November 4, 2013, 2:34 PM

Latin America's leader looks ahead

MercadoLibre dominates e-commerce in Latin America, and, with heavyweight competition looming, it's raising its game. By Don Davis

Lead Photo

Any discussion of e-commerce in Latin America must begin with MercadoLibre Inc., the operator of eBay-like marketplaces in 13 countries that accounted for more than 15% of the region's e-commerce sales in 2012.

Founded in 1999 by Marcos Galperin, then a 27-year-old graduate student at Stanford University's business school, the company serves 81.5 million shoppers and 7 million sellers, handled $5.7 billion worth of sales on its platform in 2012 and booked revenue of $373.6 million. What's more, despite steady investments in technology, MercadoLibre has been consistently profitable, producing net income of $140.2 million in 2012, a year when Inc. lost $39 million on $61 billion in revenue.

Add in the potential for growth—online sales account for only about 3% of retail sales in Latin America, versus 5.5% in the United States—and there's little wonder the company's stock price on the Nasdaq exchange has doubled in the past year, giving MercadoLibre a market value of $4.7 billion.

Galperin has benefited from being a big fish in a relatively small pond. Latin America's e-commerce sales in 2012 were $36.74 billion, or 3.4% of the $1.089 trillion global e-retail market, says U.S. market research firm eMarketer Inc. One reason why MercadoLibre has flourished, Galperin says, is Latin America's relatively undeveloped retail industry. "The more inefficient retailers are, the more attractive an online marketplace becomes," he says.

Another reason is that Amazon does not operate a full-blown marketplace anywhere in Latin America. Plus, MercadoLibre's most logical competitor, eBay Inc., has owned a stake in MercadoLibre since 2001, and—until now—has held off competing against the Buenos Aires, Argentina-based marketplace operator. That, however, is about to change. EBay plans to launch an e-commerce site in Brazil within a year, Luis Arjona, eBay's head of operations in Brazil, said last month in announcing eBay's launch of a mobile fashion shopping app.

Galperin has been anticipating greater competition. "We believe there will be a lot growth in this market over the next few decades," he says. "Other people see this as well, and they will compete with us."

Indeed, with some of the world's biggest names in e-commerce investing in Latin America, Galperin is moving aggressively to extend his lead. As he does, he's addressing some of the major pain points that make it hard to sell online in Latin America, notably fulfillment and payment, as well as wooing large brands and retailers to his platform. If he succeeds, it would make MercadoLibre an even more attractive partner for retailers and consumer goods manufacturers from the United States and elsewhere seeking to break into Latin America.

Galperin doesn't have to look hard to find big rivals in Latin America—the list reads like a who's who of global web retailing. Most are targeting Brazil, the region's biggest market, which has an economy that has more than tripled in size over the last decade, according to the World Bank. Inc., No. 11 in the Internet Retailer 2013 Latin America 400, in December 2012 launched its Kindle Store in Brazil, its first e-commerce site there, selling the electronic book reader as well as e-books for the Kindle. Then there is Wal-Mart Stores Inc. Brazil is one of four major markets Wal-Mart is targeting for e-commerce expansion—along with the United States, United Kingdom and China. The world's largest retailer says sales on grew 40% in the first quarter of 2013 over the previous year. is No. 8 in the Latin America 400, which ranks e-retail leaders in the region by their web sales.

Another potential competitor is eBay, which took a 19.5% stake in MercadoLibre in 2001 in exchange for IBazar SA, an online marketplace in Brazil that eBay owned. (EBay's stake was diluted to 18.4% when MercadoLibre went public in 2007.) The deal included a five-year non-compete clause, which lapsed in 2006. "We are a completely independent company from eBay," Galperin says. "EBay doesn't sit on our board."

Although eBay does not yet operate e-marketplaces in Latin America, the two companies are starting to butt heads. In 2011, eBay acquired Argentina-based online classifieds company alaMaula, a rival to MercadoLibre's classifieds business. And eBay's online payment service, PayPal, handles transactions in the Brazilian real and Mexican peso, putting it in competition with MercadoLibre's similar MercadoPago service. What's more,, the company's U.S. site, now detects visitors from Brazil and shows listing from merchants willing to ship there. In 2012, eBay registered a shopper from Brazil buying a women's handbag on every four minutes on average.

In addition to those U.S. rivals, Japan-based e-commerce operator Rakuten operates its own online marketplace in Brazil, ranking Rakuten No. 56 in the 2013 Latin America 400, and in 2011 it bought Ikeda, a Brazilian e-commerce service provider.

Nonetheless, MercadoLibre still dominates e-commerce in Brazil, which accounts for 48% of the company's sales. attracted 25.2 million unique visitors in June 2013, accounting for nearly half of the 52.6 million Brazilian consumers who visited retail web sites that month, web measurement firm comScore Inc. says. Because of the stiff competition, MercadoLibre's e-commerce percentage market share in Brazil is only in the "high teens," the company's chief financial officer, Pedro Arnt, said in a May 2013 presentation to analysts of U.S. bank JPMorgan Chase & Co. Elsewhere in Latin America, Arnt said, "our market share can vary anywhere between mid-to-high 20's to low 30's."

Inspired by eBay, Galperin initially launched MercadoLibre as an auction site, but quickly found consumers preferred buying at set prices. And the established retailers the marketplace attracted over the years preferred selling new items at fixed prices. Today, 95% of transactions are fixed-price sales and 80% of the items sold are new, he says. MercadoLibre charges listing fees and a commission on sales that ranges from 1% to 10% depending on which of three options a seller chooses.

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