It took Sea Ltd’s Shopee just two years to become Brazil’s most downloaded shopping app and use its groundbreaking approach to e-commerce to attract users to its low-cost marketplace: in-app mini-games that offer coupons to winners.

The Singapore-based company has combined online shopping with the gaming nous of its separate mobile game arm Garena – creator of “Free Fire,” Brazil’s most downloaded title for eight consecutive quarters – to attract sales analysts who account for nearly a third of the local masters are appreciated magazine Luiza SA.

At home, it took Shopee just five years to become the most visited e-commerce website in Southeast Asia, overtaking Lazada, backed by China’s Alibaba Group Holding Ltd, and Tokopedia, backed by Japan’s SoftBank Group Corp.

“Shopee has a track record in Southeast Asia of getting to market late, seeing how others have solved existing problems, and then building a system to bypass those problems,” said analyst Jianggan Li of consulting firm Momentum Works.

Shopee’s early rise underscores the space that overseas entrants have to grow in a sector that was once dominated by regional companies like Luiza magazine and Argentine MercadoLibre Inc.

Of course, the startup’s timing was random, kicking off in Brazil when the Covid-19 pandemic drove consumers away from physical stores and boosted e-commerce sales by 44 percent to $ 42 billion ($ 57 billion) in 2020 , showed data from Brazilian payment company EBANX.

Shopee – similar to Alibaba’s AliExpress, which has bells and whistles made in China – has developed into Brazil’s top app in terms of downloads and usage time, according to data from the analysis platform App Annie.

However, in the pursuit of growth, Shopee is still losing money, backed by Sea’s profitable gaming division. For the second quarter of this year, Garena posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 740.9 million, despite the e-commerce division losing $ 579.8 million.

“Money generated by a side of the business that is a cash cow is being aggressively reinvested in Brazilian e-commerce – with success,” said Thiago Macruz, analyst at Itau BBA.

Global ambition

Sea’s foray into Brazil is just one element of its global ambitions. Investment arm Sea Capital is also considering investing money in startups in Latin America and beyond, said one knowledgeable person who was not allowed to speak to the media and therefore declined to be identified.

The company has also brought Shopee to Chile, Colombia, and Mexico, where it doesn’t have a local workforce unlike Brazil, so has partnered with social media influencers to increase brand awareness, said two people familiar with the matter .

Sea, whose shareholders include the Chinese gaming market leader Tencent Holdings Ltd, declined to comment.

The company has released little data on Shopee Brazil, but analysts at Itau BBA estimated the value of goods and services sold on the platform at reais 12 billion (S $ 3.11 billion) last year.

The average price on its marketplace is 40 reais, other estimates have shown that it is less than a third of the price of the leading e-commerce marketplace MercadoLibre, which often offers higher-quality branded products.

Seas’s biggest challenge for Shopee Brazil is delivering to such a large country. It reduced its reliance on the local postal system in favor of private transportation this year, but still competes with competitors with proprietary delivery services.

Shopee aims to have one major logistics partner per country in the region, a company source told Reuters.

The company itself expects e-commerce growth in the region to generate more delivery partnerships, as it did in Southeast Asia, Sea executives said on a phone call this month.

In the same conversation, Group Chief Corporate Officer Yanjun Wang described Brazil as “a good market for continuous investment”.

Local sellers

Competition in Latin America’s largest economy intensified this month when Shopee’s closest rival in terms of product offering, AliExpress, opened its marketplace to domestic sellers who charge single-digit commission. AliExpress has been in Brazil for 11 years; Shopee did a similar thing after his freshman year.

Small business owner Luciana Carvalho started selling plastic packaging products on Shopee in February, attracted by the free shipping and 6 percent commission – compared to 17 percent on MercadoLibre.

“It’s easy to sign up, calculate your commission, get your delivery labels and receipts. It makes us invest more in the platform,” she said.

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In a move toward profitability, Shopee has since increased commission to 18 percent – as much as double what marketplaces in some Southeast Asian countries can charge, indicating Latin America’s potential profit margins. Carvalho continues to use Shopee but prefers MercadoLibre for its “unbeatable” delivery.

To further improve profitability, Goldman Sachs analysts said Shopee could start selling higher-priced items, as it did in Southeast Asia. Momentum Works’ Li expects Shopee to add financial services to its Brazil app, just like in Indonesia.

“I wouldn’t be surprised” if they reached number one, Li said, “given what they have done in Singapore, Indonesia and Malaysia, Thailand.”