E-commerce giants rake in losses as market share war continues

Hoang has recently been able to buy a few electronic items online at a mere VND500,000 ($20), a fraction of what they would have cost at regular stores.

He has been doing most of his shopping online in recent years, usually by hunting around for items sold at discounts of 50-80 percent.

He said: “A few months ago I bought a shirt on sale for only VND5,000 (21 cents). I paid VND25,000 for shipping.”

Customers like Hoang are the targets of Vietnam’s major e-commerce players. To attract more customers in an ultra-competitive market, these online shops are willing to spend large sums on promotions.

In the first quarter online retailer Shopee Vietnam had around 30,000 orders a day, most of which were shipped free, according to a report by its owner SEA Ltd.

Lazada also regularly offers discounts of up to 50 percent.

But in this process these stores are bleeding, with Lazada, Shopee and Tiki all reporting losses.

Lazada had an accumulated loss in 2016 of VND2.7 trillion ($115 million), the largest among online retailers in Vietnam.

Tiki had a loss of VND600 billion ($26 million) in the same year, while Shopee reported a similar loss last year.

SEA Ltd. said that most of the losses are due to the expenses on advertising and promotions.

But it is a war that would go on for a long time, Truong Van Quy, CEO of marketing academy EQVN, predicted.

To attract customers, they are willing to ignore their losses, he said, pointing out that even Amazon had to spend a large amount of money for 15 years just to attract users.

For an online retailer to break even it first needs to have dozens of millions of customers within five to 10 years, he said.

This was why Chinese e-commerce giant Alibaba bought Lazada last year for $2 billion, and injected another $2 billion into the company last March, he said.

Tiki received an investment of $50 million from China’s second biggest online e-commerce firm, JD.com, earlier this year, while Shopee injected another VND1.2 trillion ($51 million) into its business, he added.

Industry insiders said the sector has huge potential with the expanding middle class and smartphone usage.

The World Bank has forecast that Vietnam’s $200-billion economy is likely to grow to a trillion dollars by 2035.

More than half of its population, compared to only 11 percent today, is expected to join the ranks of the global middle class with consumption of $15 a day or more.

Across the country, the ratio of people using smartphones among mobile phone subscribers reached 84 percent in 2017, up from 78 percent the previous year, according to the 2017 Nielsen Vietnam Smartphone Insights Report.

Online sales in Vietnam have expanded rapidly in recent years, currently accounting for 3.39 percent of the country’s retail market. The total retail market grew 10.9 percent last year to $173.27 billion, as reported by local media.