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In recent years, driven by the epidemic and new consumption trends, the global e-commerce market has entered a stage of rapid growth, especially online e-commerce, which has been developing in full swing. The trend of e-commerce has not only swept across Europe and the United States, but has also led to the rise of many emerging markets, such as the Southeast Asian and Latin American markets. It has become a backbone force in the global e-commerce pool that cannot be underestimated. According to eMarketer data, total e-commerce sales in Southeast Asia will reach US$89.67 billion in 2022, an increase of US$15.31 billion from last year. By 2023, the region will exceed the US$100 billion mark. According to eMarketer, given the slowdown in other regions, e-commerce growth in Southeast Asia will be more prominent. In 2022, Southeast Asian e-commerce will grow by 20.6%, the highest in the world. The rapid development of e-commerce in Southeast Asia is inseparable from the promotion and contribution of the leading e-commerce platforms. Today, the Southeast Asian market has formed a three-legged situation. Shopee, Lazada, and TikTok have shined in their respective fields and have won the favor of more consumers through capital expansion and sinking markets. However, under the influence of the global epidemic and international situation, e-commerce giants seem to have fallen into a deadlock, with either slowing growth or declining profits. As a result, stock prices have plummeted, making investors and consumers sweat. For example, Shopee, the leading e-commerce company in Southeast Asia, and its parent company Sea have recently been questioned by the outside world due to a series of negative news. Shopee's parent company Sea's share price plummets At the beginning of 2022, Sea seems to have entered its darkest moment. Some media said that Sea’s success and failure are both due to Tencent. We will not discuss this view for the time being, but in fact, Tencent’s “tactical retreat” did have a significant impact on Sea. It is reported that Tencent was previously the largest shareholder of Sea, but in early January this year, Tencent announced that it would reduce its stake from 21.3% to 18.7% (worth over US$3 billion). On the same day, Sea’s stock price plummeted by 11%, hitting a new low in nine months. To make matters worse, Sea’s stock price plummeted 20% at the opening on February 14, the largest intraday drop since its listing. It is understood that Sea has fallen by more than 40% this year and 65% since October last year. In addition, due to the ban of Sea’s large-scale game "Free Fire" by the Indian government, its stock price fell again by 18.39%, and its market value evaporated by US$16 billion. According to data, Sea has three main businesses: digital entertainment, e-commerce, and digital finance. As a veteran Internet company, Sea's main business is also facing a lot of external pressure. In terms of games, Free Fire, a large-scale game platform owned by Sea, has been downloaded more than 1 billion times on Google Play, but it has received a ban from the Indian government. An analyst said, "With the issuance of the Free Fire ban, the authorities are very likely to impose a similar ban on Shopee, and Sea will directly lose its growth advantage." In terms of e-commerce, Shopee's position as the dominant e-commerce company in Southeast Asia has been gradually threatened, and its global expansion has been frequently blocked. Not only was the French site forced to shut down, but sites in India and other places have also been repeatedly frustrated. In Q4 2021, the adjusted EBITDA loss was as high as US$877 million, and the operating loss rate of the e-commerce business expanded from 51% to 59%. The decline in its two main businesses directly caused Sea to suffer losses for two consecutive quarters. Sea’s 2021 financial report showed that in the third quarter, Sea’s net profit loss was US$570 million, a year-on-year increase of 34%; in the fourth quarter, Sea’s net loss expanded to US$661 million , a year-on-year increase of nearly 20%. Behind these dismal results, it seems that the same "culprit" is the continuous retreat of Southeast Asian e-commerce giant Shopee. Looking back at Shopee’s glorious development history, since its establishment in 2015, Shopee has been making great strides and has become one of the giants in Southeast Asian e-commerce. However, in 2022, Shopee seems to have pressed the pause button on its rapid growth and ushered in a turning point in its development. Why is this? Shopee reaches a turning point in its development It is learned that Sea recently announced its fourth quarter and full-year results for 2021. The financial report shows that in Q4 2021, Shopee's GAAP revenue was US$1.6 billion, a year-on-year increase of 89.4%; the total number of orders was 2 billion, a