Submarino.Com: The Challenges of B2C E-Commerce in Latin America

Situation:

Submarino.com is a leading e-retailer in Latin America that offers products in multiple categories; Books, Rare and Imported Books, CDs, MP3s, Video and DVD’s, Toys and Games, Software and Computer Supplies, Cell Phones and Consumer Electronics (TVs, DVD Players, etc.). The company is headquartered in Brazil with virtual stores in Argentina, Mexico, Spain and Portugal. Submarino.com was launched in June 1999 by Antonio Bonchristiano. Bonchristiano obtained backing from GP Investments and acquired BookNet with the concept of replicating the Amazon.com business model. Between November 1999 and September 2000, Submarino.com launched online stores in Brazil, Argentina, Mexico, Spain and Portugal.

Submarino.com is challenged with achieving aggressive sales targets set by investors in 2001 and profitability in 2002.

KEY POINTS:

1. Economy in 2000 – NASDAQ fell 50% from mid-March through the end of 2000. Investment banks and other institutions started reappraising Internet Business Models. They realized that the same rules applied to e-commerce as to brick-and-mortar companies and that financial statements and credit ratings of most Internet companies looked dreadful.

2. Challenges of the Latin American Market – Although the Internet sector in Latin America was growing, Latin America presented several challenges for continued growth; the average income per capita was low, PC and Internet access was low, credit card usage was low, inflation was high and capital was scarce. In addition, economic and cultural differences prevented standardizations within the market.

3. Business Model – Key capabilities and assets include the management team, blue-chip investors and strategic partners, warehouse and fulfillment operations, and technology infrastructure. There was a heavy emphasis on the cooperation between local countries, country managers and headquarters.

4. Financial Model – Revenues are generated from selling merchandise purchased from suppliers, held in inventory and shipped to consumers. Financial support from investors equaling US$108.1 million, including “seed capitol” provided by GP Investments, was generated from June 1999 through February 2001.

5. Marketing Strategy – Submarino’s mission is “to be the preferred online store by exceeding customers’ expectations in an innovative and profitable way”. The goal of the marketing strategy is to be cost effective and build a huge community. Relationships with web-portals, seller partners, local news sources, shipping partners, major suppliers and local merchants were developed to create cost-effective marketing programs.

6. Technology – A centralized, yet regionally customized, front end web-site was created to maintain consistency of its brand. Back end systems are managed by each country and include the electronic catalog, ERP system and a warehouse management system.

RECOMMEMDATIONS:

1. Focus on a single market or similar group of markets. Cultural, economic and regulatory differences between each country prevent company-wide standardizations that can impact the focus on the target.

2. Continue to build the customer service model and enhance the customer experience through additional services, payment options and content.

3. Continue to build the community with enhanced agreements, partnerships and alliances with portals, seller partners, local news sources, shipping partners, major suppliers and local merchants.

Conclusion:

The effort to grow an e-commerce company in the midst of the dot-com bust of 2000 was a daunting task. While capital was traditionally scarce in Latin America, it became non-existent after the NASDAQ crash. Bonchristiano was able to obtain capital but faced aggressive targets for sales and profitability from his investors. Bonchristiano’s strong management team and commitment to customer service were vital to his success in expanding the company internationally within five countries. The community that he built added value to the company as well as customer.

Crossing international boundaries brought additional challenges that impacted Bonchristiano’s original vision of an international online store. Disparate language, cultural and regulatory factors prohibited company-wide standardization an increased operating costs. In focusing on a single country or group of countries that have similar language, cultural and regulatory factors, standards can be maintained, operating costs decreased and the aggressive sales and profit targets achieved.