Emerging Consumer Survey: A $2.5 trillion e-commerce opportunity?

Imagine ordering from Amazon – in the Amazon? While one-click shopping from deep inside the rainforest sounds a bit farfetched, it may not be for long. The percentage of people shopping online from emerging markets such as Brazil, China and India more than doubled between 2011 and 2016, to 31 percent last year, according to a new report out from Credit Suisse Research based on face-to-face interviews with 14,000 people. Based on current growth rates, the report projects the e- commerce market in the eight countries it studied to grow from $1 trillion in 2016 to $2.5 trillion in 2025.

Those numbers hinge in large part on the rapid spread of Internet access to all corners of the world. In Brazil, for example, 91 percent of those interviewed for the report had internet access, up from 84 percent last year and 56 percent in 2010. China, Russia and Turkey also reported better than 80 percent of the adult population having access to the internet. The country with the lowest penetration rate was Indonesia at 51 percent, a proportion which has more than tripled since 2010.

Not only that, access is spreading to some unexpected groups. Credit Suisse found that 42 percent of consumers aged 56 and older in emerging markets have internet access and 57 percent of low-income consumers have it, up significantly from previous years.

Shopping emerges as one of the most popular activities online, beating banking and travel planning in nearly all of the past five years. The activities that are more popular are online gaming, instant messaging, accessing music or videos, and social media.

This growing propensity to shop online brings new opportunities and challenges to global-minded retailers, many of whom are still struggling to come up to speed on digital commerce in their home countries. Here, we look at five tips to make a foray into these growth markets.

China is by far the biggest market for e-commerce, with over 60 percent of consumers currently shopping online. That gives retailers a strong base of customers to target, many of whom already have ingrained e-commerce habits. Even in 2025, it will still likely represent 75 percent of the projected $2.5 trillion market opportunity.

However, it's also important to look at which markets are growing the fastest. The Credit Suisse report shows that the momentum toward online shopping is strongest in India and Turkey. In India, 50 percent of consumers now shop online compared to just 32 percent in 2014. In Turkey, the share of consumers shopping online has increased from 19 percent in 2014 to 32 percent today. Looking ahead, consumers in India and Turkey are also those most likely to say they expect to increase their online spending this year. Brazil also shows strength. Online spending increased 8 percent last year, even as overall retail spending declined 6.2 percent.

Not surprisingly, the spike in e-commerce goes hand-in-hand with increased adoption of smartphones. Well over 50 percent of consumers in emerging markets use their smartphones to access the internet, according to the Credit Suisse survey, and that number goes as high as 80 percent in China, Brazil and Turkey. That's especially true in rural areas, where cable-based internet connections may be non-existent. And related research from Google suggests shoppers in emerging markets are much more likely to use their smartphone for shopping compared with the U.S. and the U.K.

Retailers who want to reach further into these new markets will invest in making mobile websites easy to navigate for both product research and purchasing. The make-or-break factor? Loading speed. "Nothing kills a sale like a sluggish site," notes a recent report from technology consulting firm Gartner. While that's a universal concern, it's particularly acute in this case, as "performance penalties on mobile and in emerging digital markets like Mexico exacerbate" the problem. To optimize speed, Gartner analysts suggest cleaning up code, minimizing image file sizes, and focusing on the top area of any given page, since that's what consumers sees first.

It's also important to consider to what extent you'll localize content. "Many companies choose a tiered approach to global markets, with top-tier countries receiving fully localized content" while others "have a base level of localized content" but rely heavily on links to a regional or home site, according to Gartner.

Besides delivery logistics, a major barrier to e-commerce in some markets is a lack of access to credit cards and other non-cash payment forms. In China, India, Mexico, South Africa and Russia, 90 percent or more transactions are in cash, according to 2013 data, compared with about 47 percent in the U.K. and about 55 percent in the U.S . These conditions demand some creative payment options from online retailers. Common ones among native e-tailers include cash on delivery and the ability to make payments or buy pre-paid debit cards at local store branches. (22 percent of online transactions in Mexico were settled in such ways last year, the report notes.)

However, as the use of credit cards continues to permeate these markets, these challenges should abate. The percentage of spending using credit is now above 50 percent in Brazil, Turkey, China, Mexico and growing steadily each year in India, to 45 percent last year. The Indian government recently abolished some of it higher value currency notes, as well, in part to help encourage the use of credit. While the percentage of transactions involving credit is likely much lower, these statistics suggest that new habits are rapidly building.

E-commerce is an evolving landscape. In many markets, there are strong Amazon-like contenders, such as Snapdeal and Flipkart in India and Mercado Libre in Mexico. Some are suffering, though, as traditional bricks and mortar retailers develop multi-channel strategies to catch up to native online players. In both Mexico and India, Credit Suisse analysts see Wal-Mart as offering some serious competition to the established online players. Meanwhile, Amazon entered Mexico in a big way in 2015 and in March 2017 rolled out its Prime service that includes free shipping and video-streaming for $23 per month.

Then, make sure you've got the right metrics and benchmarks to assess your performance. Conversion rates – or the percentage of site visitors who buy – are a common one, but it's important to know that "conversion rates tend to be lower in emerging markets," a 2017 Gartner study notes. While they have held steady around 3 percent in the U.S. in past years, they're under 2 percent in Brazil and other parts of Latin America, according to recent Gartner research. Average order values (AOVs) may also be lower, in Brazil, online AOVs were $69 compared with $158 in the U.S.

Hands down, the most popular use of the internet in emerging markets is social media; 80 percent use it for this purpose. Smart retailers who want to build their e-commerce presence will make a serious investment in marketing through such means, in order to catch consumers where they live online.

It's also important to be aware of some country-specific structures for gaining attention online. In China, for example, shopping platforms such as Alibaba, JD.com and Vipshop are prominent. These e-commerce platforms, which aggregate a number of brands, have invested deeply in data analytics, user experience and even payment and delivery systems, notes the Credit Suisse report, poising them for future success. And as these players look to form relationships with offline stores – including retail conglomerate Bailian Group and Wal-Mart – they may become increasingly important conduits for new entrants to the market as well. Alibaba, in fact, has U.S. operations that exist exclusively to recruit U.S retailers to sell online in China. "We have massive demand in China right now for American products and brands, and it's growing every day," noted Lee McCabe, vice president of Alibaba's North American operations, in a recent article in online newsletter Retail Touchpoints. "We can't sign companies up quickly enough."

The Credit Suisse Research Institute is Credit Suisse's in-house think tank. The Institute was established in the aftermath of the 2008 financial crisis with the objective to study long-term economic developments, which have – or promise to have – a global impact within and beyond the financial services. For more information, visit: www.credit-suisse.com/researchinstitute

Credit Suisse Emerging Consumer Survey 2017

Richard Kersley

Download full report here