E-commerce, one of four investing themes we wrote about in late 2020, has grown steadily for several decades in the U.S., registering a respectable 16% of total retail sales at the end of 2019.  Expectations for similarly measured growth in 2020 were supercharged by the pandemic, compressing 10 years of prior trend growth into three months and now represents 27% of the total retail.  With the onset of COVID vaccines, much will revert to normal, but e-commerce has a new place in the retail landscape and presents tremendous opportunities for shoppers and investors.

Nearly 1/2 of online shopping in the U.S. runs through Amazon.  For reasons many of us have now experienced first-hand, Amazon has been and will be the standout leader in the U.S for the immediate future.  E-commerce is even larger globally.  In 2019, China was the biggest e-commerce market at $740 billion, growing more than 70% annualized over the last five years.  Compare that to the U.S. market at $561 billion growing at 45% over the same period.

Amazon tried to compete in China but dropped out in 2019 due to its inability to overcome barriers placed on foreign companies by the government.  Alibaba Group is the largest e-commerce player in China and globally; their Taobao and Tmall marketplaces rank first and second in terms of gross merchandise volume, with Amazon at number three.  One distinction between the two business models is that Alibaba Group operates as a middleman between buyers and sellers, while Amazon is a massive retailer for new and used goods.  However, Alibaba is facing political pressures now following the canceled IPO of its payments subsidiary Ant that may extend to limitations on its core e-commerce platforms.

Outside the U.S. and China, e-commerce markets are more fragmented and sellers less concentrated.  Amazon leads in Europe, followed by a disparate list of local competitors, but has no presence in Africa, an emerging mobile-commerce market, due to the costs and challenges of setting up the required infrastructure.  Mercadolibre, the 7th most visited e-commerce site globally, stands out due to market-leading coverage across South and Central America.  Headquartered in Buenos Aires, the company started in 1999 and transacts most of its business in Mexico, Colombia, Brazil, and Argentina.  Their marketplace services offer an e-commerce platform, shipping solutions, and advertising support for sellers.  They also offer payment services, including a partnership with Paypal, to expand client options and geographical reach.

Online shopping in Latin America is only getting started, representing less than 5% of total retail sales in the region.  Only half the population has internet access, and one-third have purchased something online compared to three quarters of the population in the U.S., respectively.  Mercadolibre enjoys a demonstrable lead in the region with more than 2.5 times the traffic of its nearest competitor, Amazon; Alibaba is even further behind.  Their ability to conduct business across national borders is a distinct plus for their sellers.

E-commerce is here to stay, the pandemic only cemented its role as a primary driver in the growth of retail.

*The reader should not assume that an investment in the security identified or described was or will be profitable.  Any reference to a specific company does not constitute a recommendation to buy or sell that company.

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