Cross-Border Trade with Karen Bruck, Vice President CBT

Introducing Karen Bruck and Her Vision for Cross-Border Trade Hello to our listeners and welcome to the latest episode of Inside MercadoLibre, our IR podcast that brings our management team closer to investors. I'm Richard Cathcart, Mellie's IRO, and I'm delighted to be joined today by Carrie Brooke, VP of cross-border Trade. Karen, welcome and thanks for taking the time to join us. Thanks, Richard. It's a pleasure to be here. Great. So before we go on to CBT in more detail, Karen, you've been at Mellie for a few years now. So perhaps just to get started, tell us a little bit about the different roles that you've had at My Color Libre, how you ended up leading CBT and then what your ambitions are for the business. Great. So I'll start with a little bit of history. Speaker 2 I've been at Mellie for almost 13 years now, joining back in 2013 when the company had little over 2000 employees so. Speaker 1 Even though it was already publicly traded it. Speaker 2 Felt more like a. Speaker 1 Startup full of. Speaker 2 Energy and potential I had just come back from living in the US for more than 10 years and I couldn't believe I had found the company in La Tam. But it felt more like working from Silicon Valley. Speaker 1 So I started out. Speaker 2 As a country manager for Uruguay. Speaker 1 Where? Speaker 2 I was born and raised and from there I took on responsibility. Speaker 1 For all of our. Speaker 2 Hispanic Markets and after that I moved into a corporate role focused on launching new initiatives including our first party retail business, groceries and finally. Speaker 1 Cross-border trade. Speaker 2 And the ask. Speaker 1 Cross-border grew into. Speaker 2 A very large and fast moving business in its own right. It became my sole focus and that has been the case. Speaker 1 For the past four years, actually. Speaker 2 And in terms of ambitions, the most, at the most fundamental level, we want to bring international sellers and their products to our more than 120 million buyers across the town. Speaker 1 It goes. Speaker 2 Beyond just connecting supply and demand, we want to provide sellers in China and in the US. Speaker 1 With a full suite of. Speaker 2 Technological and logistical solutions, they need to unlock these markets. That means adapting our technology. Speaker 1 To serve very. Speaker 2 Different types of sellers from small factories in China that have never sold outside their home market. Speaker 1 All the way to. Speaker 2 Globally recognized brands that are looking to. Speaker 1 Establish a serious. Speaker 2 Presence in the region and increasingly we think about China and the US first when we build our tools to make sure. Speaker 1 They are scalable. Speaker 2 And accessible. A good example of that is how we are integrating tools that Chinese. Speaker 1 Sellers already use day-to-day like. Speaker 2 WeChat and building customer experience services from China. The goal is to remove every possible barrier between a great product in China and a buyer in Latam who wants it. Speaker 1 OK, great. That's super interesting. MercadoLibre's Strategic Rationale and Advantages in Cross-Border Trade And the WeChat example is an interesting one because I think we just launched our seller assistant for the other sellers in China on WeChat, if I'm not mistaken, given that they essentially do everything but the cell phones. Now before we go on to the ambitions in more detail, maybe just a couple of high level questions that I've been receiving from investors and obviously you're the best person to give the best answer to them. So the first one is why are we doing CBT and the second one is what competitive advantage do we have versus other players in the market? Speaker 2 Yeah. So on the first one, why cross-border? Speaker 1 Basically the core logic symbol. Speaker 2 We want to bring extended assortment to Latin American consumers at great prices and the two main. Speaker 1 Sources of that assortment. Speaker 2 Are China and US right now? Eventually we'll get into more markets, each bringing something different to the table. Speaker 1 When you think about. Speaker 2 China, the immediate association is price competitive and branded products and that is really important we're doing that. Speaker 1 But it is actually a richer story than that. Speaker 2 We're also helping Chinese brands that are global leaders in technology and innovation. Speaker 1 Reach their fair share. Speaker 2 Of the Latin American market, these are companies were. Speaker 1 World class products that are buyers. Simple. Speaker 2 Couldn't access before. Speaker 1 On the US side, we're. Speaker 