SEA vs. US: Still worlds apart in eCommerce

Main ideas

• The US eCommerce market is dominated by Amazon and it is quite mature as compared to SEA
• Despite being much larger and more mature, it is also much more profitable
• This leads to far more sophisticated sellers than what you will find in SEA
• Because of the factors at play (like the addiction to 'campaigns' which destroys the profitability of the market) the sophistication of the SEA eCommerce market is going to evolve relatively slowly

Let's start by talking about the US eCommerce market

Its dominated by Amazon but most sellers also have stores on Shopify. Walmart making some progress but still far behind.

Amazon FBA (Fulfillment by Amazon) was launched in 2006 and in the years following this attracted thousands of sellers who would sell from their home, often part-time.

Methodologies and courses like the "Amazing Selling Machine" attracted droves of young, aspiring entrepreneurs to create their own Amazon-based private label businesses. Generally sourcing from China on Alibaba.com and then selling on FBA.

At the beginning it was easy to make a lot of money in this Amazon private label game

Meaning that Amazon was growing like crazy and there wasn't much competition. And hundreds of new millionaires were minted.

"You didn't need to be good to easily make $10k/month in revenue back then."

Some of the sellers that made it during these early days then started systematizing things more... They created their own tools which they sold as SaaS and created their own selling courses. Which then proliferated the seller growth more.

2014-2017 were the golden years of Amazon selling. Before the Chinese sellers began to flood in.

Starting in around 2017 having a very strong brand became more important

From about 2017 the Chinese began selling direct on Amazon US in droves. They were no longer content with just being the upstream supply chain.

With FBA they could compete direct. And some estimates were that by 2020 over a million Chinese sellers were selling in the US on Amazon.

As a result if an American seller did not have his own brand with some differentiation then he was easily beaten by the Chinese. Who were not only sourcing cheaper but many were also leveraging a lot of 'grey hat' techniques that had been popularized on Taobao in the years before that (eg. to get reviews, etc).

How the US Private Label game works

Product Research

Selecting which product to sell is still at the heart of any Amazon seller's success. You need to balance some combination of market size, competitiveness, profit potential, etc.

And data is the absolute key to making the right decision consistently.

Data is readily available with popular platforms like Junglescout and Helium10 among many others. You can figure out how big categories are in terms of sales (at multiple levels of the category tree) and which players are having what share.

So when you enter a new product niche and are making a large investment... you are fairly prepared.

Margin

Margin is pretty healthy in the US. Meaning that you often target 100% gross margin in the private label business.

This is in part because it is not such a price-driven business in private label. Customers are typically searching for a set of keywords and then selecting among the top search results.

But if there is a low priced player with no reviews then he will not even show up in those search results. And in this way private label is quite different from branded products where you need to compete on the same product page with your competitors.

"Everyone knows what everyone else is doing in the US.

So this means that the time you're winning is 'tight' because others will see when you're making a lot of money and come for you."

Investment

Amazon US is quite competitive at this point. And so the stakes have gotten much higher to compete. Whereas a decade back you could easily throw a product up without optimizing much at all and it would sell... now if you did that it would pretty much guarantee you not selling a thing.

And so you need to invest pretty heavily in Amazon ads, rebates, etc. Generally between inventory and marketing spend you shouldn't be surprised if launching a single new product costs you $10k.

What is different in SE Asia?

The players are more fragmented

Instead of the dominance of single player like Amazon you have a number of regional players and then a lot of local players. Though it is said that Shopee is starting to pull away from the rest of the pack more and more.

Sales volumes are much smaller

Whereas in the US a successful product can easily do $50k-100k in sales per month in SE Asia you will be lucky if you do $5k- $10k.

"One large well-known international electronics client that I've been working with for awhile does $50k for the month for his entire catalog in Malaysia.

The scale is just massively smaller."

Profits are much more scarce.

It is very hard to make money in this region still. In part because brands are not that strong but also due in part to the 'campaign mindset' that has been inherited from China.

