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Brazil and China: Emerging online retail powerhouses

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Take a guess: Which are the five largest markets today in terms of online users? The US? The UK? Germany? Actually, try China, in first place with 369 million online users, followed by the U.S. (253 million), then India (133 million), Japan (104 million) and Brazil (91 million). And, as Zia Daniell Widger of Forrester Research stressed in the Retail's BIG Show session "Global eCommerce 2012" this morning, these are active online users. Global online retail hasn't remotely hit its full potential yet – by 2015, Forrester expects online retail sales to be coming from all of these markets (and many more), driven by compound annual growth rates (CAGR) ranging from 22% in China and 18% in Brazil, to 20% in Mexico and fully 53% in India (compared with 9% for the U.S. and 10% for Western Europe). 

While I don't want to overwhelm with data, to understand why there is so much interest in two markets in particular – China and Brazil – a few numbers provide perspective:

  • In Asia, 41% of all online users live in China. Similarly, in Latin America, 41% of all online users live in Brazil. According to CNN Money, China and Brazil rank as the world's two largest emerging economies in terms of GDP: China at $7 trillion (second only to the U.S., at $15.1 trillion), and Brazil at $2.5 trillion (that's on par with the U.K.).
  • Forrester expects the Chinese online retail market to grow from $94.6 billion this year to $159.4 billion in 2015 (this includes both the business to consumer and the consumer to consumer markets). While smaller than China, the Brazilian online retail market is the largest by far in Latin America, and will grow from $11.9 billion this year to $22 billion by 2016.
  • In both countries, online consumers across all age groups are shopping online, though on average tend to skew younger than in the U.S. Most online buyers live in major metropolitan areas. Mobile penetration is very high in both markets – though shopping via mobile phone is not yet common practice. Non-local retailers entering China and Brazil will face markets dominated by local players – global retailers have yet to become a major contender in either. Furthermore, consumers are accustomed to cheap or free shipping (so much for that as a differentiator!). And while multichannel shopping is not really in place yet, Zia's take is that there is much growth ahead on that front.

So – sounds like lots of potential for retailers exploring e-commerce opportunities outside their home markets? Panelists Angela Kapp of Shenzen, China-based Hui She Shang (The Luxury Club) and Gastao Mattos of Braspag in Brazil say yes – but it's important first to understand the local market, customer preferences, culture, payment systems, logistics, and regulatory issues in order to succeed long term. While I cannot do justice in a single blog post to the wealth of information that the panelists provided today, herewith are a few highlights:

How do Chinese and Brazilian consumers shop online?

Gastao noted that Brazilian shoppers are driven by promotions, and that free shipping is common practice. Brazilian online retail for now tends to be dominated by categories such as consumer electronics and computer-related goods. Brazilian consumers mostly use credit cards to buy online, and installment payment plans are a "promotion driver, but with a high negative impact on margin," per Gastao. Social media is very popular in Brazil, but so far has had a low direct impact on online sales. Angela emphasized that in China, price comes first and foremost, and competition on price is "fierce".

Chinese consumers buy a wide variety of products across categories: fully 25% of online sales in China are for apparel and footwear, including children's apparel. In terms of customer service, consumers mostly use online chat, with only 20% of consumers using email (or "EDM – electronic data mail", as it's referred to in China). Union Pay estimates credit card usage in China at just 15%, so third party payment systems dominate the market: Alipay leads with over 200 million accounts. Social media is very popular (even without Facebook!) but tends to be more content sharing sites such as market leader Sina Weibo, as well as Qzone and Tencent.

How about the competitive marketplace?

As noted earlier, local players dominate both markets, and even for global players such as Amazon (newly entered in Brazil), competition will be high. With prices for goods in mainland China 30 to 50 percent higher than in other markets (even Hong Kong), Angela sees international brands succeeding partly via their expanding network of stores around China, allowing them to develop a multichannel experience.

What about fulfillment logistics?

Gastao pointed out that e-commerce sales are growing more than 25% annually. There are only seven logistics companies in Brazil involved in e-commerce, and the trouble is that their growth is not keeping up with that 25% market growth. In China, local courier players dominate outside Tier 1 cities. Angela noted that 360Buy "has perhaps the best system, with more than 14 warehouses, covering 200 cities and 120 collection stations." The Chinese government also has laws in place to let consumers easily make returns. As Angela remarked at the very outset of this session, "We [US businesses] tend to want to drive the agenda. [Instead,] listen first, learn first." Wise words, indeed.