E-commerce: What will happen after the races of ‘burning money’?

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Many e-commerce platforms have closed due to various reasons.

Who lives, who goes?

2019 is a year with a lot of fluctuations inVietnam's e-commerce market. Starting with the appearance of Voso.vn withthe ambition to become No. 1 in Vietnam, to the successful capital-raising deals of Sendo, Tiki, Lozi, and ended with the unexpected closure of Lotte.vn and Adayroi due to the change in business direction of the managing company. In early 2020, the market continued to witness another departure, a trade platform specializing in Leflair brand after four years of doing business in Vietnam. The reason given by Leflair is the pressure on finite capital and the requirement to cut operating costs.

According to research by i-Price Searching and Comparative Company, the developer of the e-commerce Maps project, in recent years, despite receiving huge investments and breaking records in terms of people, e-commerce platforms in Vietnam have never achieved profits. In 2018, the lossesof Lazada Vietnam, Tiki, Shopee Vietnam and Sendo companies amounted to VND5,000 billion. According to this study, companies that suffer from losses are understandable in the context of increasing consumer awareness about online purchases.

Giving an example of e-commerce site is Leflairto see the fierce "battle" of this market. Accordingly, Leflair was founded by two young French entrepreneurs in2015, applying an online business model and flash-sales (sales in batch discounts) has been successful in many countries. During the period of operation, this commercial site has raised total capital of up to $12 million, Leflair website has about 1.6 million visits per month, but Leflair still has to leave the market.

For those who stay, the race is still very fierce and risky. Vietnam's e-commerce industry is still very young, so businesses have to invest heavily in advertising, warehousing infrastructure, human resources in order to post their names in the market. At Shopee and Tiki, although they entered the Vietnamese market a few years ago, these businesses are still spending heavily on advertising and branding strategies such as promoting advertising on mass media, invest in famous music products.

Must change direction

However, the race of "burning money" in recent years has made the e-commerce investment field change, these companies will gradually switch to pursuing specific profit targets instead of just racing in terms of the number of users as before.

Mr. Tran Hai Linh, General Director of Sendo, said that the goal of e-commerce platforms is to shift customer’s behavior to online shopping as well as build infrastructure for e-commerce such as delivery and payment. This investment needs to last for many years and will gainin the next five to ten years, so the first stage of e-commerce is often unprofitable. However, Sendo does not choose to offer costly, expensive, high quality services, but it focuses on pricessuitable for the amount of goods, the coverage of goods is wide enough to provide a choice for customer.

According to Google-Temasek report, Vietnam's e-commerce in 2019 reached $5 billion, up 81% compared to the previous four years, and it is expected to reach $23 billion in 2025. Therefore, there are both risks andmany opportunities to develop. The withdrawal of some e-commerce sites will probably bring up more opportunities for others. After Adayroi closed, Tiki was in the group of four major e-commerce sites in Vietnam along with Lazada, Shopee and Sendo.

According to i-Price's expert, one factor that facilitates the success of e-commerce start-ups is the increasing online shopping demand of Vietnamese people. In 2019, the company found that Vietnam's traffic to e-commerce websites is now double that of Thailand and four times that of Malaysia. As the demand for online shopping is high, consumers will also have more specific requirements on the quality of services and categories of goods.

In addition, many small and medium-sized e-commerce sites have emerged by the dynamics of service innovation. Notably, Lozi announced that they had received an investment of up to tens of millions of dollars in October 2019, helping Lozi to own a separate transport system under the brand LoShip, bringing advantages in the race of deliveryofgoods. Or at Tiki, this business representative said the strategy is to expand the business but still maintain the quality of goods and delivery speed.