2 Working with established American brands to build a real presence in markets like Mexico and increasingly Argentina and other countries as well. Speaker 1 The formula works because. Speaker 2 Latin American consumers will always want more. Speaker 1 Choice at better prices and cross-border delivers both. It's worth saying this. Speaker 2 Is not a new business for us. Speaker 1 CBT, as we call cross-border already. Speaker 2 Represents more than 15. Speaker 1 Percent of our. Speaker 2 GMV in Mexico, we're not starting from zero. We are scaling something. Speaker 1 That is already working. Speaker 2 And we believe can be a lot larger over time. That takes me to the second part of your question, competitive. Speaker 1 Advantages. I would highlight three First. We're by far the largest. Speaker 2 Ecom platform in the region and that is still at a much earlier. Speaker 1 Stage of. Speaker 2 Development than most other. Speaker 1 Regions for sellers outside. Speaker 2 Of the region, particularly from China, that. Speaker 1 Scale is very attractive. Speaker 2 And the interest is only growing. I just came back from spending two weeks in China this weekend and the appetite for Latin America is skyrocketing, especially given the. Speaker 1 Geopolitical pressure sellers are. Speaker 2 Facing in other markets. Speaker 1 We actually held a. Speaker 2 Seller event with over 1500 people in the room and another 70,000 watching online. That is wow, mind blowing, yeah. Speaker 1 That that's bigger than Medi XP in Brazil if you include all of the people online, absolutely. Speaker 2 A lot of interest. The second advantage? Speaker 1 I would say is. Speaker 2 We have the most robust logistics network in Latam and we're using it to help Chinese and US. Speaker 1 Sellers localize. Speaker 2 Their inventory in our warehouses so they can reach buyers in under 48 or given 24 hours. And the third one, we have recently opened fulfillment centers in both Texas and China, which means sellers can keep inventory close to their homes. Speaker 1 Sell with their local. Speaker 2 Entities and let us handle all the cross-border complexity. That business is growing three times year on year and we have built the infrastructure. Now it's all about. Speaker 1 Scaling it, that's great. And like I said, really impressive numbers there in terms of the the engagement with Melee XP in China. Just before we go on to discuss the business in a little bit more detail, I think it would be useful to touch on each of the models that we operate. I think most of our listeners won't be that deep on the detail of our CBT business. So I think that's probably going to be helpful before we go into some of the other topics in more detail. Exploring Local, Remote, and Drop Shipping Fulfillment Options Absolutely. And I think it's worth explaining because the models are quite different from one another and each serves a different type of seller at a different stage of their journey with us. So starting with. Speaker 1 What we call local. Speaker 2 Fulfillment. So it's basically sellers from China or the US using our fulfillment locally? Speaker 1 Which is a very. Speaker 2 Developed model and it. Speaker 1 Plays a particularly big. Speaker 2 Role in Mexico, to a lesser extent in Chile and we're now actively launching it in Brazil and the way it. Speaker 1 Works is pretty straightforward, so sellers will ship. Speaker 2 Their inventory to us in advance before any sale is made and when a buyer places an order. We handle the last night delivery using our. Speaker 1 Local logistics. Speaker 2 Network sellers using this model also tend to become. Speaker 1 Very. Speaker 2 Sophisticated. Over time, they develop a real understanding of local demand and actively invest in advertising and promotions. Speaker 1 To reach. Speaker 2 Our more than 120 million buyers. The one requirement is that sellers. Speaker 1 Need to. Speaker 2 Get a local entity or tax ID to operate in each one of the markets. So that's a meaningful step towards their commitment. Speaker 1 That takes me. Speaker 2 To the second model. Speaker 1 Which is why we. Speaker 2 Build the remote fulfillments in both the US and China. Speaker 1 Basically here sellers. Speaker 2 Will ship their inventory to a. Speaker 1 Local. Speaker 2 Address in their own country and we can sell using their existing local entity which makes it much. Speaker 1 Easier to get started. It is a great. Speaker 2 Way to test demand and build confidence before making the bigger investment to setting up. Speaker 1 Locally we think of. Speaker 2 It as a stepping stone, sellers can prove the market and then graduate to local