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Here's why online retail can grow faster in emerging economies

Ethan Wolff-Mann
Writer
Smartphone ubiquity is a boon to online shopping. Source: Reuters

E-commerce is growing fast in emerging economies, thanks to the internet finally penetrating key portions of the population.

Across countries like Brazil, Turkey, Mexico, China, India and others, smartphone ownership has shot up in the past few years, even in the oldest and low-income segments of the population. And for people aged 18 to 29, ownership numbers reach almost 90%, according to Credit Suisse’s Emerging Consumer Survey.

Besides a solidified consumer base, other factors have set up opportunities for significant growth that did not apply to the US online retail revolution shepherded by Amazon Prime and the normalization of two-day shipping.

“In our view, one of the reasons for [the surge in online retail] is that brick-and-mortar retailers in global emerging markets are far less developed and therefore have so far provided little competitive threat to online players,” the Credit Suisse analysts wrote. In India, for example, there are five square meters of retail territory per 1,000 people. In the US, the number is 2,000 square meters.

Since Amazon Prime burst onto the scene in the US a decade ago, two-day shipping has become table stakes for online retail, and one- and same-day shipping has begun to neutralize the speed advantage of brick-and-mortar stores while gaining a convenience advantage. Emerging markets have fewer physical store locations, so there’s even higher growth potential, because online retailers coming onto the scene may not have to pay for speedy product delivery to gain an advantage. Consumers in those countries just aren’t accustomed to buying a package of diapers and getting it the next day.

No brick and mortar means opportunity for many economies. Source: Credit Suisse

Low competition from brick and mortar can only provide an opening as big as non-cash payment adoption—credit and debit cards must be mainstream since you can’t put paper into a computer. In most of these markets, this is providing an opening. “We note that usage of non-cash payment systems (e.g. credit cards) is either high or rising across all but Indonesia,” the analysts wrote, noting that momentum was especially strong in India due to the country curbing use of big bills. “[The] demonetization exercise of the Indian government has triggered a sharp rise in all non-cash forms of payment and that this is likely to continue, not least driven by regulatory changes.”

Looking toward the future, Credit Suisse sees particular opportunities in India and Turkey, where the consumer survey numbers for online shopping and future online shopping are likely boosted by the prevalence of non-cash payment options as well as weaker brick-and-mortar retail competition. In India, for example, almost 60% of consumers expect to spend more online in the future.

Credit Suisse expects spending in India, Turkey, Russia, Mexico and other emerging markets to rise from $1 trillion to $2.5 trillion, as online commerce rushes forward, leapfrogging and compressing stages the US went through to pave the way. And for some companies, like Apple, these markets are key to their entire future.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, tech, and personal finance. Follow him on Twitter @ewolffmann. Got a tip? Send it to tips@yahoo-inc.com.

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