There’s a high chance that you bought something online recently.
According to Statista, an estimated 2.14 billion people will buy something online in 2021, an 18.9% increase from 2018.
Additionally, these shoppers are also spending a larger proportion of their money online.
E-commerce sales are expected to account for 19.5% of retail sales worldwide this year, up from just 13.6% in 2019.
But where can investors find the best opportunity to ride on the e-commerce growth trend?
The answer to this question lies away from the usual suspects such as China and the US,.
That’s because the fastest growing e-commerce market is none other than Latin America (LATAM).
According to eMarketer, retail e-commerce sales in the region grew 63.3% to US$104.6 billion in 2020, smashing all pre-pandemic forecasts.
The dramatic rise in sales was, in no small way, powered by 38 million first-time digital shoppers.
And the region still has a long runway for growth.
Currently, e-commerce penetration in LATAM is roughly 8%, lagging behind the likes of China and South Korea at 30%.
But LATAM’s e-commerce penetration is poised to double by 2025.
The dominant force
We don’t have to look far to identify a major beneficiary of the proliferation of e-commerce in LATAM.
In the region, Argentine e-commerce company Mercado Libre (NASDAQ: MELI) is the dominant force.
Mercado Libre owns the most visited online marketplace in LATAM, with its 668 million visits a month dwarfing second-placed Amazon (NASDAQ: AMZN), which could only rack up 169 million monthly visits within the same region.
The company operates a whole suite of e-commerce retail solutions.
These solutions include Mercado Libre Marketplace, an online commerce platform, which is complemented by payments, logistics, financing, and advertising services.
Together, these solutions provide end-to-end support for merchants looking to set up an online store.
Mercado Libre currently operates in 18 countries.
These countries include Brazil, Argentina, and Mexico, which are all listed among the top five markets globally for e-commerce sales growth.
Growing profits
Mercado Libre has an impressive track record.
Between 2009 and 2020, the company grew its revenue nearly 22-fold, from US$172.8 million to US$3.7 billion.
And the e-commerce giant continues to fire on all cylinders.
In the company’s latest earnings report, it announced revenues of US$1.7 billion in just the second quarter of 2021 alone, representing a year on year growth of 103%.
On the e-commerce front, gross merchandise volume topped US$7 billion in the quarter, growing 46% compared to the same period a year ago.
Total transactions processed on Mercado Pago, the company’s payments solution, also soared 80% year on year with 730 million transactions worth more than US$17.5 billion during the three months ended 30 June 2021.
Last but not least, Mercado Envios, a logistics solution, shipped 230 million items in the same period, a year on year growth of 46%.
More impressively, 77% of the items were delivered within 48 hours, a vast improvement from 49% in the corresponding period in 2020.
Entrenching its position
Mercado Libre is not resting on its laurels despite its strong performance.
The company continues to press on with initiatives to drive customer engagement by improving service level as well as user experience on its various platforms.
For example, the company is testing gamification elements to include in its marketplace app and is looking at developing complementary content and marketing streams to generate the discovery of products.
Mercado Libre has also added popular brands such as Nike (NYSE: NKE) and Asics (TYO: 7936) and partnered with leading fashion company Arezzo Industria (BVMF: ARZZ3).
Expanding its fulfilment centre network is also key to Mercado Libre’s growth strategy.
In the second quarter of 2021, the company launched same-day shipping deliveries in Brazil, Mexico, Argentina and Chile.
Currently, this same-day solution is able to serve around 20% of postal codes in Brazil, with the figure expected to rise with more fulfilment centres being rolled out.
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Disclosure: Herman Ng owns shares of Amazon and Mercadolibre.