"It's still a bloodbath in SE Asia in terms of profit"

Over the course of the year there are ~10 'mega' campaigns like "11.11" (basically every double digit date in the year) plus there are tons of smaller campaigns. And this is when the vast majority of the sales volume occurs.

The customer has been trained to wait for these campaigns and then get 40%+ off. Which is very different from the healthier Amazon US market where most purchases happen through "Search, Find, Buy".

Chinese sellers compete effectively, almost effortlessly

Shipping from China into SEA is extremely popular (due to Lazada & Shopee) and extremely cheap.

For example it would not be uncommon for the shipping cost for a customer in Kuala Lumpur to be higher on a product coming from East Malaysia as compared to coming from China.

This shipping has become quite efficient for the large marketplaces, and i would also not doubt if they are subsidizing it to a great extent says Matt.

So Chinese sellers find it very easy to compete here. As brands are anyway not strong and so with almost no effort they can cross-list their items from their Chinese or Amazon marketplaces and sell in SEA.

Or they can just copy a popular competitor listing in SEA and drop price. Which is very demoralizing for local SEA sellers.

Private labels are far less powerful

Because the sales and profit are less attractive, the SEA market also seems to attract less sophisticated sellers.

Or perhaps it can also be said that sellers do not have the margin that allows them to get very sophisticated. Because you need profits to invest in sophistication.

You just need to be really smart and really good to be profitable in SEA. Whereas it is a ton easier in the US to make money.

Many of the 'sophisticated' sellers in SEA are actually also selling in the US on Amazon and probably making a big chunk of their sales from there.

And how is the private label game different in SE Asia?

Sellers are less sophisticated

For the reasons listed above sellers here in SEA tend to be far less sophisticated in their techniques. This generally holds true across the board... their content, their packaging, their product differentiation, their operational strategies, etc.

Platforms like Lazada & Shopee invest pretty heavily in "educating" them... but fact of the matter is unless the profit is there... the motivation will also not be there.

But this lack of sophistication also poses an opportunity. Some private label brands that take a professional approach like Mama's Choice (founded by ex-Lazada CEO of Indonesia, Duri Granziol) is an example of this.

Without much competition from strong local private labels (as they would in the US) they can focus on how to beat the international guys, which tend to be less creative in their strategies.

And note that it is these strong private label brands which will attract the most attention from the 'Aggregators' (eg. Thrasio, Branded, Una Brands, Rainforest) who have collected large sums of money to purchase these brands.

More operational complexity

In SEA you're generally dealing with a lot more operational complexity. The platforms like Lazada and Shopee do have their own fulfillment services but are not nearly as advanced as Amazon's FBA.

And in the past I believe they were far more selective than FBA about what you can send to them (though i've heard this has changed and gotten more flexible).

So this generally means that you need to piece together your own fulfillment solutions, who often vary in their sophistication. But 3pl fulfillment providers like Shipper are growing quickly to try to cover this gap.

Sourcing is still often local

Because importing is often more complex and difficult in SEA than in America the feedback I hear is that many marketplace sellers are still sourcing from local distributors rather than from China.

This is probably also in part because when they source from China (eg. on Alibaba.com) they end up competing on Lazada and Shopee with lots of other Chinese sellers selling the same thing.

But on the flipside one good side of this is that launching a product is typically much cheaper and easier in SEA than in the US. And some products can effectively compete with relatively low effort in the launch, but rather just having the lowest price.

Data is in shorter supply

The data that is available to sellers in SEA is just far less than in the US still. You're still making a lot of key decisions without very good data to support them.

This is of course an issue that SplitDragon is trying to tackle by packing its analytics platform with its enabler services. And so this gap will also close with time but relies in part in how quickly the platforms like Lazada and Shopee make this data available.

And currently their cooperation with the development community of third party apps has been less than stellar.

To sum up...

SE Asia is going to evolve.

And evolve a bit differently to the US and to China.

But it will not 'blast off' anytime soon because of the structural hurdles that still remain.

Primary of which is profitability.

"If you could make more money in SEA, than it would definitely attract more talent and brands."

Read it on my blog: https://www.endgameken.com/post/sea-vs-us-still-worlds-apart-in-ecommerce