E-commerce pullback in Latin America

Two of Latin America’s biggest e-commerce pure-plays announced Tuesday that they will close extensive chunks of their operations as part of efforts to reach profitability.

Submarino.com, Brazil’s leading pure e-commerce company, said it is closing operations in the Argentine and Portuguese markets, a striking setback for a firm that just months ago was touted as the Amazon.com Inc. of Latin America. Concurrently, Miami-based Fiera.com said it would no longer serve the Brazilian market, where it invested US$25 million and employed 50 people. Both companies sell a wide range of products with an emphasis on CDs, computer products and books.

The closures follow the e-commerce retrenchment in the United States, where e-retailers have faced a difficult economic environment and problems luring people out of brick-and-mortar establishments. Many American e-commerce companies have scaled back their operations or left the market entirely.

Submarino recently sold its Spanish branch and closed operations in several Latin American countries. The company said pulling out of Argentina and Portugal would produce an annual savings of $6 million, which will be invested in its remaining markets: Brazil and Mexico. The two countries are the first- and second-largest economies in Latin America, respectively.

Last month, Submarino raised $20 million in financing from its main backers, TH Lee Putnam Internet Partners and Brazilian venture capital firm GP Investimentos. Shortly thereafter, the company announced that it is moving its break-even target to the second half of 2002 from the end of 2003. The announcement was accompanied by a harsh cost-cutting effort that included letting go 90 employees in Brazil, or about 20 per cent of its staff.

Submarino reported revenues of $6 million during the latest Christmas season, with more than 90 percent of that figure coming from its home market, Brazil. Fiera said total sales in 2000 reached $17 million.

Despite the financial crunch in the region’s Internet sector and the debacle of dot-com companies, consultants remain optimistic about the growth prospects for e-commerce in Latin America. Last year, consumer e-commerce in Latin America barely cleared the $1 billion mark, but that number should grow to $10.7 billion by 2006 as the online population jumps to about 80 million users from the current 15 million, according to Jupiter Media Metrix.