As e-commerce heats up in LATAM, who can catch Mercado Libre?

Header photo source: Sebastiao Moreira (EFE Agency).

In a world driven by the winner-takes-all mentality, the rules of the game are changing. Giants like Amazon and Alibaba have carved out dominant positions in global e-commerce, yet even they haven’t managed to capture every market—especially in regions that are rapidly evolving.

Consider Latin America. Here, Mercado Libre stands as a towering figure. According to Statista, the platform’s traffic is almost 50 times that of Amazon’s Spanish-language pages. LATAM’s e-commerce market is now in the spotlight, drawing global attention. Although the region’s online sales trail behind those of Asia, the US, and Europe, its nearly 300 million online shoppers represent a massive base that is expected to expand by 44% by 2029. In 2023 alone, LATAM’s online retail sales reached USD 272 billion, with Brazil and Mexico each accounting for nearly 30% of that market.

Mercado Libre, a regional giant, recently surpassed Petrobras in market capitalization, becoming the most valuable company in Latin America. After 25 years of meticulous development, the company is now reaping the benefits of its deep roots in the LATAM e-commerce landscape. Its second-quarter financials this year revealed a GMV of USD 12.6 billion, marking a 20% year-on-year (YOY) increase. Revenue surged by 42% YOY to an all-time high of USD 5.1 billion, while net profits soared by 103% YOY, reaching USD 531 million.

As global e-commerce growth slows, Mercado Libre’s strong performance highlights the untapped potential within LATAM. This potential hasn’t gone unnoticed by Chinese companies. AliExpress has solidified its presence by focusing on high-value items and establishing local warehouses. Meanwhile, Shein is constructing a supply chain in Brazil, and Temu is rapidly expanding across the region.

However, Mercado Libre’s entrenched position in the LATAM market remains strong. Yet, as competition heats up, the region’s unpredictable tariff policies could become a significant challenge.

Mercado Libre’s bold expansion in Latin America

Martin de los Santos, CFO of Mercado Libre, plays a key role in the company’s strategy. He attributes the firm’s second-quarter success to significant contributions from Brazil and Mexico—particularly the former, which accounted for 36% of the growth. Mexico also posted strong results, with GMV rising by 30% YOY. “Our growth is a testament to the resilience of our business model,” said de los Santos in a recent interview, emphasizing the strategic importance of these key markets.

Beyond just numbers, Mercado Pago—Mercado Libre’s online payment service—saw its monthly active users surge by 37% YOY, surpassing the 50 million mark. The platform also experienced its highest growth in seller numbers since 2021. At the same time, same-day and next-day delivery volumes hit record highs, further enhancing the platform’s efficiency. For de los Santos, these milestones reflect Mercado Libre’s ability to adapt and thrive, even as the market becomes more competitive.

Often dubbed the “Alibaba of LATAM,” Mercado Libre’s growth story mirrors that of its Chinese counterpart. Both companies identified early on that payment and logistics were critical bottlenecks for e-commerce. By investing heavily in these areas, they paved the way for long-term success. Mercado Libre launched Mercado Pago in 2004, enabling consumers to shop across the region using various payment methods, including credit cards, bank transfers, and cash. Today, Mercado Pago has evolved into the company’s most profitable segment, expanding into fintech services, such as credit cards, payment terminals, and even cryptocurrency.

But building an e-commerce empire in LATAM isn’t without its challenges. Mercado Libre continues to invest heavily in the region to address these issues. According to Bloomberg, the company plans to invest a record USD 2.5 billion in Mexico this year, up from USD 1.6 billion in 2023. This investment will span various business areas, including warehouse expansion, logistics network upgrades, increased lending, and marketing and technology advancements.

To support this growth, Mercado Libre also plans to expand its workforce by 30% by 2024, aiming to recruit 18,000 new employees across Mexico and other regions. This expansion is a bold move, reflecting the company’s confidence in its ability to sustain strong performance and its commitment to maintaining its market leadership.

Rush hour for cross-border e-commerce players

Mercado Libre’s continued dominance in LATAM’s e-commerce market can be attributed to its long-term investments in the region’s infrastructure and its strong brand identity. LATAM, encompassing 33 countries and territories with nearly 700 million people, presents a vast and youthful market ripe for e-commerce growth.

Despite economic slowdowns and geographical challenges, LATAM remains a goldmine for cross-border e-commerce platforms. According to Statista, retail accounted for more than half of LATAM’s e-commerce market in 2023, with electronics leading the charge, followed by fashion and food. The widespread adoption of smartphones has played a crucial role, with these devices now accounting for nearly 85% of e-commerce traffic and facilitating over two-thirds of online transactions.

Amazon China’s 2023 white paper on cross-border e-commerce estimated that LATAM’s e-commerce market would reach USD 144 billion in 2023, representing 10.1% of total retail sales. By 2027, this market is expected to grow to USD 226 billion, with e-commerce penetration rising to 12.9%.

Shein has made significant strides in LATAM, with founder Xu Yangtian personally driving the company’s expansion in the region. Xu has hired key players like Felipe Feistler, former senior executive of Shopee’s LATAM operations, and Fabiana Merlino Magalhaes, who previously headed AliExpress’s fashion category in Brazil. These moves underscore Shein’s commitment to the region. In April 2023, Shein announced a USD 150 million investment to help Brazilian manufacturers upgrade to its on-demand production model, with plans to onboard 2,000 local manufacturers over the next three years. By the end of 2026, Shein aims for 85% of its sales in Brazil to come from local manufacturers.

AliExpress, meanwhile, has captured a leading position in the Chilean market. According to consultancy Kawes Lab, AliExpress accounted for 42% of cross-border e-commerce platform transactions in Chile in early 2023, outpacing both Amazon and Shein. Even short video apps like TikTok and Kwai have begun exploring e-commerce opportunities in LATAM, tapping into the region’s vast consumer base.

However, these platforms face significant hurdles, particularly in navigating the region’s complex and ever-changing tariff policies. Brazil, for example, recently approved a 20% tariff on goods from overseas platforms valued at less than USD 50, replacing the previous tax exemption. This shift naturally dampens enthusiasm among cross-border sellers and could slow the growth of these platforms.

For Mercado Libre, the reduction in competition due to tax pressures might seem advantageous at first glance, but the reality is more nuanced. Chinese cross-border sellers, who have bolstered Mercado Libre’s growth since it entered the Chinese market in 2019, remain crucial to its success.

In today’s interconnected world, LATAM’s e-commerce market doesn’t have to be a zero-sum game. The landscape is vast, with enough space for multiple players to succeed, provided they can navigate the challenges and seize the opportunities.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Leslie Zhang for 36Kr.