COVID-19 and the e-commerce market in LatAm

How have changes in customer habits impacted Latin America’s e-commerce sector during the pandemic?

The arrival of new buyers on e-commerce platforms since the start of the COVID-19 pandemic has led to major changes in purchasing trends, logistics, marketing and payment methods around the world. In Latin America in particular, e-commerce has been the salvation of many small and medium size businesses, which are the engines of the regional economy.

 

Amidst lockdown measures, economic disruption, and some of the world’s most severe COVID-19 outbreaks, e-commerce has been a source of significant resilience for businesses across the region’s economy, particularly in the retail sector.

 

Across our payment platform in Colombia for example, more than 20,000 SMEs have shown exponential growth in online sales due to the new developments in e-commerce during the pandemic. At a sector level, our data shows that verticals such as Furniture, Clothing, Food & Drink, and Hairdressers/Beauty Salons grew between 200 and 300% from January to July 2020 compared to the same period in 2019.

 

Spurred on by this encouraging news, last fall PayU’s Colombia-based team took a broad-based look at the pandemic’s impact on e-commerce across six markets where we are active in LatAm (Argentina, Brazil, Chile, Colombia, Mexico, and Peru). This summary collects the lessons that have been learned and the challenges that still lie ahead for the sector.

A chart showing the increase in transactions on PayU's platform from January to July 2020

The big picture: E-commerce during COVID-19 in LatAm

The e-commerce sector in Latin America has reached all-time highs since the beginning of last year’s quarantines. According to a Kantar study at the regional level, in just the first week of lockdowns last Spring, e-commerce penetration increased by 100%, while by the fourth week it reached 387%, which quickly positioned Latin America as the second fastest-growing e-commerce market in the world, surpassed only by Southeast Asia.

 

At PayU we have seen clear evidence of this on our payments platform across the region. As summarized in our report, merchants on our platform went from having 5.1 million monthly shoppers on average (February to March 2020 – before the pandemic) to a total of 8.9 million by July of last year.

 

 

LatAm e-commerce trends during COVID-19

The acceleration of e-commerce sales has also led to new developments in user behavior and trends based on the experiences of the rapidly growing e-commerce user base. The following are trends we are observing from merchants and customers across PayU’s Latin American markets:

 

  • Omni-channel (going from online to offline). Many first-time online sellers in LatAm are starting with the creation of a marketing strategy through social networks as well as an online concept to sell physical products. To achieve this, many companies collaborate with influencers, which not only generates positioning but also provides opportunities for effective marketing automation.

 

  • Diversity in consumption patterns. Most online sales In Latin America are made through social networks integrated to mobile phones (m-commerce). In most cases, users see the products in a banner on Instagram or Facebook and then go to the store’s app or website. However, depending on the product, searches are sometimes conducted via Google. It is therefore advisable to have all social networks well-integrated.

 

  • Use of Artificial Intelligence. Many companies rely on tools such as Facebook Pixel to optimize marketing based on customer behavior.

 

  • Bringing products closer to the customer. Today more than ever, it is necessary to master logistics in order to reduce costs and shipping times. To address this need, some companies have created their own distribution centers or are choosing to work with third parties closer to their new market niches.

 

  • Hyper-personalization in products and services. Interactivity and creative tools have become paramount for user experience (UX). As an example, many clothing retailers have been integrating options such as the opportunity to dress up their own avatar using the store’s products.

 

  • Fast payment methods. One-click payments will be especially important in the coming years, especially in mobile commerce. On smartphones in particular, it is common for consumers to keep all of their payment accounts integrated, so there are already tools that allow purchases through simple security authentications like Touch ID. Payment tools that support merchants in offering a wide range of fast, locally-relevant payment options will be especially important for businesses interested in selling online into the LatAm market in the years to come.

 

  • Ever-expanding use of video. More than ever, video is being leveraged as an effective tool to create reputation and brand value in social networks (the shorter and more direct the better).
An overview of e-commerce growth by sector on PayU's platform in LatAm from January-July 2020

Lessons learned from e-commerce in LatAm during the pandemic

As can be seen in the figure above, different sectors in Latin America have responded differently to the pandemic. Unsurprisingly, market verticals like Department Stores, Fashion, and Delivery have seen massive increases in online sales since March 2020. But as PayU’s platform data across Latin America shows, nearly every market sector has seen at least some increase in online sales.

 

For global merchants interested in Latin America, the e-commerce landscape across multiple verticals is clearly one of opportunity. Adding context to the sector level data, here are a few of the bigger picture insights our team has taken away in the last year regarding the development of e-commerce in Latin America:

 

  • The importance of m-commerce. Smartphones have been a big factor behind the growth of e-commerce in LatAm and other emerging markets – particularly in rural areas as well as for the large unbanked population in many Latin American countries.

 

  • The relevance of cash payments and other alternative payment methods. Alternatives to credit cards are important for reaching LatAm customers: 36% of online consumers prefer to use PayPal and 35% prefer cash on delivery.

 

  • UX is more important than ever. Good UX (especially for m-commerce) is particularly important in a region where many customers are just getting used to online shopping. This can especially help to maintain the loyalty and trust of users when faced with shipping delays, technical glitches, and other inevitable inconveniences.

 

  • Embrace first-time customers. Related to the previous point, merchants must be commercially savvy and aware in general when it comes to building online business strategies for those users who were technology-shy before the pandemic. Pricing rules. Prices continue to be a determining factor for many Latin Americans when it comes to retail: the success of many online clothing and delivery stores in 2020 can be attributed in part to discounts of more than 50%.

 

  • Get creative when it comes to infrastructure. Latin America has historically faced issues related to logistics, transportation and infrastructure. At a macro level, this is not helped by the fact that cross-border shipping costs and procedures for exports are often delayed and expensive. With this said, there are still innovative ways that merchants can seek to improve fulfillment, such as:
    • Having a master plan with a long-term vision and defining what degrees of automation are needed along the shipping and fulfillment journey.
    • Optimizing the fulfillment network according to the coverage and channels required.
    • Seeking balance between the efficiency of centralization and the effectiveness of being close to the customer.
    • Using data analytics to predict what demand will be like and optimize stock accordingly.
    • Designing fulfillment processes in conjunction with your commercial strategy.

 

 

Looking ahead

The data for PayU’s COVID-19 report in LatAm was compiled during the first wave of the pandemic – since then, the LatAm e-commerce sector has continued to grow rapidly, fueled in part by a strong 2020 Black Friday as well as national-level efforts to boost the economy.

 

Meanwhile, a year after the first lockdowns, disruptions to public life still persist, leaving an uncertain outlook for when the COVID-19 pandemic will truly be able to be considered “over”.

 

Whenever that time comes, the world we will encounter will be very different from the world of 2019 and early 2020. The rapid advancement of e-commerce across LatAm and other emerging markets is one change that is here to stay.

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