Baby Amazons take on their American role model
(The Economist): Delight Ogualu’s hair is straight, black and gloriously glossy. She made it herself.
Around the emerging world, businesses like the
Jumia floated on the New York Stock Exchange in April. MercadoLibre, Latin America’s dominant marketplace from Argentina, which listed in New York 12 years ago, has seen its share price more than double since the start of 2019; PayPal has just invested $750m in the company. Shares in Sea, an online conglomerate which listed in New York in 2017, have tripled in value this year. In March it raised $1.5bn to fund the growth of its e-commerce arm, Shopee. Last year Walmart paid $16bn for control of Flipkart, an Indian firm. Money is pouring into Russian e-commerce, where a “sprint” is on for control of the $18bn market, says Fedor
Such companies—call them baby Amazons—are following the path charted by America’s e-commerce colossus. They have a way to go. After stripping out Amazon’s mature North American business, some $277bn of goods changed hands on its platform last year, compared with
perhaps $30bn for the biggest emerging-world firms (see table). At around $65bn, their combined value is dwarfed by Amazon’s $949bn (though its cloud-computing arm,
But whereas Amazon’s international e-commerce sales grew by a comparatively measly 12% year on year in the second quarter, the upstarts’ sales are rising by high double digits or more, as the emerging world embraces the virtual one. MercadoLibre’s swelled by 94% in its most
recent quarter. Shopee’s ballooned by 342%. Small wonder investors are giddy.
Although all these firms no doubt want to be like the American paragon when they grow up, they are going about it differently than it did. Where Amazon’s growth piggybacked on the US Postal Service and credit-card networks, they had to build their
The companies share four characteristics. First, they were born adapted to tricky local markets. Walmart pulled out of Brazil in 2018, when it became clear that, partly as a function of Brazil’s long-standing protectionism, the giant American retailer could not easily access global supply chains it relies on to offer low prices in other places. Red tape related to tax, shipping
Build it and they will buy
Before that could happen, though, they often had to build their own infrastructure in places where payment and delivery systems are rudimentary or non-existent. This is the second shared feature.
Many of Jumia’s customers do not have an address, so delivery men phone ahead for directions. The company works with over 100 logistics providers and, in cities like Lagos, runs its own last-mile fleet of motorbikes and lorries. In Indonesia, a booming market of 265m people dispersed across 15,000 islands with few decent roads or, as in Nigeria, precise addresses, Shopee and its regional rivals, Tokopedia and Lazeda, enlist local shopkeepers who know the area to direct deliveries to the right recipients.
Jumia, Souq (an Emirati firm bought by Amazon in 2017) and MercadoLibre have all built their own sophisticated payment networks. MercadoLibre’s has turned into a
The third similarity is that the emerging e-merchants tend not to hold and sell merchandise themselves. Some 40% of Amazon’s sales come from products it stocks rather than from third parties. In the case of MercadoLibre and
The mini e-marts are different from Amazon in one last crucial way—they do not make much money at the moment. Many are burning through cash. Jumia lost €170m ($188m) last year and has lost a cumulative €862m since being founded in 2012. Shopee does not yet make a profit, though analysts expect that it will do so before 2023. Last year MercadoLibre made no money for the first time since it broke even in 2006.
Investors will need patience—and deep pockets. Eghosa Omoigui of Echovc Partners, a venture capital fund in Lagos, is convinced that e-commerce will one day succeed in Africa. In the meantime, “you have to keep shoving coal into the engine.” In Russia, Mr. Virin predicts, the race will also come down to fuel. “The winner will be the one who doesn’t run out of money.”
For the time being, there appears to be no risk of that. Shopee’s parent raised $884m when it listed in New York two years ago. Besides reinvesting profits, MercadoLibre raised $2bn in March, partly by offering shares on the secondary
The companies are hoping that their markets will expand fast enough to generate profits before the capital taps run dry. There is room to grow. Fewer than 1% of retail sales in Jumia’s markets currently take place online. By 2025 that figure may reach 10% in Africa’s biggest economies, consultants at McKinsey reckon. The consumer class is growing fast, says Jeremy Hodara, one of Jumia’s co-founders. “They come to us and say, ‘Look, it’s the Africa Cup of Nations [football tournament] and my country’s qualified. I need my first tv.’”
Shopee’s revenues are rising even as it spends less on marketing and promotions. Last year it had 50m active buyers, up from 21.7m the year before. In 2017 Google and Temasek, a Singaporean sovereign-wealth
The e-commerce hopefuls see a route to riches by closing the gap between online retail’s penetration in their markets and that enjoyed by Amazon in America, which remains three times larger. The sale of goods is not their only path to profits. Some will sell themselves to the giants, as Souq and Flipkart have done. Others will continue on their own. MercadoLibre wants to be something close to a fully-fledged digital bank. All show that