|E-commerce companies in Vietnam will continue to incur losses in the coming time|
VNG’s latest financial report showed that the company has incurred a loss of VND125.3 billion ($5.51 million) from its investment in Tiki.vn in 2017, a 34 per cent increase against 2016. VNG’s total losses in Tiki.vn amounted to VND218.7 billion ($9.62 million) since it bought 38 per cent of the platform in 2016 for VND384 billion ($16.8 million).
Shopee’s parent company, Sea Limited (Sea), also recorded larger-than-expected losses in its fourth quarter and full year results. In particular, Sea has spent heavily on sales and marketing to promote Shopee, through the collection of sales commissions, advertising fees, and cross-border transaction fees. Shopee’s sales and marketing expenses stood at $135 million in 2017.
According to Euromonitor, the Vietnamese e-commerce market is expected to grow in revenue from $1 billion in 2016 to $2.3 billion in 2020. The country has the ingredients for a thriving e-commerce economy thanks to a young population, rising incomes, and growing internet and mobile adoption.
However, the Vietnamese e-commerce market is still in an early stage of development, so it poses quite a few challenges to players such as high cash-on-delivery rates and lack of customer trust and logistics infrastructure. Meanwhile, e-commerce companies are spending aggressively to gain market share, intensifying the competition.
|Many local shopping sites like Beyeu, Deca, and Lingo had to close after shouldering big losses after only a few years.|
In this context, many local shopping sites like Beyeu, Deca, and Lingo had to close after shouldering big losses after only a few years. According to industry insiders, companies need to allocate enormous expenses for their e-commerce business from sales and marketing to warehousing and logistics, so it can easily eat up profits. Also, many platforms suffered losses from special discount offers and promotion campaigns to snag new customers.
E-commerce giants like Amazon and Alibaba only started generating profit after 10 years of operations. It is obvious that e-commerce companies in Vietnam will continue to incur losses in the coming time. Though the future is not rosy in all regards, it does not deter e-commerce companies from continuing their spending spree for new investment.
Most recently, Tiki has received $54 million Series C investment made by Chinese internet giant JD.com and South Korea's STIC Investments. The additional capital is expected help Tiki to consolidate its market presence.
Meanwhile, Shopee is pumping money into promoting its platform with plenty of discounts, free nationwide shipping service, training for sellers, and other promotions. Thanks to its monetisation efforts, Shopee has seen solid growth since its local debut in 2016.
On the other hand, Lazada is investing in the growth of its first mile, last mile, and fulfillment capabilities to keep up with the growth of e-commerce in Vietnam. In addition to developing automated sorting centres to speed up delivery, the company also cut commissions by 50 per cent to lure in more online retailers. Lazada’s expansion plan was backed by Alibaba after being acquired in 2016.
Online retail makes up only 1 per cent of the total retail market in Vietnam, compared with the 14 per cent in the US and China. There is still a long way to go for the Vietnamese e-commerce market to reach its peak, so foreign companies like Alibaba, JD.com, and Sea have invested in the country early to get ahead of the curve.
Vietnam’s leading groups, including FPT, Vingroup, and The gioi di dong, have also jumped on the bandwagon with e-commerce marketplaces like Sendo.vn, 123mua.vn, Adayroi, and vuivui.com. Further, the shift from brick-and-mortar to omnichannel retailing also prompted retailers such as AEON and Lotte to open online marketplaces.
An expert told VIR that the on-going expansion of the marketplaces will help Vietnam to form an ecosystem for the e-commerce sector, including logistics, warehousing, and online payments. The development of the e-commerce market will result in more choice and better online shopping experiences for Vietnamese shoppers.