year-on-year increase of 90.1%; and GMV was US$18.2 billion, a year-on-year increase of 52.7%. In 2021, Shopee's GAAP revenue was US$5.1 billion , a year-on-year increase of 136.4%; the total number of orders was 6.1 billion , a year-on-year increase of 116.5%; and GMV was US$62.5 billion , a year-on-year increase of 76.8%. Although Shopee's financial performance is still strong judging from the revenue data, in fact, during the critical period of Shopee's global expansion, there were signs of losses. It is reported that Shopee's adjusted EBITDA loss in Q4 was as high as US$877 million. The financial report shows that Sea's adjusted EBITDA loss in the fourth quarter was US$492.1 million, compared with US$48.7 million in the same period of 2020. With the two major businesses hit hard one after another, Sea's profitability is no longer favored by capital. To make matters worse, just as Shopee's development momentum was rapidly declining, its overseas expansion plan encountered many obstacles. Shopee shuts down its French site On March 6, 2022, Shopee officially announced that it would cease operations in the French market. Shopee said that after four months of trial operation, Shopee made this adjustment based on prudent and efficient resource allocation considerations to provide the greatest value to merchants, consumers and the community. From March 1, sellers in the French market will not be able to upload new products or edit existing products, and the backend will not be able to log in until mid-May. It is understood that Shopee started its European expansion in early September 2021, and France is Shopee's third market in Europe. Some analysts believe that Shopee entered the European market in the order of Poland-Spain-France because France is the most difficult market in the region. Moreover, Shopee France only attracts a few hundred thousand visitors per month, and it is likely that there is no market for super low-priced products there. Some media analyzed that the sudden closure of Shopee’s French site was most likely due to insufficient funds to support its overseas expansion plans , so it chose to stop losses in time to make up for previous losses. The Indian market has been hit hard As we mentioned above, Free Fire, a star game product under Sea, was cruelly eliminated due to a ban issued by the Indian government. Similarly, Shopee’s situation in India is not optimistic. 123 learned that the USTR recently released a Notorius list, which included Indonesian e-commerce giants such as Shopee, Tokopedia, and Bukalapak. The report said that Shopee did not prevent sellers from providing counterfeit goods, and part of the reason was that the punishment for sellers selling pirated products was ineffective. The Indonesian E-Commerce Association said they will step up their crackdown on counterfeit products and products that infringe copyright. In addition, according to foreign media reports, the Competition Commission of India (CCI) recently dismissed allegations of predatory pricing against Shopee. The secretary general of the Confederation of All India Traders (CAIT) had earlier submitted information to the CCI, claiming that Shopee was selling a wide range of products at extremely low prices with an aim to eliminate competition from small retailers. The two complainants said that Shopee's business model is a predatory pricing strategy (offering buyers "deep discounts" to lower product prices), which aims to attract a large number of customers, obtain consumer preference data, and use this data for its own profit, which has seriously affected traditional and small-scale businesses in India. Under the dual pressure of infringement crackdowns and pricing accusations, Shopee's expansion plans in the Indian market still have a long way to go. Entering Latin America is full of challenges As an emerging blue ocean market, Latin America has been regarded as an important strategic region by many e-commerce giants, and Shopee is no exception. Since 2019, Shopee has been vigorously developing the Latin American market. In less than two years, it has launched four sites in Latin America, and its business has grown rapidly. Even though Shopee has had a good start in Latin America, troubles have not forgotten to come knocking. It is reported that Shopee has been subject to policy sanctions by the Brazilian government because Morgan Stanley pointed out in a research report that Shopee's rapid expansion has posed a threat to Brazil's retail industry. Therefore, the Brazilian government requires certain cross-border e-commerce products to pay a 60% tariff and a 17-25% turnover tax, forcing Shopee to raise product prices. However, the price increase is not a good thing for Shopee and platform sellers who are accustomed to the low-price strategy, which will make them face more intense market competition. In addition, the Consumer Protection Agency of São