Chinese cross-border e-commerce is taking over Indonesia, and the local unicorns can't hold up | Focus Analysis

Text｜Hu Yiting

Editor｜Yuan Silai

In the hot land of Indonesia, the local e-commerce giants will be forced to leave the market.

Recently, the Indonesian listed Internet unicorn company Bukalapak announced that it will stop selling physical goods. Starting from February 9 this year, consumers will no longer be able to place orders for physical goods through Bukalapak. All unprocessed orders will be cancelled before the beginning of March, and the e-wallet balance can be transferred to the user's bank account before March 14.

After giving up the e-commerce business, Bukalapak will mainly focus on digital virtual goods such as prepaid credit, data packages, electricity tokens, streaming media vouchers, payment of traffic fines, installment payments, and credit as its main services.

From a time perspective, Bukalapak started as an e-commerce company at its establishment. It gradually expanded its scale by gathering local small stores in Indonesia, and later added virtual products such as electricity bill payments and data packages, as well as financial services.

However, just four years after its listing in 2021, Bukalapak's e-commerce business has come to an end. Behind this is the platform's own difficulty in making profits and its inability to cope with competition from both new and old platforms.

Financial reports show that in 2023, Bukalapak's net loss was as high as 1.37 trillion Indonesian rupiah (approximately 83.71 million US dollars); in the first half of 2024, the net loss has expanded by 90% year-on-year, reaching 748 billion Indonesian rupiah (approximately 45.7 million US dollars).

While suffering losses itself, platforms such as Shopee and Tokopedia are still continuously increasing their market share. Among them, after TikTok encountered a ban, it still acquired 75.01% of Tokopedia's shares for 840 million US dollars, vigorously supporting the entry of local brand merchants in Indonesia, enabling its e-commerce business to recover rapidly.

Unable to withstand losses and competition, in order to survive in Indonesia, Bukalapak had to abandon its e-commerce base and hand over the market to more powerful rivals.

No Longer Glorious

Bukalapak in Indonesian means "setting up a stall", which in the local context also refers to the street-side stores and mom-and-pop stores (Warung) scattered in the vast rural areas.

Since its establishment in 2010, Bukalapak, in order to fit the consumption habits of Indonesian consumers, has promoted local street-side small stores, inviting them to join the platform and carry out online sales.

One of the founders of Bukalapak, Achmad Zaky, once introduced in a podcast that Indonesia is different from other developing countries. Three-fifths of the people live in rural areas, and 95% of the people will go to the grocery stores and kiosks around them to shop. This Warung economic system, similar to street stalls, once accounted for 70% of Indonesia's offline economy.

While continuously covering multiple regions in Indonesia, in 2017, Bukalapak also launched the O2O platform Mitra Bukalapak, providing virtual services such as communication, life payment, and e-wallet for small stores and mom-and-pop stores. This business has gradually become an important part of the company's revenue.

In 2018, the continuously expanding Bukalapak became the fourth Indonesian unicorn after Go-Jek, Traveloka, and Tokopedia.

After 2020, Bukalapak has accumulated over 5 million merchants and 70 million registered users in Indonesia, with approximately 12 million daily active users.

With a continuous success, in 2021, Bukalapak also joined the wave of Southeast Asian Internet companies seeking to go public. In August, it was officially listed on the Indonesian Stock Exchange and raised 1.5 billion US dollars through an IPO, far exceeding its expectations. This became the largest IPO in Indonesia at that time, and Bukalapak also became the first of the four Indonesian technology unicorns to go public.

Bukalapak was highly recognized by capital at that time, and its investors included Ant Group, Singapore's sovereign wealth fund GIC, and the local media giant Emtek in Indonesia, etc.

After going public, Bukalapak is still striving to turn a profit. However, even though the overall net profit in 2022 reached 1.98 trillion Indonesian rupiah (approximately 121 million US dollars), Bukalapak still returned to a loss in the fourth quarter.

The difficulty in achieving sustainable profits may stem from Bukalapak's pursuit of the sinking market such as rural mom-and-pop stores. In these areas, transportation is inconvenient, the transaction scenarios are not mature enough, and the operating costs such as expansion and logistics are relatively high.

