Shopee’s French station (shopee.fr) stopped on March 6, and it took only four months from the launch to the shutdown. It is not a good sign for Shopee to deduce the myth of growth. For Sea, the parent company of Shopee, bad news seems to follow after the launch of Shopee in France – the loss has expanded. The stock price has plummeted, Tencent’s shareholding has reduced, and Free Fire banned India.
- 01 Defeat France, Shopee pressed the “pause button.”
- First, the capital market is reluctant to pay for Shopee and Sea’s money-burning expansion policies.
- Second, the game business that undertakes “blood production” is hindered, and the cash flow is constantly under pressure.
- Third, after the crazy expansion, Shopee needs to fight on multiple fronts and suffer from enemies on all sides.
- 02 “Genes” are different, Southeast Asian e-commerce three-way competition
- Look at Shopee first, which is similar to the development path of Pinduoduo.
- In contrast, Lazada pays more attention to brand and user experience, invests more and lays out more in e-commerce infrastructure, and is more technology-driven.
- Finally, look at TikTok.
- 03 Shopee is blocked; why are the three parties fighting for victory?
- Therefore, the global growth is blocked, and the parent company’s blood transfusion becomes difficult. By increasing the commission rate and enhancing the platform’s profitability, it is one of the few choices for Shopee.
- The purpose of Shopee is obvious, to increase platform revenue and improve profitability; after all, the money is not enough to burn.
- Finally speaking
In October last year, Shopee France was launched. Since October 19 last year, Sea’s stock price has plummeted, from the highest point of $372.70 to $97.44 (the closing price on March 4), and the market value has dropped by nearly 74%. Shopee is one of Sea’s three major businesses and the most critical support for its high market value. The capital market’s concerns about Sea and the various disadvantages of Sea also have the impact that the development of Shopee is not as good as expected. In addition to the closure of the French station. the higher commission rate on the Shopee platform has also caused many sellers to be dissatisfied, and the stock price of the parent company Sea has “fallen endlessly.” It can be seen that after the crazy “staking” in the past few years, there are many hidden worries behind the rapid growth of Shopee. Now Shopee has begun to adjust its style of play, which is also a significant turning point for Shopee and the entire Southeast Asian e-commerce landscape.
01 Defeat France, Shopee pressed the “pause button.”
In 2021, Shopee will accelerate its expansion, accelerating its penetration from Southeast Asia to Latin America, Europe, India, and other markets. Including Mexico in March, Colombia and Chile in June, India in August, Poland, Spain, and France in September and October, respectively. The closure of the French station has pressed the “pause button” for Shopee’s accelerated expansion since 2021. There are three reasons behind it:
First, the capital market is reluctant to pay for Shopee and Sea’s money-burning expansion policies.
Sea’s shares fell sharply on September 10 last year after announcing a $6.3 billion sale of stock and bonds to support global expansion and acquisitions. On March 1, Sea announced its financial results for the fourth quarter of 2021 and the entire year of 2021. The data showed that Sea’s revenue in the fourth quarter of 2021 exceeded market expectations, with a significant year-on-year increase of 105.7%. But its net loss widened to $661 million, up nearly 20% year over year. Revenue rose sharply, and net losses expanded, so the stock price fell by more than 13% again, and the market value fell by more than 10 billion US dollars in one day. Among them, Shopee, an e-commerce business that relies on burning money to expand and subsidize users, is the main “culprit” of losses. In Q4 2021, the adjusted EBITDA loss is as high as 877 million US dollars, and the operating loss rate of the e-commerce business has expanded from 51% to 59%. %. It also means that in the past, Shopee’s story of increasing its scale by burning money and driving Sea’s market value growth has been questioned in the capital market.
Second, the game business that undertakes “blood production” is hindered, and the cash flow is constantly under pressure.
At present, Sea’s profits are all contributed by the game business, a blood transfusion for the other two firms. Still, now the game business is also declining. The financial report shows that in the fourth quarter of 2021, its active and paying game players fell by 10% and 17% from the previous quarter. The game flow only increased by 9% year on year, basically stagnating. Not long ago, Sea Garena’s game Free Fire was banned in India, which has deepened market concerns. “Hematopoiesis” is blocked, and it is not difficult to understand that Shopee’s expansion is suspended. In fact, in addition to shutting down the French station to “shrink and reduce losses,” Shopee is still accelerating “hematopoiesis and income growth.” For example, increasing the commission rate, according to JPM statistics, Shopee is accelerating the pace of realization in the Southeast Asian market and will increase the commission rate by 0.5%-1% in many markets.
Third, after the crazy expansion, Shopee needs to fight on multiple fronts and suffer from enemies on all sides.
In addition to the closed French station, Shopee also suffered setbacks in India, Brazil, and other sites. After Sea Garena’s game, Free Fire, was banned in India, the Confederation of All India Traders (CAIT) sent an open letter requesting that Shopee be added to the banned list. It also raises concerns among investors-whether Shopee would follow in the footsteps of Free Fire—lost the Indian market?
