Vietnam E-Commerce: Stable in Face of Global Slowdown
A global recession has hit e-commerce markets in the world’s biggest economies. Vietnam appears well positioned, in contrast, and is expected to grow through this phase. Here’s why.
Since last year, worldwide inflationary pressures and geopolitical events have fueled an economic slowdown, putting many e-commerce businesses at risk of financial crisis. The fourth quarter of 2022 saw many big enterprises announcing large numbers of layoffs or limiting delivery activities to save costs.
But where e-commerce markets in developed economies are struggling, the same may not be experienced in fast growing emerging markets like Vietnam, according to Nirgunan Tiruchelvam, an analyst at Aletheia Capital.
“The drop-off you’re seeing in the west is not going to take place at the same magnitude in emerging markets,” he told Bloomberg late last year.
And he may be right, at least in the case of Vietnam where there are a lot of positive signs for the e-commerce sector. Here’s what e-commerce watchers should be looking at.
The current state of the e-commerce sector
The global e-commerce sector was valued at over US$3 trillion in 2022, according to Statista’s E-commerce Report 2022. The three biggest e-commerce markets – China, the US, and Europe – account for the lion’s share of this total e-commerce trade with a collective US$2,723 billion in revenue.
At first glance, this might not look like a cause for concern. However, despite this big number, global e-commerce revenue fell, for the first time ever, in 2022. In 2021, the e-commerce sector generated US$3.84 trillion, a year later that number had fallen by US$250 billion to US$3.59 trillion.
This decline was somewhat also reflected in Vietnam’s business activity – in the form of slower growth rather than causing outright economic contraction. The Ministry of Industry and Trade’s Vietnam E-commerce 2022 Report expects the country’s e-commerce sector to go from 12.7 percent in 2022 to 9 percent by 2025. It puts a brake on the rapid growth of 13.7 percent witnessed in 2021 yet does not constitute a serious decline.
The numbers for Vietnam’s e-commerce market are explained by its unique set of circumstances versus those observed in other parts of the world (which we discuss in a section below).
What is happening to the global e-commerce market?
A broad range of factors have contributed to contraction in the e-commerce market. There are two developments that have played a pivotal role in the market’s contraction: inflation and the pandemic. Moreover, the Russian war in Ukraine provoked energy price shocks impacting fuel prices.
High inflation is reducing purchasing power
High inflation has made consumers thriftier. As their purchasing power diminishes, consumers are choosing to buy less and save more.
Rising fuel prices are also leading to higher shipping costs, which are eating into the cost savings that come with not having a brick-and-mortar store.
Shopping habits have changed
During the pandemic, ordering products online was a necessity. With lockdowns and the threat of contracting the coronavirus looming large, consumers were in many instances forced to shop online.
That said, when social distancing disappeared, old shopping habits returned. This transition to the ‘real world’ post-pandemic is likely to continue with a gamut of benefits to shopping offline, not least of which is human interaction.
How is the current economic climate impacting foreign e-commerce companies?
For international e-commerce businesses, the global economic turmoil has translated to falling stock prices, and most prominently, layoffs.
In January 2023, Amazon announced the largest layoff in its history with 18,000 people losing their jobs worldwide. Doug Herrington, Amazon’s senior retail executive, said that the decision was made to improve the cost structure after spending too much during the pandemic.
Locally, SEA, the parent company of e-commerce platform Shopee, has fired more than 7,000 employees, the equivalent to 10 percent of its workforce, over the past six months. The company also cut staff in Singapore and China, and closed branches in Latin America.
This layoff trend, however, has not hit Vietnam quite as badly. This is mostly as a result of pre-existing labor shortages in the rapidly evolving tech sector (See: Vietnam’s Tech Startups: Human Resource Challenges).
Why Vietnam’s e-commerce market may buck the global trend
“E-commerce has had great changes in recent years. But so far, the e-commerce market still has a lot of room for development.” – Vu Thi Minh Tu, Director of External Relations at Lazada Vietnam.
Although Vietnam can’t avoid the risk of recession completely, there is still a lot of potential for the market to keep growing in the near term.
Vietnam’s e-commerce market hit US$14 billion in 2022 and may reach as high as US$32 billion by 2025. Google’s e-Conomy SEA 2022 report predicts that Vietnam will be in the top three countries attracting the most investors in the e-commerce sector. AIA Insurance Inc, SBI Holdings, and Alibaba are just a handful of the big names pouring money into Vietnam’s Tiki, Lazada, and Sendo e-commerce marketplaces.
