E-commerce in Retail: strengths, challenges, and trends
It is said that a crisis is a time for a change, and in the retail sector there was no greater transformation during the pandemic than the irruption of e-commerce.
Now, the type of crisis we are facing is of a different nature: inflation and the warning of a possible recession are causing the retail sector's challenges to escalate and change rapidly –including e-commerce.
Despite this complexity, e-commerce in the sector is strong, as data indicate that growth expectations in Latin America will continue to rise until 2025.
According to data from Euromonitor International, Peru leads with a projected growth of 87%, followed by Brazil with 61%, Colombia with 53%, and Mexico with 50%; in total, it is estimated that by 2025 the value of this market in the region will be $160 trillion USD.
In this scenario, we undertook the task of investigating the state of the industry, how retail adopted e-commerce as one of its main tools, as well as the trends that will mark the future of these businesses.
And, finally, to propose a complete financing solution for the retail sector.
Retail and e-commerce: a marriage made in confinement
Our consumer habits changed dramatically in the wake of confinement, which in turn acted as a catalyst for retail businesses to embrace e-commerce.
A stark fact: the average number of internet users who made online purchases increased from 53% before the pandemic (2019) to 60% after the onset of the pandemic (2020/21), in the 66 countries with available statistics, according to datafrom the United Nations Conference on Trade and Development (UNCTAD).
As a direct consequence of necessity, ordering groceries through an app, guessing our (possibly new) jean size to buy them on our favorite brand's website, or paying for basic services such as internet or electricity, became more and more frequent, to the point of becoming a daily occurrence.
Of course, these changes in the way of consuming goods and services meant an enormous area of opportunity for companies.
If we take the Mexican case as an example, we can observe that in 2019 (prior to the health contingency) 5.2% of the volume of all transactions in the retail sector happened online; on the other hand, it is expected that by the end of 2022, this percentage will reach 12.1%.
In terms of market size, we can observe it as follows:
Certainly, compared to other markets (such as the EU or the U.S.), the Mexican and Latin American markets, as a whole, may seem small. However, it is useful to analyze the conditions that the industry has to maintain a sustainable growth rate, as well as some of the obstacles it could face.
The state of the industry: new consumers, new technologies
For those who did not grow up with the technologies that make up the e-commerce ecosystem, the main barrier to entry was trust in the system: how secure is it to make a purchase on a website that asks for my name, address, and credit card details?
However, it seems that this concern –to which consumers have been gradually adapting– is not a sticking point for the new generations. On the other hand, it is important not to lose this trust under any circumstances.
The so-called Generation Z (1995-2000) is a key population segment for the future of e-commerce as part of the retail sector. According to a Deloitte survey, the keyword in this context is security:
"Privacy and the trust [e-commerce] engenders in the consumer about their personal data are paramount.".
The same study suggests that in order to adapt to these changes, retail companies will have to make investments in systems integration, adapting their logistics to their new sales channels, as well as the fiscal impacts that this implies.
Likewise, they should not lose sight of the fact that emerging markets, such as Latin America, still face obstacles such as digitalization gaps and lack of banking accessibility.
Therefore, retail companies that are best positioned for this new market are beginning to form alliances with B2B and B2C service providers to strengthen and bring financing and payment alternatives to consumers to their operations and build the necessary capabilities.
E-commerce trends: where should retail be heading?
At the beginning of this year, many retailers showed some optimism regarding their ability to recover from the past two years. Relying on technology and novel business models, the industry seized this opportunity to capitalize on new shopping habits among consumers.
But, as we know, a number of new challenges are shaping up in the near future: rising prices and inflation, shortages of raw materials, and consumers' cautious spending habits place the retail sector at a disadvantage.
Nevertheless, the future looks bright. New technologies are enabling a more immersive shopping experience, while consumer behavior is giving companies clues as to how to improve their products and business models.
In this regard, we want to share the trends that will mark the last half of the year –and probably the next.
1. New consumer habits of Gen Z
The labor entrance of Gen Z (1995 - 2010) positions them as target consumers of the sector. Knowing their needs and tastes will be essential for strengthening supply.
According to a study on consumer habits and behavior in Latin America prepared by the firm Llorente y Cuenca, although online shopping is predominant among this generation, confinement has caused them to increasingly seek in-store shopping experiences.
It will be important for suppliers to find a way to balance both sales channels to prevent them from canceling each other out.
2. Entry of traditional stores into the digital world
The lead taken by SMEs and startups in the adoption of digital retail is shortening with the entry of "giants" in e-commerce. Innovation and customer experience will be key differentials.
According to Forbes, Millennials and Gen Z significantly value incentives such as no-cost shipping, free and/or frictionless returns, as well as rewards for choosing where they shop.
This suggests that loyalty programs are an important differential.
3. Automated, ultra-fast shipping and payments
Consumers demand a frictionless, contactless, one-click, ultra-fast experience, as no one wants to spend minutes checking out at an online store.
In addition to the logistical challenge of meeting the demand for fast shipping, fast and secure payment processors are also important in e-commerce.
4. Fair trade and ethical consumption (circularity)
Consumer behavior is changing regarding the importance of sustainability and the environmental traceability of companies. According to a Wharton University study, 75% of Gen Z cares more about whether a product is sustainable than the brand.
Thanks to e-commerce, the retail sector has entered a stage of unprecedented growth. Companies will have to gradually join the trends that are shaping the direction of the sector, and adequate financing will be essential for this
How can we help you? Tribal and the retail industry
According to Statista data, e-commerce users in Latin America are expected to reach approximately 317 million this year, and by 2025, this figure is expected to grow by 13.6%, which would mean 361 million users in the entire region. Your retail company cannot be left out of this growth.
Still, we know that riding a wave of growth like the one retail and e-commerce are experiencing can involve complexities that only those on the inside know in detail.
Constant market fluctuations can mean that, as the leader of a company, managing your finances can be a real headache. That's why you should be prepared so that when you need to invest in improving your business operation, you have the right partner to keep you ahead of the competition.
When you least expect it, your company is forced to invest more and better manage financial resources to stay ahead of the competition.
We know that getting a financial solution that fits your business needs is not easy, especially because of the barriers to access that traditional financial institutions have.
That's why we designed a 360 solution to help you take your company to the next level. Start now and do better business with Tribal.