Amazon v. MercadoLibre: Latin America's Online Retail War Heats Up
The online retail giant now has its eyes set on Argentina, putting it on a collision course with regional market leader MercadoLibre.
BUENOS AIRES — With a simple registration process completed in Buenos Aires, in November, the online retailer Amazon quietly but officially planted its heavy foot in Argentina. For now, the company will provide only cloud and data management services. But for competitors like MercadoLibre, Argentina's leading online retailer, the writing is on the wall: Sooner rather than later, the U.S.-based giant will move into the sector it's best known for, online shopping.
Amazon, founded in 1994, first set up shop in Latin America in 2011, in Brazil. It expanded to Mexico in 2014 before entering Chile and Colombia earlier this year. It wants to be present, in other words, where it can, including Argentina, where it began recruiting staff in January 2017 for the web services it will provide to local corporations such Garbarino, a household appliance provider, and MercadoLibre itself.
Marcos Grilanda, a regional manager with Amazon, expects the company to bring in about $18 billion this year from web services alone. It's a particularly profitable arm of the company, he explains, even if it accounts for just 10% of Amazon's total revenues. Grilanda says the company keeps its two business branches — IT services and retail — strictly separate. Executives with the respective branches may work in the same building, he explains, but they only "report to the boss," meaning Jeff Bezos
Amazon began operating in Brazil by selling Kindle readers, and recently entered the market for electronic goods and some household products. In Mexico, it focused initially on web services but, after a year (in July 2015) launched retailing operations following its U.S. business model. Chile, Colombia and Argentina are expected to head the same way despite some challenges for now.
One of the hurdles is recruiting for its Southern Cone operations, which Amazon wants to run from two offices, one in Chile, the other in Argentina. Some candidates have reportedly rejected employment offers because of how much travel — between Buenos Aires and Santiago — the jobs would entail.
Candidates are currently told that web services are a first step toward expansion into full-blown e-retailing. That means following both the MercadoLibre model — where the company functions as a mediating platform between buyers and sellers — and the more traditional model Amazon employs in the U.S., Mexico and other markets.
It's not just a website.
Word has it that the company is already seeking executives in Latin America for its retail operations, and that, once it's ready, Amazon will launch its platform simultaneously in Argentina, Brazil, Bolivia, Paraguay and Uruguay. Still, it could be a while yet before Amazon has its retail arm entirely up and running, especially when it comes to replicating the MercadoLibre model.
As Sean Summers, MercadoLibre's regional vice-president, explains: "Playing an intermediary role in buying and selling is not that simple. It's not just a website: You have to have the logistical structure for deliveries, guarantee timely delivery of goods and offer payment options, among other things." Summers believes Amazon will eventually do all this. "But it's not going to be in 2018," he says.
In Argentina, Amazon doesn't even have offices yet, though it did appoint a country manager, Andrea Cerqueira of Brazil, last January. Giants move slowly. Even so, MercadoLibre is keeping a eye on things and expects Amazon will eventually pose a challenge. "They're formidable competition, but with them in Brazil and Mexico we're doing well," says Summers.
The Argentine firm, founded in 1999 by Marcos Galperín, has become the region's biggest online seller, with a Nasdaq market value of over $14.1 billion and a Southern Cone presence that far predates the arrival of Amazon. MercadoLibre's biggest market is Brazil — "it's half our global operation," says Summers — followed by Argentina (28%) and Mexico (10%). The rest of the revenue comes from Venezuela, Colombia, Chile and Uruguay. Summers says business picked up when its set up its retail platform in Mexico in July 2015.
But Amazon is also growing, with a current estimated market value of around $566 billion, and investors are taking note. In October, as talk of Amazon's arrival in Argentina picked up, MercadoLibre's shares dropped 14% but have since recovered. Summers calls the sudden selloff an "overreaction" and notes that in Brazil, in particular, the company is growing. "The market itself is getting bigger," he explains. "Both firms are investing and that gives electronic commerce a boost in general."
Galperin founded MercadoLibre in 1999
That's not all the two firms have in common. Both survived the dot.com crash and went on to prosper. They also both favor electronic payment. Summers points out that in November, its platform notched up a million transactions online in one day — "a record!"
Overall, MercadoLibre employs 5,000 people regionally, mostly in Brazil (1,800) and Argentina (1,500), and sells 106 million products from 3,000 online retailers. On average it sells nine items a second, and has 27.7 million "regular buyers." Importantly, MercadoLibre also well established logistical networks in place allowing it to provide free deliveries. That, in other words, is what Amazon is up against.
Summers is careful so far to downplay the challenge. "They entered the retail sector in Mexico in 2015, and 90% of their products are bought from Amazon U.S. and sent to Mexico. That advantage wasn't enough to overcome competition: We're still ahead there," he says. "I'm comfortable," the MercadoLibre executive adds. "I try to control what we can, and that should work for us. We'll adapt to changes as always."