Furthermore, the Ministry of Industry and Trade’s (MoIT) Vietnam E-commerce in 2022 report estimates that the online shopping value per user will also continue to increase. It is forecast to reach US$260-285 per person this year. This is the result of a young population, high internet penetration, and rising incomes.
Vietnam is a nation of digital natives
The bulk of Vietnam’s population are under the age of forty and are incredibly tech-savvy relative to their parents’ generation. These early adopters of digital technology have become a driving force for change in consumer behavior in Vietnam – it’s estimated that Gen Z will account for 40 percent of Vietnam’s consumption by 2023.
Young consumers are also pushing the limits of e-commerce, finding new avenues for shopping online. Facebook Pages, for example, have become a key source of customers for Vietnamese businesses.
This is being powered by a digital banking system that sees funds transferred and deposited in real-time at no charge. Unsurprisingly, with its low-cost and ease of use, this form of online shopping (also called social commerce) is quickly becoming a norm.
Overall, it is a cheaper alternative to conventional e-commerce trade.
In 2020, social commerce was responsible for 65 percent of Vietnam’s US$22 billion in e-commerce sales.
E-commerce is making traditional retail redundant
In Vietnam, the development of e-commerce has leapfrogged traditional retail like supermarkets and convenience stores. The convenience of online shopping and the ability to store large volumes of goods at low-cost warehouses as opposed to more expensive retail stores, has seen the demand for big-box style shopping complexes remain relatively low. This has further been impacted by the lack of space in Vietnam’s cities, which have grown in both size and population at breakneck speed over the last decade.
It makes sense then that McKinsey and Company has forecast that Vietnam’s e-commerce market could be as big as traditional retail as soon as 2025. A trend that is not being seen in other parts of the world.
Top e-commerce brands in Vietnam
Top 5 most popular e-commerce platforms in Vietnam, by digital recognition*
*Digital recognition is calculated based on data drawn from social media including, but not limited to, social media mentions, posts, and the level of discussion around a particular brand.
Although growth momentum slowed last year, Singapore-headquartered Shopee is still a key e-commerce marketplace for online shopping in Vietnam. According to Metric’s 2022 E-commerce Market Overview Report, Shopee is the most popular e-commerce platform in Vietnam. It accounts for nearly 73 percent of all sales valued at about US$3.8 billion.
Lazada is an e-commerce marketplace. In 2022, it focused on sustainable development policies and enhancing the customer experience. This move helped Lazada to weather the pandemic relatively well. Lazada’s 2022 revenue in Vietnam accounted for 22 percent of total e-commerce market revenue, equivalent to US$1.1 billion.
Launched at the end of April 2022, Tiktok Shop has proven itself a formidable player in Vietnam’s e-commerce market. It ranked third among the most popular e-commerce platforms in 2022, according to the aforementioned Reputa report. The monthly revenue of TikTok Shop is currently equivalent to 80 percent of Lazada’s revenue and four times that of Tiki.
Tiki was known as one of the biggest e-commerce platforms in Vietnam after Lazada and Shopee. But unlike its competitors, Tiki’s principal operations in 2022 suffered serious losses.
According to Tech in Asia, Tiki recorded a loss in the most recent financial year (ending March 2022) due to decreased revenue. Specifically, Tiki’s total revenue dropped 7 percent compared to the previous financial year. This could be the result of increased competition, TikTok Shop, for example.
The future of e-commerce in Vietnam
The worldwide e-commerce market has been hit by a number of shocks and this has triggered a general contraction. With ongoing global political and economic uncertainty, the operating environment for e-commerce operators remains challenging.
There are still opportunities to be found. As an emerging market in a dynamic region, Vietnam is an attractive destination for e-commerce and social commerce players. A growing middle class, large youth cohort, and increasing disposable incomes are seeing consumer spending boom, particularly online.
Against this background, the current downturn in the global e-commerce sector may skip Vietnam altogether and, though some e-commerce companies may find it challenging in the near term, with the right advice, others may find it to be very profitable.
For support entering Vietnam’s lucrative e-commerce market, contact the team at Dezan Shira and Associates.
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