E-commerce is developing rapidly and strongly, forcing manufacturers to participate in this playground whether they want to or not.
Having been selling household appliances on e-commerce platforms for more than 2 years, Ms. Huynh Thanh Ngan (residing in Thu Duc City, Ho Chi Minh City) said that she had to stop selling because business was increasingly sluggish, income was not enough to cover expenses, revenue in June and July was only about 25 million VND/month, only 1/3 of the first months of the year and only 1/4 compared to the same period last year. After deducting all expenses, she made less than 5 million VND in profit despite the huge effort she put in.
Small seller quits business
According to Ms. Ngan, the business situation on the platform is increasingly difficult, mainly because many factories and enterprises have changed their business model from B2B (enterprises selling to distributors and agents) to D2C (selling directly to end consumers) on e-commerce platforms and selling prices are 15%-20% cheaper than the market, leaving small businesses with no way to survive. At the same time, the platforms are constantly changing policies, favoring consumers, allowing indiscriminate returns, greatly affecting sellers.
"Customers compare prices very carefully and often cheap products will be placed at the top of the page, meaning only large businesses benefit, while small stalls are at a disadvantage, and are also overwhelmed by cheap Chinese goods, making it difficult to compete. Therefore, I decided to stop selling, thinking of taking a break for a while to open a coffee shop or go to work for a company to stabilize my life" - Ms. Ngan said.
Similarly, Mr. Bui Duc Anh, the owner of a clothing and accessories stall on e-commerce platforms for nearly 2 years, also closed his stall because he could not compete with factories, businesses and large distributors racing to sell directly to consumers at wholesale prices.
"Business on the platform is getting more and more stressful, we are forced to deliver goods on time to the shipping unit or we will be fined. After delivering the goods, we still have to worry about customers returning the goods and refunding money, which is considered a loss. Many people advise me to build my own website and sales application, I don't have enough finance and don't know much, so the risk and failure will be greater" - Mr. Duc Anh said.
E-commerce expert Luu Thanh Phuong said many small businesses have started to shift from B2B to D2C because profits through distribution channels are no longer effective. This unintentionally squeezes online retailers.
"Currently, D2C is a trend chosen by many start-ups and small businesses due to its high market penetration, no intermediary distribution channels, helping to lower selling prices. There have been many successful brands from the direct-to-consumer sales model, such as Coolmate, Yody, Levents, Xiaomi... but there are also many brands and businesses that have gone bankrupt because they thought it was easy to make money" - Mr. Phuong said.
Mainly for branding
According to experts in the retail and e-commerce sectors, many businesses are currently having a headache in developing distribution channels. Particularly in the fast-moving consumer goods (FMCG) sector, most businesses doing business on e-commerce mainly do so to build their brand and products, while sales are only a secondary factor.
"For FMCG businesses, if sales growth on e-commerce increases by 1, it decreases by 3-4 times on direct trade channels. Not to mention, for some product lines such as milk and eggs, the cost to sell 1 product unit on the platform is much higher than selling at direct points of sale. However, for the cosmetics industry, the strong growth in online channels is causing direct sales stores to shrink.
Meanwhile, in the electronics industry, there is a shift between product distribution stores and e-commerce sales, but shopping behavior does not change because businesses "push" e-commerce to build their brand and for other purposes; customers come to the store to see product samples and then buy on e-commerce to enjoy incentives" - the expert cited.
Dr. Lu Nguyen Xuan Vu, Chairman of Saigon Business Club, General Director of Xuan Nguyen Group Joint Stock Company, said that in the supply chain of goods, manufacturers specialize by focusing resources on production and wholesale to enterprises/distributors.
"Enterprises/distributors will have the expertise, skills and tools to effectively distribute and sell products to the market. Some large manufacturers with strong potential organize a chain of stores to introduce products, retail distribution agents and have their own policies for their system. Otherwise, distribution channels will step on each other, not only not beneficial but also causing damage to the enterprise" - Mr. Xuan Vu said.
However, Mr. Vu admitted that e-commerce is developing rapidly and strongly, forcing manufacturers to participate in this playground whether they want to or not. Xuan Nguyen himself also built a website to introduce products and sell online, but mainly for promotion and introduction, not to develop revenue.
"The trend is that small and micro enterprises, startups that are not qualified to participate in supermarket and store distribution channels, and do not have large output... are taking advantage of online channels to sell directly to consumers.
In many cases, they distribute products without sufficient certification documents and unverified quality at prices much cheaper than branded products with full certification documents, creating unfair competition in the market," Mr. Vu reflected.
According to expert Luu Thanh Phuong, the biggest risk of the D2C model is over-reliance on sales platforms. If the platform increases fees or locks accounts, businesses will certainly fall into difficulty.
At the same time, this model also incurs quite high costs, accounting for 20%-25% of revenue, including platform fees, advertising and shipping, packaging, packaging, returns... Therefore, the reason why online retailers leave the market is not necessarily due to B2C but because they have not invested properly in the sales process including customer care, order management, and after-sales.
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