Thursday, 28 Mar 2024

Amazon Sees in Brazil Continent-Size Profits and Problems

SÃO PAULO, Brazil — Its market value briefly surpassed $1 trillion. It has transformed online shopping. And it has had North American cities holding out billions to deliver its new outposts to their doors.

Expansion south, into the nation where Amazon’s namesake river ends, may prove a little harder.

“Amazon is still kind of irrelevant here,” said Raul Prado, a vendor in the rural town of Guaipava, Brazil, who has relied on online retail sites to build up his business. Less than 1 percent of his sales are through Amazon.

Brazil, home to more than 200 million people and the world’s eighth-largest economy, is in many ways an obvious target for Amazon’s next major expansion. Google and Facebook have done well in Brazil, but their digital services — search, social media and advertising — do not have to overcome the hurdles of selling goods and making deliveries.

As a retail behemoth wading into the market, Amazon has found itself playing catch-up with local rivals that know how to navigate Brazil’s distinct challenges: a complicated tax structure, high import costs and the headache of moving goods across a continent-size country.

“Brazil is really kind of the natural next country in terms of sheer size,” said Cooper Smith, who was the director of Amazon research at Gartner L2, a business intelligence and research company, but has since left. “It’s a huge opportunity, and they are laying the groundwork for that today.”

Next year, he said, “Amazon is going to be all about Brazil.” His prediction came with a caveat: “But it’s no small undertaking.”

Amazon has been present in Brazil’s online retail market since 2012, but until recently it focused on selling books and its Kindle e-reader. A little over a year ago, Amazon made a splash when it expanded to let third-party brands sell electronics directly to consumers on its marketplace.

Shares in local competitors tanked following the news, but they later rebounded when it became apparent that Amazon wasn’t on the cusp of rolling out the services that have helped make it a market leader in the United States: first-party sales, by which brands supply Amazon with products and Amazon is the retailer; and its fulfillment service, which packages and ships products from the company’s warehouses.

“Amazon arrived a little late to the game,” said Marcel Motta, the Brazil director of the global research company Euromonitor International. Local, established companies, he said, “know how to get around the obstacles.”

MercadoLibre, for instance, the e-commerce leader that first began in Argentina and modeled itself after eBay, has been in Brazil for 19 years.

“We helped build e-commerce in this region,” said Cristina Farjallat, the head of MercadoLibre’s third-party marketplace. “We have portfolios of sellers and portfolios of consumers that no one else has.”

She said the company had lured more sellers to its site than any other online retailer by working with vendors to create the tools they need. MercadoLibre has a roster of 12 million vendors and its own fulfillment service, and is rolling out a payment service to bypass banks and credit cards.

The company helped Mr. Prado, the vendor, turn a modest business venture — selling satellite antennas door-to-door in his remote village, where cellphone coverage was virtually nonexistent — into a national enterprise, with 20 employees.

“Honestly, I had no idea what I was doing when I started, but MercadoLibre is the first site people open when they go on the internet,” he said. “They have the brand name, their own payment plan, the logistics infrastructure and they even offer loans to sellers.”

Mr. Prado, who created his company, Lojas Mineiras, in 2008, now offers his satellite and telephone products through nearly a dozen online retail sites. More than half of his sales are made through MercadoLibre.

That doesn’t mean it will stay that way.

This year, Amazon broadened its catalog of products, offering sporting goods, fashion and home accessories, and signed up some major brands — but all remain independently sold and delivered.

As of November, Amazon had just under 1 percent of the market share in Brazil, and was ranked 10th behind online retailers that offer both first- and third-party sales, according to Euromonitor’s research. MercadoLibre had 19 percent of the market share.

Experts say the window for Amazon to establish itself as a major player in Brazil is closing, which is why they expect the company to make a significant push in the next year. The question is whether it’s too late.

Mr. Smith said he had heard from industry sources, including investors, that Amazon had acquired a lease on a large warehouse outside São Paulo, Brazil’s biggest city; advertised more than 100 jobs, many of them high level; and started negotiations to sell American brands on its Brazilian site. Amazon declined to comment.

“Jeff Bezos has always harped on the idea that as Amazon saturates the U.S. market, he can go to emerging markets around the globe,” Mr. Smith said, referring to the company’s chief executive. “Clearly, it’s coming. Amazon wants to have boots on the ground in Brazil.”

But in some cases those expansions have been more challenging than anticipated — for instance, in India and China, where Amazon has struggled to compete with Alibaba, China’s biggest online shopping company. On Wednesday, the Indian government dealt Amazon a blow when it barred American companies from selling products supplied by affiliated companies on their Indian shopping sites and from offering exclusive products.

Amazon appears to be moving cautiously in Brazil: It has not had a new platform up and working in the country in time for the Christmas shopping season.

“Amazon wants all the pieces of its ecosystem in place first,” Mr. Smith said.

One of the major pieces is transportation. Brazil is larger than the continental United States, but its roads are poorly maintained and often flood during rainy season, and the state postal service is widely seen as inefficient and unreliable.

Magazine Luiza, one of Brazil’s top e-commerce companies, which began as a mom-and-pop store selling televisions, has said it had overcome these problems by leveraging its pre-existing and growing presence: It has 900 stores across the country.

Those stores, which now sell appliances, electronics and furniture to working-class Brazilians, are being converted into mini-distribution centers for Magazine Luiza, and help educate shoppers about the ease of online retail.

“Physical stores are a fundamental part of our platform. We have succeeded in cutting delivery time and price,” said Eduardo Galanternick, the executive director of e-commerce at Magazine Luiza. “When you go deep into the interior of Brazil, Magazine Luiza is often the only department store around.”

For example, thousands of rural families use the Magazine Luiza store in Grajaú, a city in northern Brazil’s soybean country, to order appliances and pick up online orders like diapers and brand-name cosmetics.

In addition to difficult competitors and terrain, Amazon will face thickets of regulation. Brazil’s convoluted tax structure can make delivering goods across state borders a costly affair, while high import tariffs have priced many foreign-made goods out of reach for all but the wealthiest Brazilians.

Nonetheless, the potential for growth — Brazil represents just 1.1 percent of global sales in online retail — is expected to attract major investments from Amazon and other companies.

Euromonitor forecasts that the Brazilian market will nearly double over the next five years to $35 billion, and some competitors will be squeezed out as obstacles to online retail are eliminated.

“It’s a question of Amazon conforming to our market,” Mr. Prado said. “Right now, they can’t compete. But you never know. I’ll keep offering my products on Amazon, just in case.”

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