The Brazilian government has raised the tariff of cross-border e-commerce products to 60% in the Brazilian market. It needs to pay a turnover tax of 17%-25%. The Brazilian Sao Paulo Consumer Protection Agency also requires Shopee to provide products with certificates of origin and other policies. The local cost has increased sharply, and it is under more significant pressure to compete with local e-commerce platforms. In addition, Southeast Asia, which is the base of Shopee, is also surrounded by solid enemies and faces challenges from Lazada, TikTok, and many local platforms. Not to mention the old rival Lazada, who is its biggest rival. And should not underestimate the new competitor TikTok. Not long ago, TikTok Shop (small shop) added sites in Thailand, Vietnam, and Malaysia to merchants. In addition to previous Indonesia, TikTok Shop currently has six locations worldwide, 4 of which are in Southeast Asia, focusing on its subsequent efforts. Under the above triple pressure, Shopee had to press the “pause button” of rapid expansion.
02 “Genes” are different, Southeast Asian e-commerce three-way competition
After pressing the “pause button” for expansion, Shopee’s next focus is to “guard the country,”, especially in the base camp in Southeast Asia. Lazada is Shopee’s biggest rival in Southeast Asia, and TikTok e-commerce is another potential rival. Behind the three are Alibaba, Tencent, and ByteDance. Due to “different genes,” the three e-commerce paths are also different. Their e-commerce forms are also similar to domestic Taobao and Tmall, Pinduoduo, and Douyin.
Look at Shopee first, which is similar to the development path of Pinduoduo.
In Southeast Asia, it was born after Lazada. Its foundation and scale were not as good as Lazada’s beginning of its establishment, which also destines to “take a different approach” – more than more. Like Pinduoduo, Shopee also started from the sinking market. The sellers are mainly small and medium-sized merchants and factory stores. The strategy is especially “subsidy + low price” and is driven by traffic, also called “Shrimp Duoduo.” On Shopee, low prices are the biggest weapon. Even many sellers “buy on Pinduoduo and sell Shrimp Duoduo,” and the price involution can be imagined. With the help of massive subsidies, Shopee has also achieved rapid expansion through low-cost drainage. “Blue Ocean Yiguan.com” believes that Shopee’s ability to overwhelm Lazada in GMV and dominate Southeast Asia is mainly due to “burning money” in exchange for traffic. The money-burning expansion has also made Shopee unable to profit since its establishment, and the parent company Sea has suffered losses year after year. The widening losses, coupled with the reduction of Tencent’s holdings and the ban of Free Fire in India, have caused Sea’s stock price to plummet in the past four months.
In contrast, Lazada pays more attention to brand and user experience, invests more and lays out more in e-commerce infrastructure, and is more technology-driven.
This is related to the Ali gene. I have been profoundly cultivating e-commerce for many years. Ali is familiar with every “pit” in the development of the e-commerce industry and can also predict the future development trend of e-commerce in Southeast Asia – low prices and crowd tactics will bring growth in the early stage. Still, it depends on Technology to build a moat in the long run. Therefore, Lazada attaches great importance to the construction of supporting infrastructures such as Technology, logistics, and payment and has invested enormous resources for this. For example, it took half a year to organize a technical team of more than 300 people in the early stage to fully upgrade Lazada’s technology platform to an Ali technology engine through the “Voyager” project.
Today, Lazada sellers use one APP in Southeast Asian countries. The seller workbench with iterative functions can intelligently switch to pages in different countries. Under the same system, it can connect various data closely related to the previous technology upgrade. In addition, Lazada has also built the largest existing logistics network for e-commerce platforms in Southeast Asia and the second largest B2C logistics network in Southeast Asia. The certainty brought by its logistics has advantages in terms of business operation efficiency and consumer perception. Today, in Southeast Asia, where various foundations are not yet perfect, Lazada can make annual promotions such as Double 11 and Double 12 run smoothly and smoothly. Which is inseparable from the previous layout support in Technology, payment, logistics, and other aspects.
Finally, look at TikTok.
Like Shopee, TikTok is a master of traffic, and both are traffic-driven. The difference is that Shopee attracts traffic through low prices. At the same time, TikTok itself has accumulated many native e-commerce consumers, which gives it great potential for e-commerce. After the official launch of TikTok Shopping in September last year, TikTok e-commerce also pressed the “accelerator button.”
TikTok Shopping mainly includes two types: TikTok Shop (Tik Tok Store) and TikTok Storefront (Cooperative Store). What is currently being promoted in Southeast Asia is TikTok Shop, which can connect to third-party e-commerce platforms after merchants are opened. Like Douyin, short video + live streaming is also the core gameplay of TikTok e-commerce. Unlike domestic live broadcast e-commerce, which is in full swing, it is still in its infancy in Southeast Asia. Now TikTok e-commerce is not a direct opponent of Shopee and Lazada. However, referring to the development path of Douyin e-commerce, head-to-head confrontation is inevitable in the future. And because it also relies on traffic to win, the competition between Shopee and TikTok may be “invoked.” Today, the development of Shopee is hindered, and it is also a new opportunity for Lazada and TikTok.