Paulo, Brazil, ordered Shopee to provide certificates of origin of goods, product quality guarantees, information on consumer complaint channels, etc., which is quite targeted. Faced with the above difficulties, Shopee seems to have fallen from its high-flying altar and is unable to continue its past glory. Why Shopee is losing ground So why did Shopee suddenly go downhill? I think there are two main reasons for Shopee's poor market performance in recent years: Expansion by burning money is no longer feasible Sellers who have worked on Shopee should all know that many people jokingly call this platform "Southeast Asian Pinduoduo". The reason is that Shopee's low customer unit price strategy is prevalent, and sellers often have to pay very low profits in exchange for the platform's traffic, which leads to a severe internal competition. The Shopee platform itself also strongly advocates a low-price model and achieves early market expansion by spending a lot of money, using the "low price + subsidy" method to attract traffic and seize local market share. However, in an era when cross-border e-commerce is gradually becoming inward-looking, simply burning money to achieve global expansion is no longer feasible. Today, capital is more inclined to innovative brands and e-commerce platforms with strong driving force, and buyers' consumption trends are gradually upgrading to high-quality products. If we continue to focus on low-price expansion and ignore product quality and innovation, we will inevitably be eliminated by the market. At the same time, judging from its financial reports of consecutive years of losses and the decline in the parent company's stock price, capital seems to no longer be optimistic about this model. In addition to the impact of the epidemic and the overall industry environment, as the gap between costs and profits gradually widens, a number of Shopee sellers have planned to leave the platform. A series of phenomena indicate that the "Xiaduoduo" model seems to no longer be the mainstream in the market. If Shopee still deviates from the law of market development, its high-speed growth will be unsustainable. As one report said, Shopee is still competing in underdeveloped and developing markets, but its growth is limited by selling low-priced, low-profit goods. On the other hand, in contrast to the gradual decline in Shopee's development, its competitors are becoming increasingly powerful, which greatly increases the difficulty for Shopee to conquer the Southeast Asian market. With the rise of many new e-commerce players, more and more platforms are entering the Southeast Asian market, trying to carve up a share of this big pie. The first is the blockade of Shopee by the emerging traffic pool TikTok . In recent years, TikTok's ambition to go global in e-commerce has become clear, and its e-commerce footprint has expanded to Southeast Asia. It is learned that TikTok Shop has recently added new sites in Thailand, Vietnam and Malaysia, and has been opened to merchants. In areas where small stores are launched, TikTok e-commerce can achieve a functional closed loop, that is, all aspects of live streaming and short video shopping can be completed within the app, while other areas still need to jump off the site and use third-party platforms to complete it. According to "LatePost", the headquarters and operating entity of TikTok's Southeast Asian e-commerce business are located in Singapore. It resolved platform policy and compliance issues last year and launched live streaming e-commerce in Indonesia. With its strong global influence and traffic entrance, it seems inevitable for TikTok to focus on Southeast Asian e-commerce, which is undoubtedly a huge threat to Shopee. In addition, Lazada, another Southeast Asian e-commerce giant, is also a major rival of Shopee. Unlike Shopee, which focuses on low-price subsidies, Lazada's operating route is more refined. It is learned that Lazada's brand mall LazMall, as the Southeast Asian version of "Tmall Mall", focuses on high-end quality e-commerce services and is now the largest online brand mall in Southeast Asia. At the same time, Lazada began to build its own logistics system and team at the beginning of its establishment. It is reported that it already has the second largest B2C logistics system in Southeast Asia. By continuously improving its logistics system and technical services, Lazada's infrastructure has become relatively mature, and it insists on taking the brand and high-end route, even surpassing Shopee in some aspects. At present, Shopee is in a state of being attacked from all sides. As more emerging forces emerge, its global expansion plan will be a long and arduous journey. In the future, whether Shopee can completely get rid of the title of "Xia Duoduo" will still need to go through many tests of the times and the market.
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