Brazil is the largest internet retailing market in Latin America. Euromonitor estimates that internet retailing sales totaled US$13 billion in Brazil in 2016, compared to approximately $4.6 billion in Mexico, the second-largest internet retailing market (both figures excluding VAT). Amazon has had full retail operations in Mexico since July 2015. Approximately 5.5% of all retail sales in Brazil were done online in 2016. The size of the internet retailing market, combined with the fact that consumer spending in Brazil should improve over the next five years as the country gradually emerges from economic crisis, makes Brazil an attractive target for e-commerce companies.
The timing of Amazon’s launch, announced on October 18, in Brazil is significant. As in many countries, the last quarter of the calendar year is an important season for retailers in Brazil. Brazilian law mandates that employees must be given an end of year bonus in the form of a “thirteenth salary” – a bonus equivalent to an additional month’s salary, paid out half at the end of November and half at the end of December. Correspondingly, retailers have developed a series of shopping holidays during this time of the year, including Black Friday and Cyber Monday (which are borrowed holidays from the US), Christmas shopping promotions, back-to-school promotions in January, and general summertime promotions. By expanding operations in mid-October, Amazon will be able to take advantage of these holidays.
Why is Amazon focused on electronics in Brazil?
Until Wednesday, Amazon sold only books and Kindle devices on Amazon.com.br, the company’s Brazilian website. With the expanded operations, Amazon is now promoting a “nova loja de eletrônicos”, or a “new electronics shop”, including phones, televisions, cameras, videogame consoles, and other electronics and accessories. This is a category Brazilian consumers are already accustomed to purchasing online: electronics are the most popular category within internet retailing in Brazil, accounting for approximately 30% of internet retailing sales in the country in 2016 according to Euromonitor. It seems likely, however, that additional product categories will begin to appear on Amazon.com.br in the short- to intermediate-term.
Why will Amazon rely so heavily on third party sellers in Brazil?
Amazon has not announced a new warehouse for Brazil, and all electronics and videogames are now being sold on Amazon.com.br are via third party sellers. As of this writing, Amazon has not commented on why they will not stock their own inventory or have third party fulfillment services in Brazil, or when such services might be introduced. One hypothesis is that as Brazil has a notoriously complex business environment, less direct operations appeal to Amazon (at least in the early days of its expanded Brazil operations). By providing the platform via which other merchants can sell their products, but not providing its own inventory, warehouses, or logistics services, Amazon’s role is somewhat simplified.
Which companies will be most affected by Amazon’s expanded activity in Brazil?
In the short-term, Amazon’s increased focus on Brazil is likely to be a driver of overall growth of internet retailing in Brazil. Amazon’s expanded operations will likely draw new consumers to e-commerce and increase the spending of existing consumers. It will also likely increase consumer expectations for logistics and returns, which Amazon is known for. In the intermediate-term, large local and regional e-commerce players such as MercadoLibre and B2W Cia Digital will see increased competition. Store-based players in Brazil will also need to be proactive in adapting their strategies over the long-term as well.
How is Amazon’s strategy in Brazil different than in Mexico?
The launch of Amazon’s expanded operations in Brazil is very different from its 2015 launch in Mexico. The Mexico launch was highly publicized to shareholders, media, and consumers. An open letter from founder and CEO Jeff Bezos to consumers in Mexico was published on Amazon.com.mx. The letter highlighted that Amazon was “launching with more categories, more items, and more functionalities than in any prior launch that [Amazon] had done anywhere else in the world. [Mexican consumers] will find a wide selection of products, from electronics, sports and recreation equipment, even DVDs and videogames… even an avocado storage container.” Brazil’s expanded operations, by contrast, took place with very little fanfare and focused on electronics and videogames.
The operations and logistics component is also very different between the two. Amazon Mexico offers inventory sold by Amazon Mexico, as well as products sold by Amazon in the US which can be shipped to Mexico, and also products sold by third party merchants. Amazon Mexico’s seller plan is oriented towards professional (or at minimum, serious) sellers, who have the option of handling distribution themselves or using Amazon’s fulfillment services. In Brazil, Amazon’s expanded product coverage is managed entirely by third party sellers. Amazon Brazil offers distinct seller plans for professional and individual/amateur sellers. At this time, Amazon Brazil does not offer fulfillment services.
One key similarity between Amazon’s Mexico and Brazil operations is with regards to payments. Despite the strong popularity of cash on delivery, paying at a third party location (such as an Oxxo in Mexico or via a boleto transaction in Brazil) or utilizing payment platforms such as MercadoPago and PayPal in both markets, Amazon accepts only credit, debit, and pre-paid cards as methods of payment in both Brazil and Mexico.
Note: Euromonitor International defines internet retailing as the sale of consumer goods through online channels, excluding sales of services such as travel purchases and media subscriptions