In another move to seek profitability for e-commerce companies, Shopee, the e-commerce division of Sea, informed employees last Thursday (8) that it is reducing operations in Chile, Colombia and Mexico and exiting Argentina. The news was reported by Reuters citing sources, and was confirmed by other media in the morning.
The Singapore-based company will retain international operations in its top three markets, but will lay off most staff in the country, affecting dozens of employees.
Brazil, on the other hand, will not be affected. However, according to information from Valor, the company has created a new fee for sales, which is valid from the 1st of this month, which raises the total fee to partners using the platform to as much as 20%. The goal is to improve the results of local action. The company has also created a policy of hiding products from sellers who delay shipments in an attempt to improve service.
In an internal email seen by Reuters, Shopee CEO Chris Feng wrote to employees that “in light of the current heightened macroeconomic uncertainty” the company must “focus resources on core operations” and decided to focus on Shopee Mexico. , Colombia and Chile. The company confirmed in a statement to Reuters that it will “focus on the cross-border model in Mexico, Colombia and Chile and close in Argentina.”
Analysts at Itaú BBA point out that, given the significant increase in the cost of capital, they see Shopee focusing its efforts
resources in core operations and maintaining profitability in those regions, especially as its cash cow, Garena (Sea’s Asia-based consumer internet platform provider), has struggled in recent quarters with EBITDA , depreciation and amortization (Ebitda) fell 55% in the second quarter of 2022 on a year-over-year basis.
The bank reminds that this is not the first time this year that Shopee has stopped operations in non-central markets, after leaving India and France in March. “While the latest announcement suggests a softer competitive environment in Chile, Colombia, Mexico and Argentina, it could also mean that Shopee is focusing its efforts on growth in Brazil. However, the increase in rates in the country could lead to a less competitive position for Shopee in the Brazilian market,” the bank said.
Goldman Sachs also points out that the move is in line with the company’s strategy to refocus its efforts on core markets while prioritizing profitability.
Although the administration does not comment on its long-term regional plans, analysts believe that this move will not
necessarily rules out the possibility of Shopee re-entering the markets once the macro environment improves, given the greater cash flow flexibility for the group and the fact that it has retained its cross-border operations in most markets.
“By maintaining these operations, the company will be able to build relationships with customers and, at the same time, build more understanding around local preferences and behavior, a move we believe would be key to their decision to return to these markets. “
Morgan Stanley sees the move as positive for Shopee, refocusing its core markets. A small impact on the volume of gross merchandise sales (GMV) is expected, but with very solid potential cost savings. The bank’s analysts expect GMV to accelerate again in the fourth quarter of this year and profitability to recover.
Looking at other operators in Latin America, Morgan sees Shopee’s retreat in certain markets as a positive boost for Mercado Livre ( MELI34 ), while competition risk remains in Brazil. For Mercado Livre, the 2021 GMV base is split between 44% Brazil, 24% Argentina, 19% Mexico and 12% in other countries (mainly Chile and Colombia).
“Given the company’s pan-regional scope, we see a positive read for MELI with Shopee’s exit in Argentina and its move to exclusively cross-border operations in Mexico/Chile/Colombia. Although the Shopee ramp-up in these countries occurred earlier than in Brazil, we see that the pullback has helped to remove the long-term competitive risk for MELI”, the bank assesses.
Looking at Brazil, the largest e-commerce market in the Latin American region, and Shopee, Morgan analysts continue to see the two companies as market share gainers.
However, amid a scenario where Brazil-based operators are increasingly focused on margins and less on growth, and also highlighting Shopee’s increase in fees charged to partners in Brazil, Morgan sees e-commerce in Brazil as competitive but more rational.
In recent months, it is worth noting, with higher inflation and slower e-commerce sales, companies (including Mercado Livre) have adopted measures to increase profitability.
Some of the measures are increasing the minimum purchase amounts to get free shipping or other benefits, reducing the difficulty of selling with free shipping.
Via (VIIA3) and Magalu (MGLU3) in turn also increased the commission rate charged to traders selling on their marketplace mid-year as a way to boost revenue and improve their cash flow management.
On the occasion of the increase in commission rates by these companies, Levante Ideias de Investimentos pointed out that even with the movement of players in the sector to mitigate the effect of the decline in online sales, the point of attention is how the companies will do it. trade-off, that is, how much such measures will affect sales, while reducing the benefits to buyers and sellers of their platforms.
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