve’s Steamworks. But based on numerous inquiries of late, soon we will see many, many more marketplaces online. Key reasons why we are seeing the proliferation of marketplaces in the next 18-24 months:
For retailers, it’s about growing the assortment without the inventory risk. Larger scale pure-play online retailers and multichannel retailers look to the significant growth of Amazon.com’s marketplace — which today comprises approximately 35% of Amazon’s gross retail sales — and wonder if they could also benefit from a marketplace. Adding a marketplace provides the opportunity to extend the product assortment and available pool of inventory without taking on the inventory risk and expense of merchandising, buying, warehousing, and shipping an assortment in unproven categories. For some it may be even a way to bring licensed products under a brand umbrella. Amazon’s model is to take roughly half the margin of the products sold — based on expected margin by category — as the fair value of driving that demand, but they bear none of the inventory sourcing, carrying, or logistical costs.
I was thrilled to be back in São Paulo last week visiting with different companies in the eCommerce space. I met with over a half dozen online retailers, as well as other players in the industry including payment providers and market entry specialists. It was also great to have the opportunity to speak at Rakuten’s event on April 24th announcing their official launch in the country.
Below are a handful of takeaways from the trip:
Online momentum is building in categories such as apparel and beauty. In markets like the US and the UK, apparel represents a significant percentage of total online sales. In Brazil, by contrast, this category is just starting to take off, with online sales currently representing a very small percentage of the total market. As issues such as inconsistent sizing are increasingly addressed, however, and new entrants boost the market, the online apparel sector is set to grow substantially. Likewise, there’s much talk of growing beauty sales in Brazil (the country is set to surpass Japan to become the world’s second largest beauty market) – as with apparel, online beauty sales are a tiny fraction of the total today, suggesting substantial growth opportunities going forward.