VietNamNet Bridge - Low profit margins and high operating costs are daunting problems for investors in the e-commerce sector.  

Large international e-commerce firms such as Amazon and Alibaba only began making profits after 10 first years of operation. The big losses of Vietnam’s e-commerce firms were foreseeable.

Before it was taken over by Alibaba in 2016, Lazada Group reported loss of $334 million in 2015, twice as much as the loss the year before.

Low profit margins and high operating costs are daunting problems for investors in the e-commerce sector.

VNG’s latest financial report showed the company has incurred a VND100 billion loss since it began injecting money into Tiki.vn in 2016.

Analysts pointed out that orders from clients must be dealt with through tens of different stages before goods can reach clients, and each stage can gobble up one part of investors’ earnings.

Investors, for example, have to spend big money on storehouses. It is estimated that Lazada and Tiki have to spend no less than VND1 billion just to run one storehouse in HCMC. As such, with three operational storehouses, they have to spend no less than VND48 billion a year.

With tens of thousands of orders each day, e-commerce firms will need high numbers of deliverymen, thus bearing high financial cost. Both Lazada and Tiki have to employ deliverymen and outsource the service. 

Lazada Vietnam has 200 workers in Lazada Express, but it still has to join forces with Giaohangnhanh, VNPost and Viettel Post to fulfill orders.

Besides, the expenses on marketing are also enormous which eat up investors’ profits. Lazada Vietnam had to spend big money on ads in the first years of operation to lure more customers. Some sources said the firm once spent up to $2 million a month on ad campaigns.

Chotot.vn also reportedly spent billions of dong on the ad clips with the play of comic actors. Meanwhile, Shopee.vn offers free delivery to clients nationwide applied to orders with bills of VND150,000 and higher. With more than 10,000 orders a day, Shopee.vn had to pay nearly VND1 billion on the program.

E-commerce firms not only have to pay high for input costs and marketing campaigns, but also have to cut selling prices to compete with others. A branding expert who asked to be anonymous said some firms accept to sell goods at a loss of 10-20 percent in order to lure customers. In peak promotion season, the figure could be up to 50 percent.

The highest risk for e-commerce firms is that they may lose orders because of the COD (cash on delivery) payment method. Customers can cancel orders at the last minute, though firms have to pay expenses to deal with the orders.

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