What to expect from LatAm e-commerce in 2022

The digitization of sales got to a point of no return in Latin America, one of the fastest growing e-commerce markets.

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

According to Americas Market Intelligence (AMI), Latin American online sales volumes are set to grow 29% between 2020 and 2024, to US$580bn, which should open up different business and investment opportunities.

For 2022, despite the resumption of traditional retail activities, the segment is set to register new sales growth and a new user base expansion. 

This expansion is due in part because e-commerce still represents a small fraction of total retail sales.

“Latin America is the current big thing for local and global e-commerces that want to tap a market where commerce is expected to grow 30% every year through 2025,” according to a study by Ebanx.

Overall, e-commerce has been growing at a double-digit and even triple-digit pace in almost every market across the region.

According to MasterCard's SpendingPulse report, online sales grew 75% year-over-year in 2020 in Brazil, the largest market in Latin America. Brazilian e-commerce association ABComm reported a 68% growth for last year, to 126bn reais (US$23bn).

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

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

In the first half, sales of Mexican SMEs through digital channels doubled year-over-year, and AMVO projected such channels would represent 25% of total SMEs sales by year-end.

Meanwhile in Argentina, local e-commerce chamber Cace reported online sales growth of 124% in 2020. In the first half of this year, sales doubled in nominal terms, up by 101% year-over-year.

FAST SHIPPING

With the entry of a large contingent of new buyers and the maturing of the current user base, the bar of customer demands went up – both in terms of payment forms and delivery times.

As a result, giants such as MercadoLibre, Amazon, Brazil's Magazine Luiza, among others, have been investing heavily in the construction and expansion of logistics centers, as well as in different transport modes, to increase same-day or two-day shipping as much as possible. 

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

“We are building out what we think is one of the best-in-class networks in the region, and we will continue to grow the nodes on that network,” Arnt said.

Amazon is equally expanding its footprint in the region.

In Brazil, the US retail giant recently opened its 10th distribution center, four are in São Paulo.

In Mexico, Amazon also has 10 distribution centers, launching four in September alone. Amazon claims to have 185 fulfillment facilities worldwide.

Two years after arriving in Brazil, Singapore's Shopee is building its first distribution center in the country, according to local media reports, in a sign that the company wants to boost its logistics to compete with large rivals. 

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

MOBILE-FIRST

Latin America is more than other regions a mobile-first region, as internet is accessed mostly via smartphones and similar devices. 

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

According to data from Ebanx and AMI, based on 15 economies in the region, almost 60% of total e-commerce volume will be paid through cell phones in 2021 – a 46% increase compared to 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 is indicative of this trend.

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

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

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

Shopee is also rising fast in Mexico, where it currently ranks seventh in downloads in the e-commerce category, according to Ebanx. MercadoLibre is the leading e-commerce app in Mexico, Chile and Colombia and number two in Brazil.

"Regional department stores such as Liverpool and Coppel in Mexico, and Falabella in Chile and Colombia, are also having success 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 seen as the next big e-commerce market, as connectivity and digitization rates are high, especially via mobile, and a digital-savvy young population is growing, while digital payment options are limited and online stores rare.

E-commerce in Latin America is expected to expand 37% in 2021, but by 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 barely explored region, without many players, and where consumers are eager to buy products and services from global merchants, such as streaming, SaaS, entertainment, games,” Ebanx’sVP of growth André Allain said in a statement.

FINTECHS AND E-PAYMENTS

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

Fintechs and non-banking 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 Brazil’s Pix. The payment method has grown every day in the country.

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

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

“This is Visa's first Latin American study to examine the current status and opportunities for faster payments for consumers and SMEs. And the results are clear – faster access to money for individuals and businesses has become essential for maintaining 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 towards faster payments in Latin America has been growing rapidly, which can help drive more efficient, seamless and digital-first ways for workers, businesses and consumers to access cash."

PRIVATE EQUITY AND VENTURE CAPITAL

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

According to Lavca, the association for private capital investment in Latin America, venture investment has "grown dramatically in Latin America since 2016 to US$4.1bn in 2020, and US$6.4bn for 1H21 alone."

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

Lavca’s analysis of startups raising US$1mn in disclosed financing in 2020 and 1H21 found that e-commerce accounted for 10% of such investment rounds. 

The segment trails only fintechs (which also includes payments), with 34% of the total; "Other" (including, among others, adtech, fitness, and some e-commerce marketplaces), with 11%; and enterprise software and IT solutions, with 11%.

For example, Colombia's Addi, which offers payment solutions under the buy-now-pay-later model, raised last week US$200mn in a funding round led by Softbank and GIC to help fuel regional expansion, reaching a reported US$700mn valuation.

Also last week, Prosus Ventures and Goodwater Capital led a US$135mn series D+ round for Facily, a Brazilian social commerce marketplace, giving it a reported US$1bn unicorn valuation.