The economic slowdown in Latin America has forced retailers and e-commerce firms to adapt their logistics operations to remain competitive and profitable. In this analysis, we will examine how top retail and e-commerce companies in the region respond to the slowdown and the drivers and obstacles they face. We will share our estimates for retail, e-commerce, and transportation spending in the top 5 economies in the region and compare the strategies these companies employ to cope with the slowdown, including their investments in logistics to cut costs and increase profitability.

Retail and E-commerce Sales Outlook in Latin America in 2023

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The current economic slowdown in Latin America is impacting the retail and e-commerce industry, and companies in the sector need to update their strategies for dealing with these new challenges. The deacceleration in growth is occurring due to high inflation rates, reduced consumption, and instability in the economic and political scenario. According to Americas Market Intelligence (AMI), e-commerce sales in Latin America expanded by 24.7% in 2022. However, growth is expected to slow down to 13.4% in 2023 due to the economic uncertainty in the region — in Brazil, for example, e-commerce sales growth is expected to drop from 22% in 2022 to 15% in 2023.

Brazil remains the largest e-commerce market in Latin America, followed by Mexico and Argentina. However, despite the rise in e-commerce, traditional retail remains dominant in the region. In Brazil, for example, e-commerce accounts for only 9.8% of total retail sales. This contrasts sharply with the US, where e-commerce accounts for 21.3% of total retail sales.

The road transportation spending in the retail vertical, including first, middle, and last mile, is forecasted to pass US$100 billion in 2023, with Brazil accounting for half of the revenue generated, followed by Mexico and Argentina. The growth in USD terms (3%) will be fueled by the increase in retail and e-commerce verticals and the continued strength of the Mexican peso and the Brazilian real during the rest of the year.

In addition, trucking companies across the region have reported to AMI that labor costs in their operations now represent a smaller share (12% to 25%) of their overall operational costs compared to pre-pandemic as fuel and maintenance costs (45% to 55%) remain stubbornly high in 2023, especially in countries like Colombia where diesel fuel subsidies are expected to be phased out in the second half of the year.

In 2024, the trucking spending in the retail vertical is forecasted to grow between 1.5% and 2% to reach US$117 billion as inflation subsides and soft demand from consumers force retail companies to cut on transport services and capital investments in their logistics networks to cope with the slowdown. Moreover, we foresee high fuel prices impacting Latin America disproportionately because over 95% of all trucking firms are man-truck operators, owning older units (over 15 years of age) that guzzle more liters of diesel, unlike newer models. With high-interest rates forecasted to remain high until 2024, the fleet renovation rate will be near zero in Colombia, Argentina, and Brazil.

Drivers and Obstacles

One of the primary drivers of the economic slowdown in Latin America will be the uncertainty surrounding the global economy and high interest rates, which will affect consumer spending and employment, coupled with the political instability engulfing major economies like Colombia, Peru, and Argentina, leading to a decline in investor confidence and economic growth. In addition, some obstacles facing regional retailers and e-commerce firms include high logistics costs, poor infrastructure, and regulatory challenges.

Latin America Market-By-Market Analysis:

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Argentina

Argentina’s retail sector is currently suffering from continuous stubborn inflation, hitting a 20-year high, resulting in a reduction in consumer purchasing power. Due to high inflation and peso depreciation, Argentina’s retail business has suffered a considerable drop assessed in US dollars, from US$115.8 billion in 2011 to around US$35 billion in 2021. Between 2022 and 2026, the retail sector’s main challenges center around high inflation and local currency depreciation. Inflation is expected to remain above a staggering 30%, and price rises will affect real income levels. Walmart’s exit from the country was an example of this challenging situation. The American chain sold its operation in the country at the end of 2020 to the local retailer Grupo de Narvaez.[1]

The e-commerce sector, on the other hand, has witnessed tremendous development due to the pandemic, and companies have invested in online platforms and delivery systems to react to changing consumer behavior.

