In Latin America, It's the Auction Sites, Stupid!

FORT LAUDERDALE, FLORIDA (10/10/2000) - Going once, going twice ... vendido! The top spot among online retailers in Latin America goes to auction Web sites.

A new study has found that most Internet retail sales in Latin America are brokered by auction Web sites, which typically connect individual buyers and sellers. This means that the so-called consumer-to-consumer category of electronic commerce is larger in Latin America than the more traditional business-to-consumer model, in which a company sells its products and services to individuals.

The finding comes from a new study conducted by the Boston Consulting Group market research and consulting firm and commissioned by Visa International Inc.

The amount of online retail sales handled by auction Web sites in Latin America is expected to explode from US$12 million in 1999 to $192 million in 2000. Why? It appears that auction Web sites in Latin America have spent heavily on marketing. Also, the process of paying for products and delivering them tends to be simpler for users at auction sites than at other types of online retail stores.

Sites that sell hardware and software to consumers are expected to come in second as a category. These sites will generate a combined $72 million in retail sales in the region. They will be followed by financial services sites ($61.5 million) and by online stores that sell books, music CDs and videos ($59 million), according to the study.

The overall growth of online retail sales in Latin America is expected to be strong this year. The region, which generated US$109 million in 1999, is expected to post a 432 percent increase in online retail sales, to $580 million, according to the study.

Users in Brazil, the region's largest country and economy, will make the bulk of those purchases: $300 million. México will follow with $91 million. Argentina will come in third with $82 million in online retail sales.

While this growth rate is a positive development in e-commerce for the region, the study does point out that Internet connectivity remains a costly proposition to many Latin Americans. Currently, it is estimated that no more than 3 percent of the region's estimated 500 million residents have access to the Internet, according to several market research firms, a big impediment to the future growth of online sales.

"While Internet access costs in the last year have fallen 23 percent, 20 percent and 8 percent in Argentina, Brazil and Mexico, respectively, these declines are not enough to entice a critical mass of consumers online," a BCG statement reads, referring to the region's three largest Internet markets.

This is not the only obstacle to e-commerce in Latin America. Attempts from BCG staffers to buy from online retailers serving the region revealed a low level of customer service quality. For example, BCG staffers sent e-mail to 118 online retail stores, and almost half of the stores didn't reply. And about 42 percent of products bought by BCG staffers arrived late.

BCG also notes that there are too many online retailers in Latin America, about 1,300. Of these, 20 command about 73 percent of online sales, a sign that most online retailers will either disappear or be bought by the leaders.

The study recommends that online retailers focus on establishing a firm footing in specific countries, instead of aiming at becoming a pan-regional player. "The cost of entering a number of Latin American markets at once will not generate the kind of scalability that leads to profitability," according to BCG's statement. Retailers should also be prepared to accept methods of payment other than credit cards, which account for about 60 percent of transaction volume.

BCG can be reached at http://www.bcg.com. Visa can be reached at http://www.visa.com.

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