Shopee defends fee addition

Vendors have raised concern over the move by Shopee to charge commission, which is not currently a method used by other e-commerce platforms

Recently, online vendors have been stirred up by rumours that Vietnam’s leading e-commerce platform Shopee is going to charge 1-2 per cent commission after each successful deal from April 1.

The charge depends on the payment method vendors use. Specifically, Shoppee will charge vendors 1 per cent for cash on delivery (COD) or international card payments, and 2 per cent for credit or debit card payments.

The fee will be directly deducted on each order before being transferred to the Shopee Wallet of the seller. This new policy has elicited an uproar among vendors who are accustomed to selling products almost entirely for free on Shopee which is a common policy e-commerce platforms use to increase the number of vendor partners.

Shopee, owned by Singapore’s Sea Limited, a leading internet platform in Southeast Asia, was officially launched in August 2016, and by the end of that year it reported a loss of VND164 billion ($7.1 million), which increased to VND600 billion ($26.03 million) in 2017.

In fact, in order to gain market share, e-commerce firms have been shouldering losses over the past few years in a “winner takes it all” war of attrition which has seen competitors dropping out left and right, with the latest victim being Thailand-based Central Group’s Robins.vn, which threw in the towel after three years.

Vendors departing?

Telling VIR about the new fee, Tran Tuan Anh, managing director of Shopee Vietnam, said that the platform has applied two types of fees since last year - including payment fee and commission fee - in Taiwan, and that it will deploy similar charges across its Southeast Asian markets.

In the managing director’s opinion, “Charging a fee is a standard in the e-commerce sector, which is applied when the platform and services are perfected and the users are willing to pay.”

“This move marks a development step, going from a developing platform to becoming an inclusive e-commerce system and affirms our position in the market,” added Anh.

However, the explanation of Shopee’s managing director did not resonate with most vendors. For example, a vendor argued that the new policy will reduce her sales revenue by VND4-5 million ($174-217.4) every month.

“Customers will leave if we raise prices. They hate that,” the vendor complained, saying that this will significantly impact medium- and small-sized shops. “The fee is not much for small orders, only a couple of US cents, but it will cost a lot for bigger orders, especially when added to other costs. I am considering giving up.”

Very few vendors agreed with the new fee, but they would rather see a lower charge. “Unless the three sides [vendors, Shopee, and customers] all benefit, Shopee will not be able to retain sellers,” said Huynh Anh, a vendor on Shopee who sells 40 items and is followed by 2,000 customers.

The commission Shopee is considering to add makes retailers wonder if they should take their business elsewhere, moving on to another e-commerce marketplace that does not charge them.

Contain risks

Charging vendors may lead to the departure of a significant number of vendors who are looking to optimise sales costs and stabilise sales because a 1-2 per cent charge on each order would cause vendors a sizeable fall in total revenue.

It also means that Shopee may lose visitor count, which made it the leading local e-commerce platform. Currently, among all e-commerce platforms in Vietnam, the rate of those shopping at Shopee is 47 per cent, according to statistics from market research firm INTAGE Vietnam.

Doan Huong Giang, head of communications department at Sapo Technology JSC which provides sales management software, told VIR that Shopee’s decision will send vendors who are unfamiliar with its new policy to transfer to other platforms in droves.

“Opening a Facebook fanpage, a website or a physical store all require significant investment. Therefore, to keep down operation costs and keep interacting with customers, they will first transfer to other e-commerce platforms,” Giang said.

However, Shopee is confident in its decision. Anh, told VIR, “We believe that Shopee is still an attractive e-commerce platform for both vendors and customers thanks to our good facilities, support services, and diversified goods to meet the demand of consumers across the region. Shopee charging commission in Vietnam from April marks a big step forward, which is a result of the change from a developing platform to a sustainable e-commerce system. The change also enhances Shopee’s position in the local e-commerce market.”

In fact, opening a shop on e-commerce platforms is not the only effective sales channel. According to findings of Sapo.vn’s survey on 5,000 companies and vendors in January 2019, e-commerce is the least efficient sales channel, performing behind Facebook, websites, physical stores, and dealerships.

Reasonable prices the key

According to the latest report of the Vietnam E-commerce Association, the scale of the local e-commerce market in 2018 hit $7.8 billion. If the market’s growth rate remains at 30 per cent in the 2019-2020 period, it will reach $13 billion. The blossoming of e-commerce is mostly thanks to the reasonable price of goods, which draws customers to the platform.

A representative of e-commerce platform Lazada Vietnam told VIR that buyers always look to buy at a reasonable price, and vendors always wish to sell at high prices. Therefore, the function of e-commerce firms is to balance the two sides’ interests.

Looking at the goods on e-commerce websites like lazada.vn and shopee.vn, items in the price range going from dozens to hundreds of thousands of VND account for the majority. Thus, price competition is still the main form of competition, and the situation is expected to remain so for a long time still.

“Platforms like Lazada, Tiki, and Adayroi, are competing by focusing on price instead of quality. It takes several years at least to change consumers’ shopping habits,” said Giang from Sapo Technology. “Competition in price is the first step, which enhances the coverage of e-commerce. The second arena of competition will focus on the quality of goods because consumers in the future will become increasingly aware that better quality comes at a higher price.”

Similarly, Masami Negishi, managing director of INTAGE Vietnam, told VIR that once the demand for online shopping is established, the success of e-commerce platforms depends on their ability to satisfy consumers’ needs and offer good shopping experience.