Sea’s Shopee took just two years to become the most downloaded shopping app in Brazil, winning users to its low-cost market with its revolutionary approach to e-commerce: in-app minigames that offer coupons to winning users.
The Singapore-based company has combined online shopping with the gaming goal of its separate mobile gaming arm Garena – creator of Free Fire, Brazil’s most downloaded title for eight consecutive quarters – to generate sales analysts estimated at nearly a third by local champion Magazine Luiza SA.
At home, Shopee took just five years to become the most visited e-commerce site in Southeast Asia, surpassing companies like Lazada, backed by Alibaba of China, and Tokopedia, backed by SoftBank of Japan.
“Shopee has a history in Southeast Asia of being late to market, seeing how others have fixed existing problems, and then building a system to overcome those problems,” said analyst Jianggan Li of consultancy Momentum Works.
The Shopee’s initial increase highlights the space left for foreign participants to grow in a sector once dominated by regional companies such as Magazine Luiza and MercadoLibre in Argentina.
To be sure, the startup’s timing was fortuitous, launching in Brazil just as the COVID-19 pandemic drove consumers away from physical stores, boosting e-commerce sales in 2020 by 44 percent to $42 billion ( around Rs. 3,08,555 crores Shown data from the Brazilian payments company EBANX.
Shopee – similar to Alibaba’s AliExpress, with Chinese trinkets – emerged as the best app in Brazil for downloads and time of use, data from analytics platform App Annie showed.
However, looking for growth, Shopee is still losing money, supported by Sea’s profitable gaming division. In the second quarter of this year, Garena posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $740 .9 million (about Rs. 5,440 crores), although the e-commerce arm lost $579.8 million (about Rs. 4,260 crores).
“The money generated by one side of the business, which is a dairy cow, is being aggressively reinvested in Brazilian e-commerce – with success,” said Itaú BBA analyst Thiago Macruz.
Sea’s foray into Brazil is just one element of its global ambition. The investment arm Sea Capital is also considering putting money into startups in Latin America and beyond, said a person with knowledge of the matter, who was not authorized to speak to the media and declined to be identified.
The company has also taken Shopee to Chile, Colombia and Mexico, where, unlike Brazil, it has no local employees, so it has partnered with social media influencers to increase brand awareness, said two people familiar with. Subject.
Sea, whose shareholders include Chinese gaming leader Tencent, declined to comment.
The company has released little data on Shopee Brazil, but analysts at Itaú BBA estimated that the value of goods and services sold on the platform last year reached R$12 billion (about Rs. 16,950 crores).
The average price in its market is R$40 (about Rs.565), other estimates show, less than a third of the leading e-commerce market, MercadoLibre, which typically sells higher-value branded products.
Sea’s biggest challenge for Shopee Brazil is delivery in such a vast country. It has reduced its reliance on the local postal system this year in favor of private carriers, but is still competing against rivals with proprietary delivery services.
Shopee intends to have one main logistics partner by country in the region, a company source tells Reuters.
The company itself hopes that the e-commerce growth in the region will lead to more delivery partnerships, as has happened in Southeast Asia, Sea executives told analysts in a conference call this month.
In the same call, the corporate director of the group, Yanjun Wang, called Brazil “a good market for continuous investments”.
Competition in Latin America’s biggest economy increased this month when Shopee’s closest rival in terms of product offerings, AliExpress, opened its market to home sellers charging single-digit commission. AliExpress was in Brazil for 11 years; Shopee did the same after the first year.
Small business owner Luciana Carvalho started selling plastic packaging at Shopee in February, attracted by free shipping and 6% commission – compared to 17% at MercadoLibre.
“It’s easy to sign up, calculate your commission, get your delivery labels, your receipts. This makes us invest more in the platform”, he stated.
In a move toward profitability, Shopee has since increased the commission to 18 percent – double what markets can charge in some Southeast Asian countries, indicating potential profit margins in Latin America. Carvalho continues to use Shopee, although he prefers MercadoLibre for its “unbeatable” delivery.
To further improve profitability, analysts at Goldman Sachs said Shopee could start selling higher-value items, as it did in Southeast Asia. Li from Momentum Works expects Shopee to add financial services to its app in Brazil, as it did in Indonesia.
“I wouldn’t be surprised” if they took first place, Li said, “considering what they’ve done in Singapore, Indonesia and Malaysia, Thailand.”
© Thomson Reuters 2021