The online retail sector in Argentina has been growing strongly, even before the pandemic. This was due to convenience, faster delivery times, and more straightforward returns. Although brick-and-mortar stores reopened fully after the pandemic, the trend toward online shopping remained, supporting further growth in online sales. As a result, nearly 684,500 people shopped online for the first time in 2021, increasing the share of online shoppers to almost 46% of the total population.

By the end of 2023, we estimate that over 60% of the population will buy online, and sales will reach US$7.4 billion. However, high inflation, high-interest rates, and import restrictions will limit the choice of products for consumers in the market, resulting in less spending from consumers and weaker growth rates (15% in 2023 and 0% in 2024).

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Brazil

In 2023-27, rising living expenditures, fuel, and food prices will force consumers to spend more than a quarter of their household budget on food and beverages, leaving less disposable income for discretionary spending. High prices, on the other hand, will result in faster nominal growth in local currency terms, averaging more than 2%. Still, a weaker domestic economy and persistent inflation threaten the present outlook.

In January 2023, surprising analysts, retail sales grew the fastest (3.8%) in two decades. Still, the reality is that the lackluster performance of December figures impacted numbers coupled with the promotions and discounts offered at the beginning of the year. According to a recent study conducted by our firm, retailers expect sales to grow by 2% by the end of 2023 as inflation recedes in the second half of the year.

The intense competition we see between local and international players to fill the void left by Lojas Americanas bankruptcy, one of Brazil’s leading retailers, estimated at 6% of the market, is driving players to remain active in their investments and expansion plans. For example, while global logistics players announce hiring freezes and delay investments in the developed world, Mercado Libre will employ over 5,000 people for roles in sorting and fulfilling orders investing over US$3.6 billion in its logistics infrastructure in 2023 to strengthen service centers in smaller cities.

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Chile

Chile is a high-income country with a well-developed online shopping sector. Although the country has a small population of about 19.5 million, its private consumption per capita is among the highest in Latin America. However, in 2022, consumer price inflation affected real growth in retail sales, and this trend is expected to continue into 2023.

Chile’s retail market is dominated by two local companies, Falabella and Cencosud — also prominent across the region — with Walmart in third place. Walmart leads in the hypermarket segment with its Líder stores but faces competition from Cencosud’s Jumbo chain and Falabella’s Tottus stores. Although supermarket sales have fared well despite high inflation, margins will come under pressure to keep prices constant to attract more customers. Falabella operates department stores, supermarkets, home improvement stores, and shopping malls across South America, including Brazil, Colombia, Peru, and Uruguay. Cencosud operates retail stores and shopping malls in Chile, Argentina, Brazil, Colombia, and Peru.

For the next years, retailers are expected to focus on boosting their digital and delivery capabilities. In online retail, Mercado Libre is expected to compete strongly with Amazon and AliExpress.

Chile’s advantages stem from its extensive and successful domestic retailers and its food and food-processing industry, the majority of which is export-oriented. Leading retailers have actively expanded into neighboring nations such as Argentina, Brazil, and Peru. Furthermore, a vast network of free-trade agreements covering most of the world’s major economies has aided in opening up consumer goods markets to foreign involvement while keeping import costs low.

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Colombia

While the Colombian retail market faces challenges such as high inflation, policy uncertainty, unemployment, and weak real wages, there are also growth opportunities. Rising internet penetration, smartphone usage, and a growing middle class will support the expansion of the online retail market, which is expected to grow much faster than the overall retail market in the long run.

Grupo Éxito is currently the largest supermarket chain in Colombia, with a market share of about 40%. However, the retail market is highly competitive, with other significant players including Koba Colombia, Olímpica Supermercados, and Cencosud. The online market is currently dominated by regional companies, with Mercado Libre being Colombia’s most popular online retailer.

Despite opportunities for growth in the retail market, poor infrastructure and ongoing security problems will continue to pose logistical difficulties. Furthermore, while there will be some investment in more expensive supermarket chains and luxury goods, progress is likely to be slower than in other countries in the region with higher average income levels.

