Recent layoffs at e-commerce firms like Lazada reflect sector’s maturation, not decline: Analysts

SINGAPORE – Recent layoffs at e-commerce firms including Lazada, Shopee and Amazon have come about even as the sector continues to expand. Analysts say the cuts reflect a maturing industry that, after years of rapid growth during the Covid-19 pandemic, is now prioritising profitability, efficiency and the wider adoption of AI.

While the era of aggressive hiring and growth-at-all-costs strategies has largely ended, the e-commerce sector continues to expand and remains an important part of the economy, industry observers told The Straits Times.

The comments come after Lazada retrenched 5 per cent of its South-east Asian workforce, including an undisclosed number of employees in Singapore. Other major players such as Shopee have also conducted rounds of layoffs in recent years as firms grapple with rising competition and pressure to improve profitability.

The e-commerce sector’s growth may have eased from pandemic highs, but consumer demand remains healthy across several categories, including cosmetics, toiletries, medical goods and telecommunications equipment, said Carmen Lee, head of equity research at OCBC.

Analysts broadly agreed that the latest retrenchments should be viewed against the backdrop of an industry entering a more mature phase.

Aishah Jamall, principal consultant for commerce contract at recruitment agency Robert Walters Singapore, said the recent layoffs stem from both cyclical and structural factors, including workforce adjustments following years of rapid expansion and a broader shift towards profitability and sustainable growth.

“We are also seeing a shift in how e-commerce businesses are operating, with companies driving a stronger focus on profitability, operational efficiency and sustainable growth rather than on aggressive market share acquisition,” she added.

Competition has intensified with the rise of newer platforms and cross-border players, particularly those using highly competitive pricing models and social commerce capabilities, prompting firms to review their operating structures and become more selective about where they invest talent.

Song Seng Wun, economic adviser at fintech firm SDAX, said platforms like Shopee, Lazada and TikTok Shop are commanding quite a large market share across the region.

The e-commerce sector itself, however, continues to have substantial room for growth, said DBS Group Research analyst Sachin Mittal.

“There’s a lot of room to grow,” he said, despite market share battles between major players such as Shopee and TikTok Shop.

Those competitive pressures have weighed on profitability and pushed companies to focus more closely on costs, he added. With firms continuing to spend heavily on promotions, warehousing and logistics, cost optimisation has become a priority.

Song pointed out the gross merchandise volume for Singapore is still expected to grow, and is projected to reach US$15 billion (S$19.5 billion) by 2030, citing research findings by Forbes.

Derrick Teo, chief executive of manpower consultancy Elitez Group of Companies, said the pandemic-driven e-commerce boom may be over, but the industry is still expanding.

“What has ended is the period of rapid hiring, heavy subsidies and growth at all costs,” he said.

Platforms are increasingly expected to process more transactions while improving profitability, with technology and artificial intelligence helping companies operate more efficiently. As a result, business growth may no longer translate into the same level of headcount growth in manpower as seen during the pandemic, he added.

Impact of AI on e-commerce sector

Analysts said AI is beginning to reshape the sector’s workforce, although opinions differ on how much it is contributing to current retrenchments.

Nirgunan Tiruchelvam, head of consumer and internet at investment firm Aletheia Capital, said the layoffs are more likely a consequence of aggressive hiring after the pandemic and changing funding conditions in the technology sector.

“I’m not convinced that the job cuts are because of AI. It’s probably a function of over-hiring,” he said, adding there may be an uptick of e-commerce companies hiring the people who were laid off.

Meanwhile, Song said more episodic retrenchment exercises can be expected as e-commerce platforms adopt AI into their ecosystem.

He noted that companies may no longer require large teams for functions such as risk management, data processing, research and analysis. This also means firms may need one supervisory role rather than many people performing the same functions, resulting in manpower reduction.

“As chatbots in e-commerce platforms become more advanced and instant, you just need someone who can ensure it’s running smoothly.

“But human input is still important even as AI is getting cleverer,” Song said, adding that while AI can track and flag risks, other aspects such as accountability, judgment and meetings with the regulatory authorities still remain human-centric.

The impact of AI has played out unevenly among roles in the sector, including both backend and frontline functions. For example, roles like customer service support and data processing are adopting AI at a faster pace.

“Labour intensity for e-commerce will continue to shrink in the months and years to come, depending on how quickly AI language models can improve performance,” said Song.

Aishah of Robert Walters noted that even so, many roles are still expected to evolve. The role of customer service professionals, for instance, can be refocused on handling complex customer issues and relationship management.

Even as AI takes over repetitive tasks, analysts said demand is expected to remain strong for workers with skills that are harder to automate.

Professionals who can combine business understanding, technology adoption and strategic thinking are likely to remain in demand, while workers whose roles are largely repetitive and execution-based may face greater competition as companies automate more tasks, she added.

“Human creativity, commercial decision-making and stakeholder management remain challenging to be fully adopted and replaced by AI.”