Aug 30 (Reuters) – It took only two years for Sea Ltd (SE.N) Shopee to become Brazil’s most downloaded shopping app, luring users into its low-cost market with its approach revolutionary e-commerce: integrated mini-app – games offering coupons to winning users.
The Singapore-based company has combined online shopping with the gaming concept of its separate mobile gaming arm Garena – creator of “Free Fire,” the most downloaded title in Brazil for eight consecutive quarters – to generate sales analysts estimated at nearly a third of the local champion. Luiza SA magazine (MGLU3.SA).
Back home, Shopee only took five years to become Southeast Asia’s most visited e-commerce site, overtaking Lazada, backed by Chinese-backed Alibaba Group Holding Ltd (9988.HK), and Tokopedia, backed by Japanese SoftBank Group Corp (9984 .T). Read more
“Shopee has a reputation for arriving late in the Southeast Asian market, looking at how others have solved existing problems, and then creating a system to overcome those problems,” analyst Jianggan said. Li from the consulting firm Momentum Works.
Shopee’s rapid rise highlights the space left for foreign entrants to expand into a sector once dominated by regional companies such as Magazine Luiza and Argentina’s MercadoLibre Inc (MELI.O).
Granted, the startup’s timing was fortuitous, launching in Brazil just as the COVID-19 pandemic pushed consumers away from physical stores, boosting 2020 e-commerce sales by 44% to $ 42 billion, Brazilian payment company EBANX showed data.
Shopee – similar to Alibaba’s AliExpress, offering trinkets made in China – has become Brazil’s top app for downloads and uptime, data from analytics platform App Annie showed.
Yet in search of growth, Shopee is still losing money, backed 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, even as the e-commerce business lost $ 579.8 million.
“The money generated by one side of the business, which is a cash cow, is being aggressively reinvested in Brazilian e-commerce – with success,” said Thiago Macruz, analyst at Itau BBA.
Sea’s foray into Brazil is just one part of its global ambition. The investment arm Sea Capital is also considering investing money in startups in Latin America and beyond, said a person with knowledge of the matter, who was not authorized to speak with the media and therefore declined. to be identified.
The company has also taken Shopee to Chile, Colombia and Mexico where, unlike Brazil, it has no local staff and has therefore partnered with social media influencers to increase brand awareness, said two people familiar with the matter.
Sea, whose shareholders include Chinese gaming leader Tencent Holdings Ltd (0700.HK), declined to comment.
The company disclosed little data on Shopee Brazil, but Itau BBA analysts estimated that the value of goods and services sold on the platform last year reached 12 billion reais ($ 2.27 billion ).
The average price in its marketplace is 40 reais, according to other estimates, less than a third of that of e-commerce leader MercadoLibre, which often offers higher-value branded products.
Sea’s biggest challenge for Shopee Brazil is delivery to such a large country. It has reduced its dependence on the local postal system this year in favor of private carriers, but still competes with its competitors with proprietary delivery services.
Shopee aims to have one lead logistics partner per country in the region, a company source told Reuters.
The company itself expects the growth of e-commerce in the region to generate more delivery partnerships, as has happened in Southeast Asia, Sea executives told analysts during a call this month.
In the same call, the group’s general manager, Yanjun Wang, called Brazil “cheap for continued investment.”
Competition in Latin America’s largest economy intensified this month when Shopee’s closest product offering rival, AliExpress, opened up its marketplace to domestic sellers charging single-digit commission. . AliExpress had been in Brazil for 11 years; Shopee did the same after her freshman year.
Small business owner Luciana Carvalho started selling plastic packaging products on Shopee in February, attracted by free shipping and a 6% commission, compared to 17% for MercadoLibre.
“It’s easy to register, calculate your commission, get your delivery labels, your receipts. It makes us invest more in the platform, ”she said.
In a move towards profitability, Shopee has since raised the commission to 18% – up to twice the markets can charge in some Southeast Asian countries, indicating potential profit margins in Latin America. Carvalho continues to use Shopee, although it prefers MercadoLibre for its “unbeatable” delivery.
To further improve profitability, Goldman Sachs analysts said Shopee could start selling more expensive items, as it did in Southeast Asia. Momentum Works’ Li expects Shopee to add financial services to its app in Brazil, as it did in Indonesia.
“I wouldn’t be surprised,” if they hit number one, said Li, “given what they’ve been doing in Singapore, Indonesia and Malaysia, Thailand. “
(1$ = 52948 reais)
Reporting by Jimin Kang; Additional reporting by Fanny Potkin; Editing by Christian Plumb and Christopher Cushing
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