The last mile is the greatest priority for retailers operating in the country, considering the massive investments in warehousing and distribution centers in 2021 and 2022. In addition, poor road infrastructure and traffic jams increase costs for logistics operators and retail players. Solutions such as Envíame (which announced operations in Colombia in 2023) seek to optimize delivery times through a “multi courier” strategy, integrating multiple logistics operators through a marketplace-type platform, to expand coverage and offer same-day or next-day deliveries, reverse logistics, and cash-on-delivery services.

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Mexico

The retail sales outlook in 2023-2024 remains weak, hampered by high inflation, elevated interest rates, and a likely slowdown in the US economy, which may impact consumer confidence in Mexico.

The remittance inflows sent by Mexicans and Mexican Americans living in the US will only partially offset the adverse effects of inflation, mainly due to the anticipated decline in employment rates in the US in 2023.

We see the country’s consumption potential favorably considering the significant young population joining the workforce and the materialization of nearshoring investments from global companies to serve the US market, opening thousands of good-paying jobs to Mexicans.

High inflation has caused retail sales in local currency terms to expand by 10% in 2022, and even though inflation is expected to slow down, it will remain outside the central bank’s target range of 3% in 2023. As a result, in real terms, retail sales will register marginal growth averaging 1.5% annually from 2023-27.

Walmart’s Mexican subsidiary, Walmex, is the largest private employer and leading national player, with 2,756 stores, and it has refocused its sales efforts towards its core food sector and developed its online presence. Soriana, the second-largest retailer, has 824 stores, primarily obtained through acquisitions, and Chedraui, the third-largest player, has more than 300 outlets. Demand for e-commerce remains high, and sales growth is outpacing overall retail sales expansion, with most cross-border purchases in Mexico coming from the US, despite high import taxes. As a result, the sector has significant potential, with the number of online buyers expected to reach 77 million by 2025, driven by Mexico’s young urban population. However, internet penetration is below 50% in rural areas, keeping opportunities concentrated in big cities.

How Are Top Players Reacting to the Economic and E-Commerce Slowdown in Latin America?

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Alibaba – Cainiao

Cainiao — the Alibaba group company that handles all the logistics for the group and also serves other companies — sought to expand its international presence by expanding its operations in Latin America.[2] In November 2022, the company announced the opening of its headquarters in São Paulo, Brazil, and nine more distribution centers in seven states in the country: the company operates eight charter flights a week between China and Brazil.[3] Previously, in 2022, the company had already opened sorting centers in Mexico and Chile.

“Cainiao is committed to serving consumers in LatAm by providing more efficient and convenient logistics services.”

Davis Zhao, Head of Global Solutions for Cainiao’s Export Logistics[4]

According to the Q4 2022 earnings release, the company continues to expand its international logistics network by strengthening its end-to-end capabilities. The company ended the year 2022 with fifteen global sorting centers in operation.[5]

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Amazon

Amazon has invested in Brazil in recent years, increasing its distribution centers from just one in 2020 to 12 in 2022. Even with the significant growth, the company still needs to catch up to the infrastructure of some competitors, such as Via Varejo and Magazine Luiza, which have 30 and 24 distribution centers, respectively. The values of the next investments were not disclosed. Still, the leader of the operations in the country said that they are “important investments” and that they intend to continue investing in distribution centers and delivery stations (which are responsible for the “last mile”).[6] In 2022, Amazon bought 10% of Total Express, a Brazilian delivery company, to gain more traction in fast deliveries to consumers.[7]

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Mercado Libre

Mercado Libre announced an investment plan of US$3.6 billion for Brazil in 2023. Most of this investment will be directed at logistics operations, and it is planned to add fulfillment centers, more electric trucks, vans, and airplanes to its fleet, which will be operated in partnership with some airlines. The company aims to increase the cities it can serve with same-day and next-day deliveries.[8]

