What to expect from e-commerce in Latin America in 2022

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The digitization of sales has reached a tipping point in Latin America, one of the fastest growing e-commerce markets.

During the pandemic, millions of users first bought online – and few are expected to stop doing so. MercadoLibre CFO Pedro Arnt told investors earlier this year that demand that has moved online likely remains online.

According to Americas Market Intelligence (AMI), Latin America online sales volumes are expected to grow by 29% between 2020 and 2024, to reach $ 580 billion, which is expected to open up different business and investment opportunities.

For 2022, despite the resumption of traditional distribution activities, the segment is expected to record further sales growth and further expansion of the user base.

This expansion is due in part to the fact that e-commerce still represents a small fraction of total retail sales.

“Latin America is currently the big thing for local and global e-commerce companies who want to tap into a market where commerce is expected to grow by 30% every year until 2025,” according to a study by Ebanx.

Overall, e-commerce has seen double- and even triple-digit growth in almost every market in the region.

According to MasterCard’s SpendingPulse report, online sales grew 75% year-over-year in 2020 in Brazil, Latin America’s largest market. Brazilian Electronic Commerce Association ABComm announced growth of 68% for the last year, to 126 billion reais (23 billion dollars).

In the first half of 2021, growth was 31% year-on-year, with 53.4 billion reais in sales volume, according to Ebit / Nielsen. E-commerce now accounts for over 11% of total retail sales in the country.

In Mexico, e-commerce reached 316 billion pesos (US $ 15 billion) in 2020, for an annual growth of 81% and representing 9% of total retail sales, according to the Mexican Association of Online Sales (AMVO).

In the first half of the year, Mexican SME sales through digital channels doubled year-over-year, and AMVO forecast these channels to account for 25% of total SME sales by the end of the year.

Meanwhile in Argentina, the local electronic chamber of commerce That’s reported online sales growth by 124% in 2020. In the first half of this year, sales doubled in nominal terms, up 101% year-on-year.

QUICK EXPEDITION

With the entry of a large contingent of new buyers and the maturing of the current user base, the bar for customer demands has risen – both in terms of payment methods and delivery times.

As a result, giants such as MercadoLibre, Amazon, Brazilian magazine Luiza, among others, have invested heavily in the construction and expansion of logistics centers, as well as in different modes of transport, to increase same-day shipping or in two days as much as possible.

In the third quarter, nearly 80% of all items sold by MercadoLibre, the regional leader in e-commerce, were delivered within 48 hours. MercadoLibre reports more than 12 million sellers in Latin America, from individuals to large businesses, and 78 million active users.

“We are building what we believe is one of the best networks in the region, and we will continue to develop the nodes on this network,” Arnt said.

Amazon is also expanding its footprint in the region.

In Brazil, the American distribution giant recently opened its 10th distribution center, including four in São Paulo.

In Mexico, Amazon also has 10 fulfillment centers, including four in September alone. Amazon claims to have 185 fulfillment centers around the world.

Two years after arriving in Brazil, the Singaporean company Shopee is building its first distribution center in the country, according to local media, a sign that the company wants to strengthen its logistics to compete with its big rivals.

The company, which also operates in Mexico, recently announced the start of sales in Argentina.

MOBILE-FIRST

Latin America is more of a mobile-oriented region than other regions, as the Internet is mainly accessible through smartphones and similar devices.

This has a direct impact on how e-commerce services, solutions and investments are provided.

According to Ebanx and AMI data, based on 15 economies in the region, nearly 60% of total E-commerce volume will be paid for via mobile phones in 2021 – a 46% increase from 2020, when the mobile share reached 55%.

In 2019, the mobile share was 44%, and in 2018, only 39%.

The growth of e-commerce mobile app downloads are indicative of this trend.

In 2021, Brazil recorded the second highest number of such downloads, overtaking China and behind India, according to mobile marketing analytics platform Adjust.

Shopee was the most downloaded app in the e-commerce category until September – and Brazil led the number of such downloads globally with around 32% of total volume, according to Adjust.

With a very aggressive marketing campaign in Brazil and Mexico, Shopee was the fastest growing e-commerce player in the region. Traffic to its Brazilian website increased nearly 900% from January to September, according to figures from Similarweb.

Shopee is also growing rapidly in Mexico, where it currently ranks seventh for downloads in the e-commerce category, according to Ebanx. MercadoLibre is the first e-commerce application in Mexico, Chile and Colombia and the second in Brazil.

“Regional department stores such as Liverpool and Coppel in Mexico, and Falabella in Chile and Colombia, are also successful in attracting users to their mobile applications, ranking among the top 10 players in these countries,” according to the Ebanx study.

CENTRAL AMERICA

Central America is considered the next big market for e-commerce because connectivity and digitization rates are high, especially via mobile, and a digitally-savvy young population is increasing, while digital payment options are limited and online stores are scarce.

E-commerce in Latin America is expected to grow 37% in 2021, but by now 50% in some Central American countries, according to Ebanx.

The fastest growing e-commerce markets are Guatemala, El Salvador and Panama, all with projected growth rates above the regional average.

“It is a region barely explored, without many players, and where consumers are eager to purchase products and services from global merchants, such as streaming, SaaS, entertainment, games” EbanxVice President of Growth André Allain said in a statement.

FINTECHS AND ELECTRONIC PAYMENTS

Digital payments, including through new forms such as QR code, instant payments or contactless payments, are expected to become more prevalent for buyers and sellers in 2022.

Fintechs and non-bank companies are launching solutions like e-wallets, credit cards and prepaid cards, especially in underserved markets.

Likewise, 2022 should see the launch of new fast and instant payments solutions similar to the Brazilian Pix. The method of payment has developed every day in the country.

The number of Pix transactions in a single day hit a record high on December 20, registering 51.9 million transactions, according to the central bank.

According to a Visa study, 60% of consumers and SMEs in Latin America would like to adopt faster payment methods.

“This is the first Visa study in Latin America to examine the current situation and the opportunities for faster payments for consumers and SMEs. And the results are clear: faster access to money for individuals and businesses has become essential to maintain the conditions for survival, making people’s lives even easier ”, Romina Seltzer, Visa regional Senior VP of Products and Innovation, said in a press release.

“We see that the trend for faster payments in Latin America has grown rapidly, which can help create more efficient, transparent and digitally-enabled ways for workers, businesses and consumers to access cash. “

PRIVATE EQUITY AND VENTURE CAPITAL

Another trend set to accelerate is the consolidation of players in the e-commerce ecosystem and investments in private equity and venture capital, mainly from foreign funds.

According to Lavca, the Association for Private Equity Investment in Latin America, venture capital investment has “grown significantly in Latin America since 2016 to reach US $ 4.1 billion in 2020 and US $ 6.4 billion. US dollars for the only 1H21 “.

Many of these investments include e-commerce or e-payment companies.

Lavca’s analysis of startups that raised US $ 1 million in funding disclosed in 2020 and 1H21 found that e-commerce accounted for 10% of those investment rounds.

The segment only follows fintechs (which also includes payments), with 34% of the total; “Others” (including, among others, adtech, fitness and some e-commerce marketplaces), with 11%; and business software and IT solutions, with 11%.

For example, Colombian company Addi, which offers payment solutions under the buy now-pay later model, last week raised US $ 200 million in a funding round led by Softbank and GIC to help fund regional expansion, reaching a valuation of US $ 700 million.

Also last week, Prosus Ventures and Goodwater Capital led a US $ 135 million Series D + for Facily, a Brazilian social commerce marketplace, earning it a unicorn valuation of US $ 1 billion.


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