Singapore’s e-commerce giant Shopee seems to be intent on a much more rapid expansion into Europe.
Competing with Wish or Aliexpress, not Amazon
A quick look through the new sites suggests that Shopee is not trying to compete with established, mainstream e-commerce companies just yet, but rather, it aims to grab a foothold at the lowest-end of the e-commerce market, offering very cheap goods (with many of them priced around just 1 euro) shipped from overseas suppliers, chiefly in Asia.
To do that, the company is subsidising delivery costs which are… zero, regardless of the size of the order. This is also highlighted in the app’s name in the Google Play and Apple’s app stores.
Despite reports of Sea Ltd. approaching local suppliers, it doesn’t seem that there are many of them on the platform just yet. Apart from Poland — where the handful of domestic sellers are highlighted with a special badge — the other two sites are not listing any companies in Spain or France, respectively.
It looks that Sea wants to carry out its European expansion in largely the same way it did in less developed markets in Latin America: by using the multi-billion dollar war chest of funds raised from investors to undercut the cheapest (and typically least reliable) companies — like Wish and Aliexpress — first.
Through that, it would establish a user base and some goodwill, before onboarding local sellers and moving up with its product offering to higher-end goods, becoming a proper mainstream platform in the process.
Despite appearances, there are some differences between Shopee’s debut in Europe and in other international markets.
Firstly, Sea was often able to leverage the popularity of Garena’s Free Fire action game, that allowed for cross-promotion of Shopee within the app, drawing avid gamers to e-commerce. This is not the case in Europe, where Free Fire doesn’t have nearly as many users.
Secondly, ultracheap ecommerce is further away from the mainstream there than it is in less developed countries. Expectations of wealthier consumers are also higher, so it might be more difficult to build trust over time, if Shopee starts off as a brand known for selling poor quality, cheap Chinese goods.
It’s not a problem for an app like Wish — which has quite deliberately positioned itself in this particular corner — but if Shopee wants to take on the likes of Amazon in the future, it would do well to expand its offering quite quickly to avoid being pigeonholed in the least lucrative (and least trusted) part of the market.
Finally, customer acquisition is considerably more expensive in Europe. Advertising can cost multiple times what it does in Mexico or Brazil.
And since the company is losing money on every order, it is likely to burn billions of dollars in the process of building a large enough user base. As such, it needs to add more expensive, higher margin goods a lot more quickly — and not even to turn a profit, but to keep the losses at sustainable levels while protecting the brand from being associated with poor quality and long delivery times.
Otherwise, it’s risking burning both its image and a hole in its pocket.
Is the timing right?
It’s going to be interesting to see how Shopee is affected by the current global supply chain crisis. The time of the launch of its ventures in Europe could not be less auspicious, given the pandemic circumstances.
Lengthy deliveries from Asia could take even longer, while the company is forced to pay higher rates, as traffic jams in harbours have knock-on effects on all other modes of transport.
This is coupled with the inherent pressures that the incoming busy year-end is going to bring, with Black Friday deals and the Christmas season just around the corner.
First impression matters, so Shopee is going to have to work hard to avoid delays on already long delivery times from the Far East, particularly as people are not only ordering products for themselves, but also gifts for their loved ones.
The next two months are both a great opportunity to snatch a piece of the market with remarkable deals — and a potential threat, if the promises are not fulfilled and leave customers with a poor experience.
By early 2022, we’re going to be able to judge whether Shopee’s European expansion was perfectly timed or too hasty.
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