Adventures in Latin American E-Commerce: War With Ecuador

***UPDATE: I've since moved on from the business, but if you have any questions I'm still happy to answer them!

 

If you don't know what I've been doing, I'll get you up to speed.

Last year, I started a small business with a partner in Peru. It's in the women's clothing industry. We sell our products through two primary outlets: an online store and consignment.

It's going well and getting better each day - we're at the point where the brand covers all of our expenses living in Lima (which, admittedly, isn't THAT much) and we're able to save a few lucas as well.

Initially, the workload was heavy, but things have cooled down - we've developed a good infrastructure of people in the city we work with, as well as a supplier from China who has proved reliable. We've ramped up production, and now (and for the next little while) it's just a matter of waiting for the products to get made so we can sell 'em.

Don't get me wrong, it's not passive income - we still have to hit the fabric market at least 2 times a week, take countless photos, cut off a load of loose threads, answer a ton of messages, and make endless trips to the post office, among other things. But, in terms of selecting the right products, and finding reliable suppliers and producers, well, we seem to have that covered for now.

So, back in April, finding myself with a few extra hours in the day, I suggested (perhaps prematurely) that we look into expanding the market.

Hello, Ecuador.

 

 

 

Why Ecuador?

  Beautiful Quito (not sarcasm - it actually is quite lovely).

Beautiful Quito (not sarcasm - it actually is quite lovely).

Our little project originally began as a dropshipping store. The plan being to use the dropshipping store to test demand for the products we'd eventually include in a private label store. Since you can find pretty much any product under the sun in AliExpress, we figured a dropshipping store was the perfect way to test what kind of products these ladies were interested in. We'd then take the most popular products, get them made (or in some cases, imported) and eventually publish them to our private label store with nice, pretty photos. 

Throughout this process, we also tested to see which Latin American countries were most interested in our products. We knew Peru would be first, since we had some promotional help from social media influencers down here.

But, what we weren't expecting was who was second.

It was Ecuador.

And by quite a significant margin, too.

This was good news for a couple of reasons. 

 

  • First, Ecuador uses US dollars. Since I have a US dollar bank account, I could connect that to a Shopify store and avoid any possible currency confusion about why Ecuadorians we're being charged in soles the currency of Peru.

 

  • Second, it borders Peru. Logistically, this helps.

 

  • Third, many products are expensive in Ecuador. Clothing is one of these products. That meant we could raise the price by about $3.oo on each product, offer a reasonable shipping rate, and still make the same amount of profit as we'd be making selling within Peru, all at prices that would seem more than reasonable to Ecuadorian women.

 

So, I set up another Shopify store as a sort of "Ecuador branch" of our brand and got to work advertising.

Little did I know, things wouldn't be so easy.

 

 

 

The First Problem

Getting a social media following and interested customers wasn't the problem - we already had a lot of fans from Ecuador on our Facebook and Instagram page thanks to our dropshipping experiment - and we already knew Ecuadorians were interested in what we were offering. So, we ran a couple campaigns targeting Ecuador and voila - we had hundreds more fans from Ecuador, and an inbox full of messages from people wanting to buy.

The only problem was, they couldn't.

I thought I knew what the issue was - I had dealt with it in the dropshipping store. Basically, on occasion, a store based in, say, the United States or Canada using Shopify Payments (I based the store in Canada and connected it with a US bank account), will be unable to process debit and credit cards in Latin America. Since the majority of the orders went through, I didn't see it as a big deal - I figured it was a rare occurrence and not something to worry about.

Wrong.

After a few attempted orders failed to be processed, I did some research. Turns out, in a lot of Latin American countries, banks will issue credit cards that are restricted to that particular country.

Why? Who knows.

Also, it turns out that Ecuador is particularly bad for this.

As far as I can gather, unless you specifically ask for a credit card that works internationally, or unless you're making a lot of money, they'll probably give you one that only reliable works inside Ecuador...unless you specifically ask them to unblock it for a period of time (like if you're travelling internationally).

But, again, I don't know. This kind of information is tough to find.

One customer also had her debit card rejected, so I'm guessing not all debit cards in Ecuador are connected to a Visa or MasterCard network, either.

Bank transfers weren't an option, since neither my partner or I have a bank account in Ecuador.

No one uses PayPal, and even PayU - a dominant payment process in Latin America - isn't available in Ecuador.

I soon discovered that the only available customers in Ecuador would be those who had a credit card that worked internationally. And it was beginning to look like that number wasn't very large.

 

 

 

The Second Problem

Good news was that someone was indeed able to place a successful order from Ecuador.

  Clothes, bitches!

Clothes, bitches!

We didn't waste any time shipping it - we were both anxious to see if the package would arrive safely, and the order would be completed.

In short, it didn't, and it wasn't.

I've judiciously researched the quality and efficiency of nearly every postal service in Latin America, and I knew Correos de Ecuador didn't have the best reputation for successfully delivering packages.

 

 

But the thing is, no postal service in Latin America has a good reputation. SERPOST in Peru has like 1.3 stars out of 5, and they are indeed shitty, but my partner and I have still been able to (eventually) retrieve nearly all the packages that we order without paying duty.

