Current MercadoLibre Leadership Vs. Amazon In The E-Commerce

Current MercadoLibre Leadership Vs. Amazon In The E-Commerce
Current MercadoLibre Leadership Vs. Amazon In The E-Commerce Sector In Latin America

 

Summary of Amazon

Amazon is planning a major move into Brazil.

Effect of this move on e-commerce marketplace in Latin America?

Insight into Amazon in Latin America by comparing its trajectory in Mexico and Brazil

Can MercadoLibre maintain its place as an e-commerce leader in Latin America?

With more consumers leaning towards the ease of online businesses, E-commerce industry is rapidly going up the charts. In Latin America particularly, a number of people buying services online is expected to increase from 121.1 million to 151.1 million in the next 3 years, according to statista.com. This increase in e-commerce industry has not gone unnoticed by Industry giants like Amazon, eBay, Walmart, and Alibaba group. However, the biggest players in Latin America countries at the moment are Mercadolibre and such local websites.

According to worldpay.com, In its annual Global Payments Report, Worldpay found that the Latin American eCommerce market is set to grow at a CAGR of 19 percent over the next five years, rising from US$59bn today to $118bn in 2021 – the biggest rise of any region.

The research also found that the three fastest-growing countries for eCommerce are Colombia, Nigeria, and Argentina. These “CAN countries” are forecast to lead the world with annual rises in eCommerce of 31, 30 and 24 percent respectively.

Worldpay’s research also examined the growth in mobile commerce and found that total eCommerce penetration is set to rise from 38 percent in 2017 to 47 percent in 2021, driven by increased smartphone ownership and faster mobile networks. Latin America is set to be in the vanguard of mCommerce growth, with Colombia seeing a 64 per cent rise, and 45 per cent in Argentina – putting them in first and fifth position globally.

Shane Happach, Chief Executive Officer – Global eCom at Worldpay explained: “No-one can predict the global economic climate over the next five years, but we can be sure that consumer appetite for online and mobile shopping will continue to see extremely strong growth. The rise in smartphone adoption and the continued improvement in mobile networks have important implications for merchants looking to take advantage of an increasingly well-connected middle class with greater disposable income.

The e-commerce market in Mexico in 2015 was estimated by Forbes to be 12 billion U.S. dollars[1] and by the Mexican Internet Association, AMIPCI to be 257.1 billion Mexico pesos (about 15.6 billion U.S. dollars).[2] This represented 1.6–2% of all retail sales vs. a global average of 7%. According to eshopworld.com, the $8.5 Billion USD Online Mexican Retail Industry is estimated to be ‘Worth 17.6 Billion USD by 2020’. global internet companies like Amazon, Mercadolibre, and Linio are changing the retail industry in Mexico. In Mexico, costumers lean towards brands and online high specialized products, especially in the mobile zone. Companies like Walmart and Mexico are predicted to lead this region of Latin America.

When studying the e-commerce sector in Latin America, it is imminent to approach Latin America country by country.
Shane Happach, Chief Executive Officer – Global eCom at Worldpay explained ‘ However, it’s important for retailers to understand the idiosyncrasies of each territory. No two markets are the same in terms of the population’s preferred payments methods, and each has different regulatory requirements, mobile penetration, and banking practices. That is why it’s so important that merchants do their homework before they invest in new countries to ensure that they make the right strategic decisions. With the right support, however, retailers can seize a unique opportunity to take a lead in these emerging eCommerce markets’.

Amazon in Brazil

Starting with selling e-books online in Mexico in 2012, Amazon entered the Brazil online industry. Expanding in 2014 and 2017 by choice of physical books and allowing other businesses to sell their merchandise. Amazon also started offering a platform to third-party electronics sales in late 2017. According to dailymail.co.uk, ‘Amazon is eyeing 50,000-square-meter warehouse in Brazil in a push for Latin America’s largest retail market’, a report claims. They also reported that E-commerce accounts for around 5 percent of Brazil’s roughly $300billion retail market – about half its share in the US – but it has doubled in the past four years and is forecast to keep growing annually at a double-digit pace.’You obviously can’t underestimate a company like Amazon,’ said Pedro Guasti, CEO of Brazilian online consultancy Ebit. ‘It has a huge capacity to invest and it’s obviously taking a bigger bite of the cake than it did last year.’

