Vietnam’s e-commerce sector grew by more than 25 percent last year and can maintain this growth rate in the next two or three years, according to the Vietnam E-Commerce Association (VECOM).
It says online sales is set to hit $10 billion by 2020, accounting for five percent of the country’s total retail sales.
Yet the four top firms that have built up the nation’s e-commerce so far, Lazada, Tiki, Shopee and Sendo, have repeatedly reported accumulated losses.
Market observers explain that in a “primitive market with high growth rates,” top companies are not afraid to accumulate losses in order to entrench themselves in positions of strength by focusing on expanding their market share at “at all costs.”
Singapore-based Lazada entered Vietnam in 2012 when it was still owned by Germany's Rocket Internet.
In April 2016, China’s Alibaba Group Holding Ltd bought a controlling stake in Lazada for about $1 billion to support its expansion plans in Southeast Asia.
In June 2017, Alibaba Group increased its investment in Lazada by an additional $1 billion, raising its stake from 51 percent to 83 percent.
Lazada Vietnam reported a loss of VND977 billion ($42.2 million) in 2015 and over VND1 trillion ($43.3 million) in 2016. It attributed losses to big spending on management and sales promotions.
By late 2016, its charter capital stayed at just VND15 billion and loans accounted for most of the working capital it was using.
However, Lazada is still an attractive investment option, with Alibaba announcing in March that it would double its investment in the e-commerce firm to $4 billion.
A project of Garena, a consumer Internet platform provider based in Singapore, Shopee is second in the list of e-commerce firms suffering big losses in Vietnam.
In 2016 when it first entered Vietnam, Shopee posted losses of VND160 billion, but this had risen to more than VND600 billion last year.
By the end of 2017, the total asset value of Shopee had risen ten times to more than VND730 billion as its parent firm raised its total capital by VND30 billion to more than VND1.14 trillion.
Compared to Lazada and Shopee, which have giant firms backing them, Tiki and Sendo are quite modest, meaning they had made smaller losses.
Tiki started off as an online book store in 2010 before venturing into e-commerce. Just six years later, the firm was valued at $45 million, following domestic tech firm VNG injecting some $17 million in a 38 percent stake acquisition deal.
Tiki had posted revenues of nearly VND62.4 billion ($2.71 million) in 2016, a six-fold increase over 2015. However, this was accompanied by a loss of around VND179 billion ($7.78 million) because of high operational costs.
In its annual report for 2017, VNG showed Tiki making a loss of VND282 billion ($12.26 million) for the year.
Despite its losses, Tiki has remained attractive to investors as a leading brand in the market. In mid-January this year, JD.com Inc., a giant retailer in China, injected an unspecified sum into Tiki. The Chinese firm had announced last November that it would pump $44 million into the Vietnamese e-commerce platform, making it Tiki’s largest shareholder.
The last of the top four is Sendo owned by Vietnamese tech giant FPT.
Sendo raised more than VND400 billion in the two years of 2015 and 2016 and the company reported losses of VND60 billion in 2015 and VND136 billion in 2016.
However, there its equity stands at more than VND227 billion thanks to a stock issue in 2016.
A Financial Times report last April cited Bain, a U.S.-based global management consulting firm as saying online businesses were booming in Southeast Asia.
Bain estimated that the region had 200 million digital consumers, or people who bought goods or services online, out of an adult population of 405 million. Vietnam, with a population of 93.7 million, accounted for 35 million of these consumers.
Vietnam’s youthful population is among the keenest users of mobile devices in the region, while the country’s consumers spend more time online than most of their neighbors, several studies have pointed out.
Research firm Nikkei estimated that Vietnamese people spend nearly 25 hours online per week, on a par with or just behind Singapore and the Philippines.