Correos de Ecuador had a similar poor rating and we had a few issues shipping there with our dropshipping store. But we determined that we'd have no choice but to give it a shot. How bad could they be? We were only shipping from a neighbouring country, after all.

BAD is the answer.

The package arrived to Ecuadorian customs. We know that much. After that, it vanished into thin air.

Which brings me to our third problem...

 

 

 

The Third Problem

To ship a relatively small, insured package from Lima to Guayaquil costs about 40 soles (or $12 USD). So, in our "Ecuadorian" Shopify store (read: international, USD store), we raised our prices by $2 or $3 USD, and charged a flat-rate of $10 USD for shipping. That way, our profit margins remained the same. And, with clothing prices as high as they are in Ecuador, it meant that our pricing was still competitive in the country. 

Supposedly, Ecuadorian import laws have (or had...) a 4x4 rule, meaning that if each package you order is under 4kg and $400 USD, you won't have to pay duty on it. So this shouldn't have been a problem for anything we were shipping. In addition, everything I researched led me to believe that, if a package arrived through the national post and it was low in weight and small in size, there was very little chance that the customer on the receiving end would pay duty.

Since the package we were sending to Ecuador would be insured, we figured that if it didn't arrive somehow, at the very least we wouldn't lose much money.

Or so I thought....more on that later.

After awhile, the customer contacted us by WhatsApp and Email requesting a refund. She claimed her package never arrived. We told her to check with the local post office. She said she did, and nothing was there. We gave her the tracking information we had, but, just like for us, it hadn't updated since it reached customs (I don't know if Ecuador changes the tracking number when it reaches the country or what the fuck).

We tried to delay the refund for as long as possible, but over a month had passed and there was no way we could figure out where her package was. We bit the bullet and gave her a refund. No big deal, the package was insured, so we knew we could just go to SERPOST in Lima and get our money back.

But, as it turns out, an "insured" package just means that it's insured until it leaves Peru. After that, the Peruvian postal service washes its hands of any responsibility.

No refund for us. 

I should have assumed this, but I didn't. My fault (I'm responsible for this aspect of the business).

We're not sure whether the package indeed did arrive, and she just didn't want to pay a duty charge, or whether it was stolen or lost. Maybe it did eventually get delivered and she got a few free new pieces of clothing.

I'll die not knowing.

At the end of the day, we lost about $25 USD - $12 in shipping and $13 for what it cost us to make the products.

There was also the time we wasted.

Oh well, it's all in the game.

 

 

 

What Did I Learn?

  Lima, Peru

Lima, Peru

The first thing I learned is that it's damn-near impossible to conduct a business across borders in Latin America. I'd been alerted to this through research, but I didn't know the extent of it until I tried to do it through our private label brand. Sure, we'd shipped to Latin America from China from our dropshipping store, but we didn't pay it much mind - when a package didn't arrive or arrived late, we simply requested a refund from AliExpress and always got our money back.

The lack of payment options across borders, along with unreliable logistics, corrupt customers officials and so on make shipping to another Latin American country a bad idea.

(One exception would be if you use a private courier like DHL, but you'd have to charge your customer so much for shipping, chances are you couldn't compete).

The second thing I learned is that demand isn't everything. Ecuadorians were so hungry for our products that it blinded me to any obstacles. I knew it was because clothing prices were high, but I didn't stop to think about the fact that prices are high because they're strict about letting imports into the country (OK, I did think of that, but I figured if it came from Peru in a small box, they might be more chill...Andean brothers and all).

The third thing I learned is not to expand too quickly. I should have known this from experience. When I had a content writing business, I tried to outsource everything before I even had a solid base of clients, or a strategy for procuring them. That basically marked the downfall of that business.

Once again, I got a bit too ambitious and I fucked our shit up because of it.

 

 

 

Conclusion

I suppose the reason why I wanted to expand is because I'm not set on hitching my wagon to Peru. Lima is a great place to live, but after my last trip, I was ready to put it behind me. However, this business experiment started unfolding rapidly, and I wanted to see it through.

In an ideal world, my partner would run the Peru operations, and I'd run a Mexico or Colombia branch. I reckoned if we could start by finding a way to generate sales in Ecuador, it would prove that this shit could work in another country.

But in reality, that's fantasy land.

What we're doing simply can't be replicated anywhere else in Latin America. Peru has the perfect combination of factors we couldn't survive without, namely the biggest fabric market in Latin America, relatively lax import laws, little competition in our niche, a growing economy and a sizeable population that's getting used to buying online.

No other country in Latin America checks all of these boxes.

No other country in Latin America even comes close to checking all of these boxes.

So, for now at least, it's Peru all the way. We're trying to sell more on consignment to build brand awareness. It's more risk for us, but probably a better move than trying to sell all of our products online in a country where buying online hasn't quite caught on yet. If we get the brand in some stores to build a physical presence and keep building up our online presence, we figure we'll be in a pretty good position 1-2 years from now.

Or, if we manage to land a wholesale buyer like Ripley or Saga Falabella, we'll be laughing all the way to the bank.

That is, if this thing lasts that long - a lot can go down in a year.

Let's see what happens.

 

***If you're interested in business and investing in Latin America, a friend of mine has started an excellent website on the subject.

 

Thanks for listening.

Until next time,

Vance