The company also announced an investment of US$ 1.6 billion in Mexico by 2023, its second-largest market, which will be mainly allocated to logistics and marketing.[9]

In addition, the company will hire over 11,000 workers to strengthen the network of fulfillment and service centers that process packages, especially in smaller cities, with 85% of the new positions in Brazil and Mexico.[10]

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Walmart

In March 2023, Walmart’s Mexico, and Central America division, known as Walmex, announced an investment plan of approximately US$ 1.5 billion for the region by 2023. Among the objectives of this investment are the maintenance of existing stores, construction of new stores, and supply chain.[11]

“Another strong quarter for Mexico. This tops off the ninth year in which Mexico has gained market share. And one of those things is a testament to the strength of the formats in Mexico and the way they appeal across all sectors of the Mexican and Central American population.

Judith McKenna
CEO, Walmart International [12]

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Carrefour

In June 2022, Carrefour completed the acquisition of the BIG Group in Brazil for approximately US$1.5 billion. The acquisition was a strategic move for Carrefour, which is now one of the ten largest companies in Brazil and has a market share of approximately 25%.[13] In the logistics division, Carrefour will reduce the total number of distribution centers from 64 to 51 in an attempt to optimize operations, reduce costs, and seek to concentrate activities in a few selected distribution centers so as not to need more than one in the same region, for example.[14]

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Falabella

In 2023 Falabella plans to invest US$ $72 million in logistics, a substantial drop from the investment levels in 2020 to 2022. In the last letter from the CEO, he commented that “now is the time to harvest the fruits” of the investments made in the past two years, with the firm focusing on improving the scalability of its logistics network by creating efficiencies to the packaging and ordering processes at its distribution centers in Chile, Peru, and Colombia, and leveraging its stores for collection points and optimizing its fulfillment using in-store inventories and collection points for returns.

The company will use the capital to expand its processing capabilities, assortment, and products available to marketplace sellers while providing warehousing, packaging, and on-delivery services.

Strategies Employed by Top Retail and E-Commerce Firms

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Retail and e-commerce firms are implementing strategies to cope with the economic slowdown in Latin America by creating greater operational efficiencies focused on cutting costs to halt the decline in margins as consumers tighten their belts in the region. The rebalancing and optimization of inventories, improved warehousing networks, and reduced costs in the last mile and return processes will dominate the landscape in the next 18 months.

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Next Steps

Contact us to find out more about how our market intelligence can give you a more strategic understanding of how the logistics markets in these countries — or in Latin America in general — are shifting. Our team can help you find new growth opportunities, deliver competitive intelligence about your rivals, find the right partners to help you expand your operations and much more.

Sources:

[1] Walmart vende operações na Argentina para varejista local. Nov 2020.

[2] Alibaba eyes logistics growth in LatAm as China commerce slows. Nov 2022.

[3] Alibaba’s Cainiao opens LatAm headquarters in Brazil. Nov 2022.

[4] Cainiao launches first sorting centre in the Americas. Mar 2022.

[5] Alibaba Group announces December Quarter 2022 results. Feb 2023.

[6] Amazon invests heavily to gain market share in Brazil. Aug 2022.

[7] Amazon compra fatia da Total Express e entra na corrida da última milha no Brasil. Jul 2022.

[8] Mercado Libre to invest billions in its biggest market, Brazil. Mar 2023.

[9] Mercado Libre to invest US $1.6B in Mexico this year. Mar 2023.

[10] Mercado Libre bucks big tech layoffs by adding 13,000 jobs

[11] Walmart to invest nearly $1.5 bln in Mexico and Central America in 2023. Mar 2023.

[12] Walmart, Inc. Q4 2022 Earning Call. Feb 2023.

[13] Carrefour conclui aquisição do Grupo BIG. Jun 2022.

[14] Carrefour investirá R$ 2,1 bi para conversão de 124 lojas do Grupo Big. Jun 2022.

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