Latin America Gears Up for an E-Tailing Boom - TheStreet

Latin American e-tailing, a small club now, is poised to erupt into a billion-dollar competitive arena as barriers are worn down and regional retailers tire of losing precious e-dollars to the U.S.

While there are not yet any pure e-tailers in the public markets, private-equity and stock investors are staking their bets now, hoping to find the Latin American

Amazon.com

(AMZN) - Get Report

.

Over 60% of Latin American private-equity investors surveyed by

KMPG

say that the Internet and e-business are their primary investment focus for the region over the next three years.

"The future of e-commerce is going to depend on traditional retailers and the logistics companies who will determine how much commitment they are going to put behind it," says Oscar Coen, president and CEO of

Yupi.com

, a LatAm Internet service provider set to go public in the U.S. next month.

Although data are hard to track in Latin America,

International Data Corp.

estimates that consumers spent a paltry $116 million on the Web in 1999. But as an indication of the boom in progress, IDC predicts this spending will jump to $1.7 billion by 2003. Moreover,

Boston Consulting Group

estimates that Latin American Internet sales will generate $3.8 billion by 2003.

Brazil is the biggest Latin American Internet market, representing 45% of regional Internet users and 88% of online retail revenues. Mexico is a distant second, with 18% of Internet users and 6% of revenues.

Many obstacles stand in the way of a complete transformation of regional buying habits to something similar to the U.S.' love of online shopping. High access costs, payment systems that often do not compensate for the lack of credit-card penetration, inadequate mailing systems, and high taxes and shipping charges conspire to make e-shopping an activity of the elite. And the elite's e-cash generally flows north.

Wealthy families in the region often shop outside of their countries, and many U.S. e-tailers have caught on to that trend, offering to ship products to Latin America. Roughly three-quarters of Latin Americans who shop online use ex-LatAm sites. Regional companies offering similar products would be able to stem this flow and keep revenues in more local markets.

E-commerce could also have the reverse effect by tapping into the U.S. Latino population's desire for Latin American products and sites in Spanish or Portuguese. The average income of a U.S.-based Latino is much higher than that of the average Latin American, meaning the more cross-pollination of markets, the more total sales and possibly -- gasp -- profits.

As infrastructure and cost issues are being addressed through greater privatization and competition, Latin entrepreneurs and savvier established companies are starting to set up e-shop using successful U.S. models.

Submarino.com

, with offices in Argentina, Brazil, Mexico and Spain, wants to be the leading e-tailer for Spanish- and Portuguese-speaking consumers. Like the newer, more diversified Amazon.com, Submarino.com sells books, CDs and toys.

"Maybe we sacrifice quality for the sake of speed in the land-grab moment. Now is the time to get market share," says Antonio Bonchristiano, CEO of Submarino. "We are using the Amazon model, but slightly different as we have a very local solution in each country with local vendors and local products."

Pure e-tailers like Submarino have an advantage over bricks-and-clicks retailers because Internet plays attract more venture capital. But bricks-and-clicks folk, such as Mexican supermarket wizard

Cifra

( CFRVY) or Brazilian supermarket and online CD vendor/bookseller

Companhia Brasileira de Distribucao

(CBD) - Get Report

, can exploit their existing client bases, offer in-store support and service, as well as cross-promote Internet and store offers.

If the bricks-and-mortar giants of the region don't plug in soon, some worry deft U.S. e-tailers will offer local profitable alternatives that crowd out homegrown companies. However, more and more money from venture capitalists and the Street is betting that regional leaders like Companhia Brasileira de Distribucao and Submarino can learn from the U.S. models, adapt them to LatAm markets and use their local-cost advantage and regional expertise to win the fight over virtual pesos.