fulfillment when they are ready. And within this model, we have just launched our fully interested model. Speaker 1 Which? Speaker 2 Take things a step. Speaker 1 Further so factories or. Speaker 2 Traders can send their products and we take care of pricing, sales, catalog, very similar to what we consider to be a first party model, but originating from China. And then finally there's international drop shipping or remote model. Speaker 1 Which is the most capital? Speaker 2 Light option here sellers. Speaker 1 Keep their products. Speaker 2 In their own facilities. Speaker 1 And they ship. Speaker 2 Directly to Latin America as the orders come in. Speaker 1 So it requires. Speaker 2 The least upfront commitment, which makes it a natural entry point for. Speaker 1 Sellers, we're just. Speaker 2 Beginning to explore Latam. Speaker 1 So. Speaker 2 Together, I think these three models will. Speaker 1 Give us a Really. Speaker 2 Broad funnel from a. Speaker 1 Seller taking their first. Speaker 2 Steps in Latam all the way to a fully embedded model in our local infrastructure. Speaker 1 OK, OK, fantastic. And we've got the local fulfillment, the remote fulfillment, and then the international drop shipping. Addressing Chinese Seller Perceptions and Providing Key Support Just going back to one of the points that you made before, I wanted to dig into the point about sellers in China a little bit more. I actually remember having a conversation with you, I think it was around 18 months ago, and you said that the perception of Latin America among sellers in China had completely changed since you made your first trip there. And like you said, you've just come back from China. So perhaps you could just give us a little bit more insight into how sellers and merchants that perceive melee and perceive the opportunity in Latin America. Speaker 2 Absolutely. I think it's it has been a remarkable shift and it continues. Speaker 1 To be so. Speaker 2 I think the single. Speaker 1 Biggest driver is. Speaker 2 Diversification, right Chinese. Speaker 1 Sellers are actively. Speaker 2 Looking to reduce their dependency on markets. Speaker 1 Where they face headwinds. Speaker 2 Right now, whether it is increased competition, pressures on the different regulations or what's going on now, a lot of uncertainty in terms of the war and geopolitical changes and in terms of Latin America. Speaker 1 They see it as a very vast. Speaker 2 Region where they can access a new. Speaker 1 Set of buyers. Speaker 2 And operations what also changes how? Speaker 1 Sellers perceive us specifically when I first. Speaker 2 Came to China, I had to explain who many was and why LATAM was worth their attention. Speaker 1 That was eight years ago. Speaker 2 Today, that conversation is completely different. So sellers come to us already motivated and they want to understand how to grow. Speaker 1 Here. Speaker 2 How to build a brand how to make Latama meaningful part of their business and we have made that easier by giving them the ability to reach 6 countries from a single seller account through our global selling solution, which removes a lot of. Speaker 1 That complexity. Speaker 2 And what they found particularly exciting is the ambition we're seeing. Sellers are not just looking to move product, they are investing in advertising, building their brand awareness in the region and thinking really how to become a household name in Latam. And that is great. Speaker 1 Fantastic that, that's really promising. And again, you also mentioned the many XP event in China are the key things there and where do you think that the sellers need most help as we look to to ramp up the cross-border operation? Yeah. Speaker 2 So the event centered in two big things. The first one was trying to demystify Latam. So many sellers still see the region as a distant place and very complex to manage. Speaker 1 So a lot of our efforts. Speaker 2 Went into closing that knowledge gap. We shared market insights, demand patterns, category by category guidance so that we can help those sellers understand LATAM and make it closer to them. The second theme was our new operating models, so specifically the semi managed and fully managed consignment models that are rolling out now from China. Speaker 1 Specifically, and they were. Speaker 2 Designed precisely to address the biggest pain points. Speaker 1 Sellers raised so. Speaker 2 All the complexity in logistics, in customs, in compliance. Speaker 1 The difficulty they. Speaker 2 Find managing operations across six different countries. So the message we want to land was simple. Focus on your products and supply chain strengths and we will