03 Shopee is blocked; why are the three parties fighting for victory?
The emergence of different e-commerce forms such as Lazada, Shopee, and TikTok e-commerce also means that in just a few years, Southeast Asian e-commerce has gone through the development path of domestic e-commerce for nearly 20 years. The dilemma of Shopee is that, from the perspective of the development model, it is not a big problem to “move” the Chinese e-commerce form to Southeast Asia. Shopee’s GMV is still proliferating. However, there is a problem that has been overlooked. The logistics, payment, and other e-commerce infrastructure in Southeast Asia are different from those in China. Therefore, even if it is also a subsidy, at the beginning of its development. Due to the imperfect logistics and other infrastructure, the gross profit margin of Shopee is much lower than that of Pinduoduo. The more Shopee expands, the more losses it becomes, and it is challenging to turn losses.
The low-price model makes no money for the platform, and the merchants have limited profits. Some sellers said that Shopee’s Southeast Asia logistics is costly. It has reached the level of unaffordability because it sells low-profit and low-priced products. And as competition intensifies and traffic becomes more expensive than before, the profits of Shopee sellers become thinner, causing a large number of sellers to leave Shopee. And this is another reason why Shopee is accelerating its global expansion – in Southeast Asia; it is not easy to make money through a low-cost model.
Therefore, the global growth is blocked, and the parent company’s blood transfusion becomes difficult. By increasing the commission rate and enhancing the platform’s profitability, it is one of the few choices for Shopee.
At the end of last year, Shopee adjusted the platform commission rate, implemented from January 1, 2022, and will mainly affect new and large sellers. On the one hand, new sellers in 2022 will no longer enjoy the preferential policy of free commission but instead will be a rebate. On the other hand, the commission rate is charged, from 5%-6% in the previous step-by-step increase to 6%, and no longer supports big sellers. Big sellers have to pay 0.5%-1% more commission than before. According to its last month’s total order amount reached and more than 2 million US dollars, you can enjoy a 5% commission rate. Under the new policy, such sellers will pay at least $20,000 more in commissions, not a small fee.
The purpose of Shopee is obvious, to increase platform revenue and improve profitability; after all, the money is not enough to burn.
Compared with Shopee, which is burning cash to expand, Lazada, based on cash, seems to be calmer. Since the development of e-commerce in Southeast Asia started later than in China, the early action was rough, and the infrastructure requirements were relatively low. However, with the upgrade of consumption, the needs of merchants for operational efficiency and buyers’ consumption experience will become higher. At this time, Technology is tested. Competing with logistics, which is what Lazada is good at.
For example, Lazada uses one APP to switch between different countries, intelligently display other content, and connect consumers in six Southeast Asian countries. This brings great convenience to the transactions between merchants and users. For example, merchants can sell to many countries in one store. Whether promoting sales or user operation, the same system with data access is undoubtedly more friendly to merchants—more convenient and efficient to operate. Higher and big data can “feed the algorithm more full” and help merchants conduct more sophisticated operations.
In contrast, Shopee its sellers need to use different apps to reach consumers in other regions of Southeast Asia. Previously, the outside world once thought that this would be more local. Still, it brought more pressure on the business to operate efficiently. And as the level of digitization deepens, the pressure will continue to increase. Not to mention logistics. Lazada’s massive self-built logistics system leaves room for imagination to generate revenue for the platform. It makes e-commerce services deterministic, which is a powerful tool to enhance the experience of buyers and sellers. With a logistics network that can deliver to almost every fishing village in the six Southeast Asian countries, consumers shopping at Lazada have more choices. For sellers, the platform’s logistics cover a wide area, fast delivery speed, and guaranteed services, business flow, and logistics can play a synergistic advantage. There is more room for e-commerce services, not just “price comparison.” In addition, relying on its logistics advantages. Lazada pioneered the cash payment method of “cash on delivery” in Southeast Asia and established the most significant cash-on-delivery service network. Due to the adoption of Ali’s technology engine, Lazada is the first e-commerce company in Southeast Asia to launch a “buy and watch” live broadcast service. These are the advantages brought by perfect Technology and infrastructure.
At present, in Southeast Asia, TikTok e-commerce has not had a “head-on conflict” with Lazada and Shopee. However, with the rapid popularity of live e-commerce in Southeast Asia and recognition by consumers. Will significantly release TikTok’s e-commerce potential. It may also block third-party e-commerce platforms in the future. It is unknown and will become another heavyweight opponent—especially for Shopee, a traffic player.
However, from the perspective of the development history of e-commerce, with the continuous development of the e-commerce industry, the traffic in the e-commerce industry will become more and more expensive. In the end, the e-commerce platform will still strive for efficiency, service, and experience.
Digital technology, logistics, etc., have been proven by domestic players to be the critical elements in building a moat for e-commerce platforms. These will also be the key to the future success of the top three in Southeast Asia.