Online sellers worry about being exploited.

Việt Nam•18/09/2024

The rapid and strong growth of e-commerce forces manufacturers, whether they like it or not, to participate in this playing field.

Having run an e-commerce business selling household goods for over two years, Ms. Huynh Thanh Ngan (residing in Thu Duc City, Ho Chi Minh City) said she recently had to stop selling due to increasingly slow sales, with revenue not covering expenses. Her revenue in June and July was only about 25 million VND per month, only one-third of the revenue in the early months of the year and only one-quarter of the revenue from the same period last year. After deducting all expenses, her profit was less than 5 million VND, despite the significant effort she put in.

Small vendors quit the business.

According to Ms. Ngan, the increasingly difficult business environment on e-commerce platforms is largely due to many factories and businesses shifting their business model from B2B (businesses selling to distributors and agents) to D2C (selling directly to end consumers) on e-commerce platforms, offering prices 15%-20% lower than the market, leaving small businesses with no way to survive. Simultaneously, e-commerce platforms constantly change their policies, favoring consumers and allowing indiscriminate returns, significantly impacting sellers.

"Customers compare prices very carefully, and usually the cheapest products are put at the top of the page, meaning only large businesses benefit, while small vendors are at a disadvantage and overwhelmed by cheap Chinese goods, making it difficult to compete. Therefore, I decided to stop selling and plan to take a break for a while, then open a coffee shop or work for a company to stabilize my life," said Ms. Ngan.

Similarly, Mr. Bui Duc Anh, who owned a clothing and accessories stall on e-commerce platforms for nearly two years, also closed his stall because he couldn't compete with manufacturers, businesses, and large distributors who were all vying to sell directly to consumers at wholesale prices on the platforms.

"Selling on e-commerce platforms is increasingly stressful. We're pressured to meet delivery deadlines with shipping companies, otherwise we risk penalties. Even after delivering, we still worry about customers returning goods and getting refunds, which means losses. Many people advised me to build my own website and sales app, but I don't have enough financial resources and I lack the necessary knowledge, so the risks and chances of failure would be even greater," said Mr. Duc Anh.

Retailers are facing difficulties as businesses switch to selling directly on e-commerce platforms at prices 20%-30% lower. Photo: LE TINH

E-commerce expert Luu Thanh Phuong said that many small businesses are starting to shift from B2B to D2C because profit margins through traditional distribution channels are no longer effective. This inadvertently stifles online retailers.

"Currently, D2C (Direct-to-Consumer) is a trend chosen by many startups and small businesses due to its high market penetration, eliminating intermediary distribution channels and lowering selling prices. Many brands have succeeded with the direct-to-consumer model, such as Coolmate, Yody, Levents, Xiaomi... but many brands and businesses have also gone bankrupt because they thought it was an easy business," Mr. Phuong said.

Mainly for branding

According to retail and e-commerce experts, many businesses are currently struggling to develop distribution channels. In the fast-moving consumer goods (FMCG) sector in particular, most businesses operating on e-commerce platforms primarily focus on building their brand and products; sales are only a secondary factor.

"For FMCG businesses, if sales growth on e-commerce is 1, sales on the direct trade channel decrease by 3-4. Not to mention, for some product categories like milk and eggs, the cost of selling one unit on e-commerce platforms is much higher than selling at physical stores. However, in the cosmetics industry, the strong growth in the online channel is forcing physical stores to downsize."

While in the electronics industry there's a shift between physical stores and e-commerce sales, shopping behavior hasn't changed because businesses are "pushing" e-commerce to build brand awareness and for other purposes; customers visit stores to view product samples and then buy online to take advantage of discounts," the expert cited as an example.

Dr. Lu Nguyen Xuan Vu, Chairman of the Saigon Business Club and General Director of Xuan Nguyen Group Joint Stock Company, stated that in the goods supply chain, manufacturers specialize by focusing resources on production and wholesale to businesses/distribution agents.

"Businesses/distribution agents will have the expertise, skills, and tools to distribute and sell products to the market most effectively. Some large manufacturers with strong resources organize chains of product showrooms and retail distribution agents, and have their own policies for their systems. Otherwise, distribution channels will overlap, which is not only unprofitable but also harmful to businesses," Mr. Xuan Vu said.

However, Mr. Vu acknowledged that e-commerce is developing rapidly and strongly, forcing manufacturers, whether they like it or not, to participate in this arena. Xuan Nguyen itself has built a website to introduce products and sell online, but mainly for promotion and introduction rather than to increase revenue.

"The trend is that small and micro-enterprises, and startups that do not yet meet the requirements to participate in supermarket and store distribution channels, and do not have large production volumes, are utilizing online channels to sell directly to consumers."

"In many cases, they distribute products that lack sufficient certification and whose quality has not been verified, at prices much lower than branded products with complete certification, creating unfair competition in the market," Mr. Vu reflected.

According to expert Luu Thanh Phuong, the biggest risk of the D2C model is its over-reliance on sales platforms. If the platform increases fees or locks accounts, businesses will certainly face difficulties.

At the same time, this model also incurs quite high costs, accounting for 20%-25% of revenue, including platform fees, advertising and shipping, packaging, returns, etc. Therefore, the reason online retailers are leaving the market is not necessarily due to B2C, but rather because they have not invested systematically in sales processes including customer service, order management, and after-sales support.

Source