handle. Speaker 1 All of the rest. Speaker 2 And the. Speaker 1 Areas where sellers. Speaker 2 Most need support are actually localization, right? The fulfillment model I was telling you about. Speaker 1 So what are the? Speaker 2 Local consumer preferences, what are the issues that they can facing? Compliance in tax regulations in markets like Mexico and Brazil and long term brand building as well. So many sellers came in with a short term mindset and once we show them the potential, their goal is. Speaker 1 To really set up a huge. Speaker 2 Opportunity and investment in LATAM. Speaker 1 OK, that's fantastic. Now going back to the ambitions you mentioned at the start, what are the key building blocks to achieve that in the coming years? Key Strategies and the Fully Entrusted Model for Cross-Border Growth So good. Speaker 2 Question I think. Speaker 1 As always, we have. Speaker 2 Three different pillars to to build upon. The first one is technology and localization. Speaker 1 A lot of what we're building is specifically designed to. Speaker 2 Remove the friction. Speaker 1 That stops sellers particularly. Speaker 2 In China from engaging fully with the platform. Speaker 1 As the. Speaker 2 Barriers in China, specifically the language and the cultural. Speaker 1 Barriers are real. Speaker 2 So we are launching all of our tools in Chinese, building a dedicated customer service operation in China, integrating with the tools they are already using like we mentioned WeChat and also. Speaker 1 Other tools. AI tools. Speaker 2 From China as well and we're building different models. Speaker 1 That are critical to access the. Speaker 2 Supply in China such as the fully interested that we mentioned right, similar to to a consignment model the second. Speaker 1 Pillar is logistics. Speaker 2 Opening our fulfillment centers in China and the. Speaker 1 US were their starting. Speaker 2 Point, but it's not the finish line. We will continue to invest in making the China to let them corridor faster and more cost effective, managing every stage of the international delivery journey and leveraging the fastest. Speaker 1 Local. Speaker 2 Solutions at every step and I would say the third one is on our on the ground presence. We learned early on that we needed to grow our teams both in China and the US to be close. Speaker 1 To our sellers, our. Speaker 2 Brands, our partners I have. Speaker 1 To say we're just two weeks away. Speaker 2 From opening our new offices in Jensen and Shanghai and it is truly mind blowing to walk into a reception area and see our logo displayed in Chinese characters. It it might be symbolic, but I think it reflects our a real commitment to our markets there. Speaker 1 Yeah, that's really amazing. And thank you for the for the information on the Shenzhen and Shanghai offices. So you you mentioned in the first of the three points there you mentioned the fully entrusted model. Tell us a little bit more about that and what it involves. Speaker 2 Sure. So I think the most important part is. Speaker 1 Why we believe this? Speaker 2 Model is so important the first. Speaker 1 Thing I would. Speaker 2 Say is to really understand who are we targeting with this new model and this is basically the small and medium sized. Speaker 1 Manufacturers that are the. Speaker 2 Backbone of China's cross-border trade, but there are hundreds of thousands of them and they have incredibly low production costs and together they can cover an astonishing ratio products and that is the. Speaker 1 Type of. Speaker 2 Assortment that we're actually willing to connect to our Latin buyers. Speaker 1 But there's a huge. Speaker 2 Challenge, which is these. Speaker 1 Factories are experts at. Speaker 2 Making things but not specifically at selling online, so most of them. Speaker 1 Have little. Speaker 2 Or no e-commerce. Speaker 1 Capability they. Speaker 2 Don't know anything about Latam and in many cases they don't even speak English so let alone Spanish or Portuguese. Speaker 1 So the. Speaker 2 Idea of managing listings, logistics, customer service compliance across six countries is not realistic. Speaker 1 That is precisely where the fully. Speaker 2 Managed model comes in. We take on essentially everything, pricing, listings, logistics, costumes last night. Speaker 1 Delivery after sales. Speaker 2 You name it, the manufacturer just. Speaker 1 Supplies the product. So it's very early days. We're literally. Speaker 2 Still testing and launching today and tomorrow. Speaker 1 But it's literally a way to. Speaker 2 Enable all of these assortments across Latown. Speaker 1 OK, great. Yeah, I think we've just gone live with that