The Philippines, although part of Southeast Asia’s growing ecommerce family, is quite the odd cousin. It’s the only market in the region where Lazada totally dominates the competition, getting around 35 million visits per month with no second player in sight. In addition, with over 10 million overseas Filipino workers and 3 million of them in the United States, Philippines’ online shopping behavior has been heavily influenced by the US, paving the way for innovative cross-border logistics businesses.
As the second most populated country in Southeast Asia with around 100 million residents, the Philippines currently has the second smallest ecommerce market. But that’s not surprising when 46% of the population are connected to and browsing the second slowest internet connection in Asia Pacific region. On top of that, the country ranks lowest among its Southeast Asian neighbors in terms of ease of doing business, which doesn’t help to boost its online trade either.
However, there’s a bright side. Ecommerce in the Philippines is on a runway and expected to lift off to reach nearly $10 billion by 2025 outsizing Singapore and Malaysia. How developed is the market now? ecommerceIQ shares ECOMScape: Philippines to provide a quick snapshot.
1. Lazada dominates over local and regional B2C marketplaces
Lazada, Southeast Asia’s heavyweight of marketplaces controlled by the Chinese ecommerce giant Alibaba, is leading online shopping in the Philippines. It currently ranks as the 7th most popular website in the Philippines. More than 60% of Lazada’s sales in the country come from mobile devices. The marketplace has also doubled the number of merchants selling goods on its platform to 4,000 compared to a year ago.
Other local marketplaces in the Philippines don’t come close to Lazada in terms of visitors so have found other revenue streams offering affiliate marketing or cashback through their platforms. Takatack, calling itself one the biggest discovery platforms in the Philippines, is one such example. It is both an online marketplace offering products and services from local ecommerce shops and at the same time features products from different ecommerce sites such as Zalora and Galleon.
Marketplace verticals also show potential for growth. The usually competitive Fashion & Apparel category is rather thin in the Philippines. Zalora, online fashion shopping destination focused on Southeast Asia, operates in the country. A small number of global brands have local online stores and only a handful of local merchants sell online meaning the space is wide open for new players.
Other verticals, such as Electronics & Gadgets, Home & Living, Others, also aren’t too crowded indicating there is room for more sellers.
Yet, Phillipines’ online scene might not be too easy for foreigners to conquer as learned by Thailand’s online retailer iTrueMart. At the end of 2015 it opened online store in Philippines as their first point of expansion out of Thailand but eventually closed the shop in September 2016 after less than a year in the country.
2. Retailers test ecommerce waters through Lazada
The Philippines’ ecommerce market in 2015 was estimated at $0.5 billion or 0.5% of retail in the country as many brands and merchants were not yet committed to making the big investment of opening a full-fledged online store.
However, to test market potential, some traditional brick-and-mortar retailers are opening their shop-in-shops on Lazada. For example, popular local department store chain SM Store initially went online through a shop-in-shop on Lazada where it offers more than 4,000 items. It now has also its brand.com store, powered by Lazada.
Consumer electronics retailer Robinsons Appliances also partnered with Lazada in mid-2015 by opening an official shop on the popular marketplace. Even global brands like Samsung are adopting this strategy.
More brands and sellers will likely follow in these steps to tap online shopping opportunity and add to Lazada’s popularity.
3. C2C ecommerce thrives
Similar to other Southeast Asian countries, a consumer-to-consumer (C2C) market makes up a significant part of online shopping in the Philippines, likely at around one third of the ecommerce market as it is Indonesia.
OLX is the largest platform for classifieds and peer-to-peer sales. Ranking as 17th most popular website in the country it started as Sulit.ph 10 years ago. Currently, it claims to attract 100,000 to 200,000 new sellers every month.
In 2016, two other well known C2C marketplaces in the region – Shopee, supported by Southeast Asia’s largest gaming company Garena, and Singapore-based Carousell – entered the Philippines to fight for Filipinos’ hearts and wallets. Shopee’s strategy to lure sellers from Instagram and other marketplaces to its platform by offering merchants free shipping and cash on delivery in the Philippines increased the number of sellers by 40% and the number of listings sold on the app – by 60% within three months.
As 55% Filipinos own a smartphone and 18% have made a purchase online via mobile, it comes as no surprise that Shopee and Carousell are betting on the Philippines as their next stop for growth.
Another driver of the C2C market is the Filipino preference of Western brands combined with limited options to buy them as international brands have started entering the country just recently and there still remains a significant number of underserved market segments. This fuels selling of popular brands on C2C marketplaces, where products usually don’t come directly from manufacturers but are obtained elsewhere.
4. Digital payments pick up
Around 70% of the Philippines’ population are unbanked and less than 3% of Filipinos use a credit card to make payments. Thus, opening an online store without a cash-on-delivery payment is not really an option in Philippines.
In the recent years, several new mobile wallet apps have been introduced first by local telecommunication companies. For example, PayMaya mobile wallet app and GCash app offer a virtual card for shopping online that can be topped up at various offline points throughout the country. Local banks are also launching mobile banking apps.
Many of country’s fintech startups are attaining to the needs of the unbanked while also serving overseas Filipino workers who send remittances to their relatives. In 2014, two Silicon Valley entrepreneurs Ron Hose and Runar Petursson founded Coins.ph – a mobile blockchain-enabled platform aimed at the unbanked for easy access to financial services. This start-up raised $5 million series A funding just at the end of October, 2016.
ePeso app allows to create a digital account with an email address, top it up through scratch cards, over the counter facilities and merchants to send and request funds, pay bills. Paylance allows users to pay and transfer money to Philippines through Bitcoin for free. While Payswitch through its web platform allows small enterprises to offer services such as electronic loading, remittances and bill payments.
5. Innovative cross-border solutions and competition among logistics service providers
While ecommerce is not yet in full swing in the Philippines the logistics landscape is dominated by local players like 2GO and LBC while in other Asian countries international players like Kerry Logistics and DHL lead. Several regional players like Thailand-based aCommerce, Singapore-based SP ecommerce and Quantium solutions provide fulfillment services to online sellers.
Poor infrastructure, difficult geography and high rates of cash-on-delivery make the shipping of online purchased goods complex. While there seem to be plenty of third-party delivery providers, only two companies – 2GO and LBC – offer countrywide shipping. The rest ensure delivery within metro area of Manila. This limits ecommerce growth and leaves many of country’s potential shoppers underserved.
At the same time, overseas Filipino workers have facilitated the development of innovative cross-border shipping solutions for goods purchased overseas. Beyond family members carrying their Amazon orders back in one big “balikbayan” box, several unique cross-border package forwarding services like LBC’s ShippingCart, Johnny Air Plus and POBox.ph have sprung up to take advantage of this phenomenon.
Click here to download the full, high resolution version of ECOMScape: Philippines and join the ecommerceIQ network for the first look at the next ECOMScape in our series.
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