Vietnam 2015: E-commerce scene sees shutdowns & failures even as more investors rush in

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Vietnam is home to some 90 million people, with more than 40 per cent of the population being Internet users. It poses great opportunities for online businesses like e-commerce to grow vigorously.

Vietnam was the smallest B2C e-commerce market in Southeast Asia two years ago, but online trade is gaining momentum in the country, triggered by even increasing internet penetration and higher online spending per shopper, according to a Research and Markets report.

The growth of B2C e-commerce in Vietnam is predicted to be of two-digit figures within the next five years.

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But while we generally hear good things about this online industry in Vietnam, that the potentials are huge and the hindrances in terms of logistics infrastructure and the trust of customers will be overcome, some real businesses have proved e-commerce is an extremely stiff competition.

The words of farewell

“E-commerce requires lots of money. Many companies will decide to stop burning. Good luck to the rest who are still trying.”

Those were the last words of Beyeu.com, an e-commerce platform for moms and babies, unit of Project Lana, backed by IDG Ventures Vietnam.

Along with Beyeu.com, online retailers focused on products for women, Lamdieu and Foreva, were the other failures of Project Lana, despite the back of IDG Ventures Vietnam and the success of Webtretho, the only bright spot of the startup, which is a forum for moms. Through the forum platform, Project Lana should have been able to capture the market demand to better serve the business of its e-commerce platforms. However, the startup shut down all of the e-stores within only two years.

DEALSTREETASIA has reached out to two vice presidents at IDG Ventures Vietnam, but they declined to give any comments on Project Lana.

Beyeu.com’s dying words, which was in fact bitterly spoken in November, are still obsessing those who want to do e-commerce, and has provoked the feeling that the lustrous look of mushrooming e-commerce sites is just a tip of the iceberg. Meanwhile, the real business is probably in a pale situation.

The nature of venture capital is making perhaps 10 investments at a time, and the investor might count on only one project that succeeds. That said, investment may not be the salvation when the business sinks in troubles.

VNG Corporation, for example, is a big figure in the Vietnamese tech space, but could not save its e-commerce business. The company closed two online shopping websites, ZingDeal and 123.vn, and sold 123mua.vn to FPT Corp, another tech major.

Formula of failure

Amid the concerns, JFDI‘s incubatee Taembe announced its $228,000 seed funding, stating some researches on the local market for baby products that 19 per cent of Vietnamese consumers (that is over 17 million people) have kids at one to two years old, compared to the world’s average of 9 per cent, and Vietnam has 1.5 million newborn children every year.

Also Read: Vietnamese online baby product retailer Taembe secures $228K seed funding from Swiss investor

However, brick-and-mortar retail still prevails in the country, as the majority of local people live in rural areas, while online marketplaces, especially for baby products, are meant for big cities.

And apparently, competition is intense, as prominent players like Lazada, Shoptretho (Baby shop) and Hotdeal also offer services for this niche.

“E-commerce requires lots of money” – it is a wake-up call for other startups that online business is not cheap at all. On the contrary, startups might be overwhelmed by all kinds of cost, from marketing, warehouse, to logistics, promotion and customer service.

For the case of Beyeu.com, the failure could have been prevented if IDG Ventures Vietnam helped Project Lana focus on building one marketplace for both babies and women. By developing three platforms at the same time, it consumed too much effort, while the efficiency is not as large.

Finding the right strategy and using money properly is also a story startups have seen from Foodpanda Vietnam, which sold itself to local rival Vietnammm.com, after telling its partners the termination of business was caused by financial difficulties, even as it was invested by German Rocket Internet giant.

Also Read: After shutting shop, Foodpanda’s Vietnam arm finds buyer in local rival Vietnammm

Rocket’s Vietnam exodus: Will fashion portal Zalora go the Foodpanda & EasyTaxi way?

Investors’ game

IDG Ventures Vietnam’s portfolio investees are companies with good traction. Webtretho itself is a good business, with 11 million unique visitors per month.

The case has shown that investment in an early stage, e-commerce startup is highly risky.

As Vietnam is trying to promote entrepreneurship and to have a startup ecosystem, a lot of young startups have sprouted up, but the country has not seen many strong companies. Seed investors are there, and a number of local startups have secured seed funding. However, it seems to be really challenging for them to reach the next series A, B, C fundraising rounds.

Nguyen Hong Truong, vice president at IDG Ventures Vietnam, has also revealed in a recent interview with DEALSTREETASIA that the fund is looking at more mature companies.

Also Read: For investors, SEA is tricky as divestment is not easy: IDG Ventures’ Truong Nguyen

E-commerce landscape wrap-up

To balance the gloomy picture from the failures of Beyeu.com and several precedents, it is worth mentioning the exciting developments in the e-commerce landscape over the past two years.

Overall, government numbers stated the market size reached almost $3 billion last year and is expected to hit $4 billion this year. However, according to some local e-commerce players, the actual value is estimated at some $1-1.5 billion.

Some companies have raised funds from foreign investors at a later stage, including Tiki ($1 million series B), Sendo (series A) and Vexere (series A). A spate of established corporations which stick with conventional trade have launched their online shopping service, like real estate titan Vingroup and electronics retailer Mobile World.

E-commerce in Vietnam is still in an early stage. “The penetration is only one per cent of the entire retail market, while it is eight per cent in China. It would take five years for e-commerce in Vietnam to zoom upwards,” noted Le Xuan Long, Lazada Vietnam’s chief marketing officer. For a nearer future, CEOs of two e-commerce platforms Haravan and Hotdeal predict 2017 will be the swelling period as logistics infrastructure and customer trust will have been formed.

“If we invest in e-commerce right now, we will enjoy the results within the next two to three years,” said Hotdeal CEO Nguyen Thanh Van An.

In short, the lesson from Beyeu.com has added a real value to the adventure. It reminds both startups and investors e-commerce in Vietnam can be their golden goose, but the price to pay is expensive in this nascent market.

The dying of e-commerce companies, for which Project Lana and Foodpanda are the examples, may stem from the non-professionalism of the businesses, but it is largely because their models are not consistent with the market, according to industry experts. Addressing e-commerce issues in Vietnam in a panel of the recent Go Live! Vietnam Venture Cup 2015 event, Tieu Vo Dinh Phi, managing director of Chodientu.vn, said: “It is because the local market is not propelling enough, not satisfactory enough for these businesses. I don’t think they are any big failures.”

Also Read: 

Vingroup e-commerce foray gains pace; launches Adayroi.com beta version

Lazada, Sendo top Vietnam’s e-commerce market in 2014