Singapore-based Sea Ltd’s took just two years to become Brazil’s most-downloaded shopping app, winning users to its low-cost marketplace with its game-changing approach to e-commerce which uses in-app mini-games that offer coupons to winning users.
Sea has combined online shopping with Garena, the creator of “Free Fire” to generate sales analysts which analysts estimate to be almost a third of that of Magazine Luiza SA, Brazil’s top grosser.
In Singapore, it took Shopee only five years to become Southeast Asia’s most visited e-commerce site overtaking platforms including Alibaba, Lazada, and SoftBank’s backed Tokopedia.
“Shopee has a track record in Southeast Asia of coming into the market late, looking at how others have solved existing problems and then building a system to leapfrog those issues,” said Jianggan Li, analyst at advisory firm Momentum Works.
Shopee’s early surge in a space left vacant for foreign entrants, in a sector once dominated by regional giants including Magazine Luiza and Argentina’s MercadoLibre Inc, was the result of timing its launch in Brazil. It entered the Brazilian market at a time when the COVID-19 pandemic drove consumers away from physical stores and increased the market share of e-commerce sales by 44% to $42 billion, according to data from Brazilian payments company EBANX.
Thanks to its fortuitous timing, Shopee quickly emerged as Brazil’s top app by downloads, as per data from analytics platform App Annie.
Despite this Shopee is losing money and is propped up by Sea’s profitable gaming division.
In the second quarter of this year, Garena posted an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $740.9 million even as the e-commerce arm lost $579.8 million.
“Money being generated by one side of the business, which is a cash cow, is being reinvested aggressively in Brazilian e-commerce – with success,” said Thiago Macruz, an analyst at Itau BBA.
Eyeing markets beyond Brazil
Sea’s success in Brazil is just one element of its global ambition. Already the investment arm of Sea Capital is considering investing in startups in Latin America and beyond, said a source with knowledge of the matter on the condition of anonymity since he was not authorized to speak with the media.
Sea has already taken Shopee to Chile, Mexico and Colombia where unlike Brazil, it has no locally based staff and has thus partnered with social media influencers to increase brand awareness, said two sources familiar with the matter at hand.
Sea declined comment.
Although Sea has shared little data about Shopee Brazil, analysts at Itau BBA estimate that the value of goods and services sold on the platform in 2019-2020 touched $2.27 billion (12 billion reais).
The average price on its marketplace is 40 reais, other estimates showed, less than a third that of e-commerce leader MercadoLibre, which often carries higher-value branded products.
The biggest challenge facing the country is last mile deliveries, with Brazil being such a huge country. This year, it has reduced reliance on the local postal system in favor of private carriers and is competing against rivals with proprietary delivery services.
As per a source, Shopee aims to have one main logistics partner per country in the region.
Earlier this month during an earnings call, executives from Sea said, the company expects e-commerce growth in the region to spawn more delivery partnerships, as it did in Southeast Asia. Yanjun Wang, Sea’s Group Chief Corporate Officer termed Brazil as “a good market for continued investment.”
In order to boost profitability, Shopee has raised commission rates to 18%, double of which is charged by marketplaces in some Southeast Asian countries, indicating Latin America’s potential profit margins.
According to analysts from Goldman Sachs, to further boost profitability Shopee could start selling higher-ticket items, just like it has done in Southeast Asia; they expect Shopee to add financial services to its Brazil app as it has in Indonesia.
“I wouldn’t be surprised,” if they reached number one, said Jianggan Li, an analyst at advisory firm Momentum Works. “Given what they have done in Singapore, Indonesia and Malaysia, Thailand.”
($1 = 5.2948 reais)