In addition, when Bukalapak proved the feasibility of the sinking market business, platforms such as Shopee and Tokopedia also strengthened their layouts, increased investment in logistics, brand promotion, etc., and the competition became increasingly intense.

Time has given the answer. On the eve of announcing the abandonment of the e-commerce business, Bukalapak still failed to maintain profitability.

Financial reports show that in the first half of 2024, Bukalapak's net loss reached 748 billion Indonesian rupiah, expanding by 90% year-on-year. The losses continued in the third quarter.

Losses also brought about severe fluctuations in the stock price. Since the IPO, Bukalapak's stock price has repeatedly declined, and the market valuation has also dropped from about 7.6 billion US dollars to 750 million US dollars. In July last year, Singapore's sovereign wealth fund GIC, as its major shareholder, was also considering selling its equity, indicating a weakened confidence in Bukalapak's development.

Bukalapak can no longer reproduce the glory of its listing, and the vision of cultivating local small stores will end in 2025. This unicorn enterprise will leave the market disappointedly after more than ten years of investment.

At a Disadvantage

In fact, Bukalapak ranks after Shopee and Tokopedia in the Indonesian e-commerce market; when TikTok swept the world and began to enter Indonesia, Bukalapak's situation became even more tense.

As the largest e-commerce market in Southeast Asia, Indonesia has shown a phenomenon of concentration in the top players. The "2024 Southeast Asian E-commerce" report released by MomentumWorks points out that in 2023, Shopee occupied a 40% GMV share in the Indonesian e-commerce market, ranking first; Tokopedia followed closely, occupying a 30% share; Bukalapak ranked third, with a market share of only 11%.

From the perspective of establishment time, Shopee was founded five years later than Bukalapak and is not native to Indonesia. However, Shopee's layout speed is relatively fast.

In 2017, Shopee's self-built logistics service Shopee Logistics Service (SLS) was officially launched. In the Indonesian site, its average freight cost was reduced by 25%, and in the most economically developed capital Jakarta and surrounding areas, the average freight cost was significantly reduced by nearly 40%. This enabled the order volume of cross-border sellers to double within a week, with a growth of more than 100%.

In 2018, Shopee's GMV exceeded 10 billion US dollars. It is understood that Shopee set a new order record on the Double Twelve event day, with more than 12 million orders within 24 hours, of which 5.4 million orders came from Indonesia.

With such a rapid speed, Shopee caught up from behind and obtained a market scale far exceeding that of Bukalapak. And the competition is far from over. TikTok Shop entered Indonesia with a new model of content e-commerce and gained a foothold.

In 2022, when Bukalapak was striving to turn a profit, TikTok Shop achieved a GMV of up to 4.4 billion US dollars in Southeast Asia, of which the Indonesian market exceeded 2.5 billion US dollars. This market performance enhanced TikTok Shop's confidence and investment in Indonesia, making it a strong competitor to local e-commerce platforms.

Small store sellers and consumers in Indonesia also favor TikTok Shop. FastData data shows that in the first half of 2023, Indonesia was the country with the largest number of TikTok Shop stores with a sales volume of ≥ 10,000. Two of the top 3 stores in global sales are from Indonesia. In the live-streaming with goods promotion carried out, the total duration and total viewership in Indonesia also ranked the highest in Southeast Asia.

Even in the face of a ban from the local government, TikTok did not hesitate to spend 840 million US dollars to acquire 75.01% of the shares of Tokopedia, a subsidiary of GoTo, to return to Indonesia. Under the strong alliance, the competition faced by Bukalapak has become even stronger.

There is not much time left for Bukalapak. After experiencing business adjustments and layoffs, its situation has not improved significantly, and giving up the original core e-commerce business has become the final choice.

Not as strong as the contemporary platforms with stronger capabilities, and the new competitors are also aggressive. Bukalapak's only market scale may soon be divided. As time goes by, Bukalapak's ups and downs in the e-commerce market for more than ten years will only exist in history.