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Singapore’s Shopee Changes The Game in Brazil’s E-Commerce Sector

Burgeoning e-commerce group became Brazil’s most-downloaded shopping app, luring customers via in-app mini-games that offer coupons to winners

Signage of e-commerce firm Shopee is seen at its office in Singapore in March 2021. Photo: Edgar Su, Reuters.

Sea Ltd‘s Shopee 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: in-app mini-games offering coupons to winning users.

The Singapore-based company has combined online shopping with the gaming nous of its separate mobile game arm Garena – creator of “Free Fire”, Brazil’s most-downloaded title for eight consecutive quarters – to generate sales analysts estimated at almost a third of local champion Magazine Luiza SA.

Back home, Shopee only needed five years to become Southeast Asia’s most-visited e-commerce website, overtaking the likes of Lazada, backed by China’s Alibaba Group, and Tokopedia, backed by Japan’s SoftBank.

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,” Jianggan Li, an analyst at advisory firm Momentum Works, said.

Shopee‘s early surge highlights the space left for foreign entrants to grow in a sector once dominated by regional firms like Magazine Luiza and Argentina’s MercadoLibre Inc.

To be sure, the startup’s timing was fortuitous, launching in Brazil just as the Covid pandemic drove consumers away from physical stores, pushing up 2020 e-commerce sales by 44% to $42 billion, according to data from Brazilian payments company EBANX.

Shopee – akin to Alibaba’s AliExpress, carrying Chinese-made knick-knacks – emerged as Brazil’s top app by downloads and time spent in use, data from analytics platform App Annie showed.

Yet, in pursuit of growth, Shopee is still losing money, 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,” Itau BBA analyst Thiago Macruz said.

Global ambition

Sea’s Brazil foray is just one element of its global ambition. 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 with media and so declined to be identified.

The firm has also taken Shopee to Chile, Colombia and Mexico where, unlike Brazil, it has no locally based staff and so has partnered social media influencers to increase brand awareness, two people familiar with the matter said.

Sea, whose shareholders include Chinese gaming leader Tencent Holdings, declined to comment.

The firm has disclosed little data about Shopee Brazil, but Itau BBA analysts estimated the value of goods and services sold on the platform last year hit 12 billion reais ($2.27 billion).

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.

Sea’s biggest challenge for Shopee Brazil is delivery in such a vast country. It 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 aims to have one main logistics partner per country in the region, a company source told Reuters.

The company itself expects e-commerce growth in the region to spawn more delivery partnerships, as happened in Southeast Asia, Sea executives told analysts on a call this month.

On the same call, Group Chief Corporate Officer Yanjun Wang called Brazil “a good market for continued investment.”

Local sellers

Competition in Latin America’s largest economy stepped up this month when Shopee‘s nearest rival in terms of product offering, AliExpress, opened up its marketplace to domestic sellers charging single-digit commission. AliExpress had been in Brazil for 11 years; Shopee did similarly after its first year.

Small-business owner Luciana Carvalho began selling plastic packaging products on Shopee in February, attracted by the free shipping and 6% commission – compared with MercadoLibre’s 17%.

“It’s easy to sign up, calculate your commission, get your delivery tags, your receipts. It makes us invest more in the platform,” she said.

In a move toward profitability, Shopee has since raised commission to 18% – as much as twice marketplaces can charge in some Southeast Asian countries, indicating Latin America’s potential profit margins. Carvalho continues to use Shopee, though she prefers MercadoLibre for its “unbeatable” delivery.

To further improve profitability, Goldman Sachs analysts said Shopee could start selling higher-ticket items, as it has in Southeast Asia. Momentum Works’ Li expects 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 Li, “Given what they have done in Singapore, Indonesia and Malaysia, Thailand.”

• Reuters and Jim Pollard

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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