Seven years after entering Brazil, Amazon hopes to gain traction against a few established local competitors, who have extensive delivery networks, strong brands and a deep understanding of the Brazilian consumer base.
“When Amazon.com Inc. announced it was rolling out its popular Prime delivery subscription service in Brazil last month, shares of local e-commerce competitors tanked.”
With two distribution centers and a more limited selection than its Brazilian counterparts, Amazon has not been able to fully compete with MercadoLibre Inc. and Magazine Luiza SA.
In an effort to gain traction, Amazon has chosen to lure in customers with Prime services. The company is betting that if Brazilians get hooked on Alexa and Prime’s entertainment offerings—tailored for local consumption—they will start shopping on Amazon, too.
RBC Capital Markets Analyst Mark Mahaney stated,
“It’s an important market for them to succeed… It’s one that they recently made a major initiative into, and it’s a bit of a test on how globally receptive consumers are to Amazon’s value proposition” (Bloomberg
Mahaney told Bloomberg
that Brazil is probably Amazon’s second-most important international outpost. According to Nielsen’s e-commerce researcher Ebit, mobile shopping represents 43% of online purchases, compared with 5% five years ago.
Amazon is becoming increasingly reliant upon its international operations - which last year generated 28% of revenue - to help mitigate slowing sales growth in the domestic market.
On Thursday, Amazon posted its first year-over-year quarterly profit decline since early 2017 after acknowledging that it was spending more than expected on an ambitious effort to speed up deliveries (Bloomberg
In Brazil, the largest—and only pure e-commerce player—is MercadoLibre.
“If you talk to any company that delivers all over Brazil, it has a network that it developed with a series of partners… We’ve nailed it.” says Chief Operating Officer Stelleo Tolda.
According to Bloomberg
, MercadoLibre plans to spend more than $3 billion Reais (USD $748 million) next year on financial services and opening more distribution centers that will let it expand next-day delivery to at least 16 cities.
Amazon doesn’t need to dominate Brazilian e-commerce to succeed in Brazil. According to Euromonitor International, online spending is anticipated to grow 87% to $128.7 billion Reais by 2023, meaning Amazon could generate new international revenue, even if it doesn’t take share from local rivals.
As long as spending continues to shift away from stores towards websites and smartphones, the company stands to benefit simply by being a viable option.
In August, Amazon’s Brazil Country Manager Alex Szapiro suggested little urgency.
“We’re in no hurry… what happens in the United States today took 25 years. We want to do it fast, but doing it right is more important than doing it fast.”