today, so hot off the press, the IO podcast. Complementing China with US Brands and Fulfillment Centers So we've talked a lot about China and I think for obvious reasons, perhaps just taking a step away from China and a little bit closer to home to talk about the US, where we open the Texas fulfillment center I think a couple of years ago. And So what role does the US play in the strategy as a whole? Yeah, so the US is actually a. Speaker 2 Really important complementary piece of the puzzle I think it sometimes gets. Speaker 1 Overlooked when people focus. Speaker 2 On the China story, which is a much larger part of. Speaker 1 The cross-border story. Speaker 2 But I think the logic is similar in some. Speaker 1 Ways right, just as. Speaker 2 Chinese sellers bring that depth of assortment and price competitiveness that complements. Speaker 1 Exactly what we already. Speaker 2 Have in latam US sellers bring their own set of strengths established brands, high quality products, categories where American names. Speaker 1 Carry real weight would. Speaker 2 Let them customers and that we are lacking in our local assortment right now. So similar to China, we operate the same three models from the US. The first one is. Speaker 1 Through our Texas. Speaker 2 Fulfillment center, which we open in 2024 and this is our remote fulfillment model. Speaker 1 Where sellers will ship. Speaker 2 Their inventory to us in the US and we will handle all of the complexity and the beauty of this model is that if you think about it for Mexico. Speaker 1 Specifically, it's almost as if they were selling locally. Speaker 2 Because it can reach any major city within three days, but at the same time it eases all the complexity to American sellers that are not experts in exports. The second model is the fulfillment in Mexico, very similar to what I mentioned in China. So, sellers. Speaker 1 Decide which products to ship locally. Speaker 2 In Mexico and they operate as a local seller. And finally, the international drop shipping, which as I mentioned is a lighter touch and true point for sellers who want to test the demand for making a bigger commitment. I think what is particularly exciting. Speaker 1 Is that there are thousands of sophisticated. Speaker 2 E-commerce sellers in the. Speaker 1 US who are already very good. Speaker 2 At serving American customers and with the tools who are making available to them, they can expand into Latam and that would be a very natural next step to them, right given. Speaker 1 How close? Speaker 2 We are in the. Speaker 1 Geography we have very scalable ways. Speaker 2 For them to upload. Speaker 1 Their. Speaker 2 Catalogs handle the logistics, all the payment infrastructure, all the last mile complexity. So we. Speaker 1 Are just. Speaker 2 Willing to get them into our platform and bring their products and their ambition and we can be the perfect partner to unlock that. And I think Mexico has our initial. Speaker 1 Focus for US. Speaker 2 And it performed really well. But now we're also opening up other countries. So Argentina is already performing really well and we hope to continue to grow in Chile, Colombia, Brazil and Uruguay next. Speaker 1 That's great. So we've been talking in in IR, we've been talking about CBT as an area of investment and that investment ramped up in 2025 and should continue in 2026. Unlocking Profit, Seizing Opportunity, and Preserving Meli's Spirit Over time, what are the main leaders we can pull to make this a profitable operation? Speaker 2 Yeah. We're definitely investing, but at the same time, we're scaling the business at a very fast pace. And I think that scale is the foundational lever, right. And I think we are growing at roughly. Speaker 1 Twice the speed of. Speaker 2 The marketplace in each one of the different countries. So that means that the man is there and we can scale pretty fast the second lever. Speaker 1 Will be the. Speaker 2 Fully managed model that I. Speaker 1 Talked to you about which is particularly attractive. Speaker 2 From a margin perspective. Speaker 1 Because we. Speaker 2 Have a greater control over pricing and we're also sourcing directly from manufacturers, which removes some of those middle costs from the equation and the third. Speaker 1 Level which? Speaker 2 I think sometimes it's not even appreciated. Speaker 1 As such is the shift towards local. Speaker 2 Operations. Speaker 1 We are. Speaker 2 Leaders in a local markets and we can make it a lot more scalable. Speaker 1 If they actually adopt local fulfillment. Speaker 2 Models right and they're the unique economics are meaningfully better. Also the environmental costs. Speaker 