E-Commerce Challenges in Brazil marketplace

Roughly 66% of total population of Brazil uses the internet. Hence the chance for e-commerce companies to lay strong roots in Brazil cannot be missed. However, it will not be wise to expect Amazon to succeed with the same ideas and plans , that apply in the US. Brazil is a different territory in terms of e-commerce. An innovative approach will be needed in this challenging land.

Logistics

Brazil e-commerce growth is slow due to security concerns and complications with tax and logistics in the continent-sized country. Brazil is in the lower world ranks when it comes to logistics infrastructural development hence complex land shipping logistics pose a challenge for companies looking to lay roots in the e-commerce sector of this continent-sized country. E-commerce companies need to organize an appropriate system that deals with high taxes and expensive land shipping in Brazil.

Currently, Amazon has to make use of third parties for shipping their products in the Brazil marketplace. As mentioned, the complex logistics and high taxes of shipping make it hard to run a profitable online venture .’Fulfilment by Amazon was launched in 2015 in a forward approach by Amazon.
.

Response to Amazon in Brazil has been vastly different from other developed countries like US or regions like Mexico. According to marketplace.com, 20% of the reviews in Brazil have been negation, which is double to reviews in Mexico and more so than in us. The problem could be the use of third parties for shipping, that makes issues with timing and canceling of orders.

MercadoLibre has 90%+ of its shipments through Correios (Brazilian Post). however, it’s not very efficient despite being less expensive. That gives Amazon an opportunity to step in and run an efficient system in Brazil.

Payment method

Online industry giants like Amazon and Alibaba require international payment system. Because of high taxes, the use of Brazil credit cards is not the first choice of online consumers in Brazil. Instead, they gravitate towards local websites. Brazil credit cards only make payments in the local reais, hence the conversion of currencies is a complication for international e-commerce retailers.

Furthermore, most of the Brazil population still prefer to use bank slips as a method of payment instead of international credit cards, which poses an issue for e-commerce companies.

Return Policy in Brazil

In Brazil industry, returning products is a big hassle. Items can be exchanged if it is within the time limit and all the receipts are present, but canceling an order is currently a compilation. This provides a big opportunity for Amazon, which with its no hassle return policy would appeal to a lot of haggard online consumers.

MercadoLibre ( MELI)

MercadoLibre is the leading e-commerce player in Latin America with an 85% of revenue coming from Brazil and Argentina, and working operations in 18 countries. MercadoLibre is Latin America’s most popular e-commerce site by a number of visitors. It is the market leader in countries like Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay, and Venezuela according to online reviews.

According to a comScore data, in 2018, 47% of Latin Americans made online purchases on MercadoLibre, compared to 17% for Amazon. In 2017, MELI disclosed sold items, up 57.5%  and net revenues of $437.0 million, up 70.5% in USD, 99.6% on an FX neutral basis, and a net loss of $67.7 million. This margin is largely driven by free shipping offering and higher marketing investments in recent ventures.

With global industrial companies like Amazon moving in Brazil, Mercadolibre has made moves to secure a steady ground with the local businesses by lowering their profit margins, which seems a wise move for MELI.

Conclusion
If Amazon threads carefully through the complications of the Brazil e-commerce industry and its high sales taxes, Amazon is predicted to have much the same trajectory as it had in Mexico. In Mexico Amazon has become a market leader in other companies like MELI. keeping in mind the local online e consumers and their demands, Amazon can quickly become a staple in Brazil e-commerce industry.

For Amazon, success in Brazil will represent further gains in their global presence. But it will not have much effect on the Amazon stock build-up. However, it will provide a tough industrial competition to MELI which already seems to have tumbled 10% according to online sources. It’s important to closely observe the next steps of Amazon in Brazil, which mainly focus on marketing campaigns both online and on other platforms.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Liked it? Take a second to support us on Patreon!