1 Are better delivery is. Speaker 2 Faster conversion is higher. Speaker 1 So it's. Speaker 2 Really the natural next step. Speaker 1 For all of our sellers to adopt. Fantastic. So maybe just last couple of questions coming up here. So we've been through quite a lot of the detail about each of the models and why fulfillment one of the competitive advantages. So just zooming back out here, high level question, how big is the opportunity and how optimistic are you? Speaker 2 Oh, I'm very optimistic and I say that as someone who has been at Medi for 13 years and I've been through a lot of different cycles, but I think if. Speaker 1 We put this opportunity. Speaker 2 In perspective, Latam has over a 600 million. Speaker 1 Potential buyers. Speaker 2 In the region and the e-commerce penetration is still. Speaker 1 Pretty low. Speaker 2 Right at 14% roughly. That is compared to almost 30% in the US and over 40% in China. Speaker 1 So that gap is a structural. Speaker 2 Growth runway that will. Speaker 1 Play out over years. Speaker 2 Decades and cross-border trade is one of the most powerful levels, I think, to accelerate it because it brings assortment and price points that simply don't exist. Speaker 1 Locally today. Speaker 2 And when I think. Speaker 1 About where? Cross-border. Speaker 2 Seats within that the numbers. Speaker 1 Will speak. Speaker 2 For themselves, right, with the investment and all of the developments that we've made, our platform grew in the last half more than 60% year over year. And there's still an open opportunity in Brazil, which is more than half of our business in Latam, but it's pretty on top from our cross-border business so the. Speaker 1 Growth that we will expect is huge. Speaker 2 And also the timing. Speaker 1 Right, we build the. Speaker 2 Logistics infrastructure. Now we have to make it a lot more scalable. The technology is there. So yeah, I'm very optimistic. I think the building blocks are there in place. The timing is right and we're just getting started. Speaker 1 OK, that's fantastic. So it's going to be interesting to to follow this over the next two, three, 5-10 years and beyond. But just to run the conversation here, Karen, I just wanted to go back to the beginning, right? And you're someone that you've been at Melee for 13 years. You've had all sorts of different roles. And so just more generally, looking beyond cross-border, you know, what's changed and what has stayed the same through all of that time? Speaker 2 Looking back when I joined Melee, we our revenue was around 500 million, right? And today we're at 28 billion. Speaker 1 So it's not just growth, right, it's. Speaker 2 A complete transformation of the business. A company, the complexity, our ambitions and I think. Speaker 1 Cross-border is actually a perfect. Speaker 2 Illustration of what? It looks like that transformation, right? I was remembering coming back from China the first time I went there. Speaker 1 Was 80 years ago. Speaker 2 We're trying to establish a team after the pandemic. We actually. Speaker 1 Hired the first couple. Speaker 2 Of employees from there and we have to pay them with our own credit cards because we didn't have an operation there. And you Fast forward eight years and the idea of opening fulfillment centers and offices and teams dedicated in most of Jensen and Shanghai and in Miami in the USI think being able. Speaker 1 To do all of. Speaker 2 That and connecting those international sellers directly to LATAM customers. Speaker 1 At this scale. Speaker 2 It would have been a dream. Speaker 1 Eight years ago. Speaker 2 And I think that changed. Speaker 1 Our ability to go. Speaker 2 After all of the opportunities that we can invest longer term and a lot bigger and have that. Speaker 1 Infrastructure that's. Speaker 2 Really like a dream coming true. Speaker 1 But I would say that what stayed? Speaker 2 The same is what I was talking about right at the beginning the. Speaker 1 Culture of that startup. Speaker 2 That was doing really well and that was thinking and being super ambitious and hungry for more and very entrepreneurial, obsessed with innovation, but honestly also a little paranoid of what's coming our ways and how we have to continue to improve. Speaker 1 That's what. Speaker 2 Keeps me going actually. Speaker 1 Yeah, that's great. I think a little bit of paranoid goes a long way. So Karen, fantastic. I think that's a super interesting point to end on. Anything that's actually come up in in a few of the different podcasts. So good to see that message again, Karen. Super interesting and thanks for taking the time to join me. Speaker 2 Thanks for having me, Richard.