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Southeast Asia’s internet economy is expected to grow to $200B by 2025, according to a new report by Google and Singaporean sovereign wealth fund Temasek. The report focuses on the $200 billion digital opportunity in Southeast Asia. Cultivating from 4 independent data sources, the two companies identified expected values  of different start-ups and sectors, and made calculated predictions about challenges in the ecosystem. Read on for key takeaways:

e-conomy prediction for 2025

e-conomy prediction for 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Takeaways

  • Southeast Asia to be the fastest growing internet market in the world. With 480m users by 2020
  • Indonesia is the fastest growing nation in the world
  • Southeast Asia’s internet economy is ready to take off: 124k users coming online every day for the next 5 years
  • Southeast Asia currently houses 700m Mobile connections. This makes up 130% of the population
  • The ecommerce market is split into two key segments: First- hand goods and Second-hand goods (See figure 2)
figure two: ecommerce segments

Figure 2: Ecommerce segments

  • Investment flow is growing, but activity is concentrated to Singapore and Indonesia, with the majority of funding going to a few prominent startups.
  • A total of $40-$50B of investments must be injected over the next 10 years to make Southeast Asia a $200B internet economy in 2025.
  • Investment levels in India are higher than Southeast Asia. SEA had a GDP of $2.4T while India had $2.1T in 2014, it received less than a fifth of the funding.
  • Southeast Asia will face four key challenges (See figure 3).
ecommerce challenges for the region

Figure 3: Ecommerce challenges for the region

To access the whole report, click here

 

 

The 2016 A.T. Kearney Achieving Excellence in Retail Operations (AERO) study explores the pros and cons of store operations in the digital era, as retailers focus on Omnichannel strategy with a move towards ‘Bricks and Clicks’.  In an age where retailers are are revolutionizing themselves to meet more fragmented consumer demands, integration with technology becomes investment priority. However, this does not mean that the human aspect of the retail industry should be left behind…

Here are the key findings:

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Figure one: Consumer feedback on social media impact and social media usage

Fulfillment

  • 24% of people are happy with three-day shipping for ecommerce
  • 42% of people consider ‘delivery made during promised window’ more important than fast shipping

Technology

  • 60% of retailers admit that their companies struggle with executing and measuring their ROI.
  • 78% of retailers are focusing on inventory management. With 33% aiming to invest ‘ in inventory management technology soon’.

Social Media

  •  Over 60% of retailers say they are focusing on social media to create value. But two-thirds of consumers are not engaging at all.
  • Those that do engage with retailers on social media are mainly using it to obtain discounts.

Store Associates: The Unsung Heroes

The AERO findings show that despite investments being directed towards technology and social media engagement, consumers state that experience and service have the most impact on store productivity. However, retailers put too little investment focus on store associates. 70% of retailers expect spans of control to widen in the near future, and almost all express concern about the workforce adapting to omnichannel demands. This shows that retailers need to focus on properly supporting in-store staff, especially in customer service operations.

Bottom Line: Despite the focus on ‘bricks and clicks’ , retail is still a ‘people’ business. People are still a key ingredient to success.

To access the full report, click here

Does Ramadan Boost Ecommerce in Indonesia?

This is the question aCommerce sought to answer this Ramadan 2014. With over 200 million Indonesians concluding the holy month of Ramadan with Eid celebrations on Monday, July 28, aCommerce released a case study that analyzed the ecommerce data of five clients during Ramadan in Indonesia. We were interested in the implications of how 88% of the Indonesian population eliminating food and water from their daily life for religious reasons, 66.8 million of whom are online, would affect consumer behavior in ecommerce. Would consumerism decline during this holy month, or simply shift? Would the type of goods being purchased change? Are people spending more or less?

Our sample set includes five diverse clients in both size and category such as beauty, Muslim wear, general (department store), sports and fashion. Given the range of ecommerce development of these various clients this case study is intended to provide a snapshot of consumer behavior and may not be indicative of the whole Indonesian ecommerce market at large.

The data analyzes a data the period two weeks prior to Ramadan, June 7-20, and two weeks during Ramadan, June 28-July 11, and looked at the following data points:

Peak shopping hours: When were Indonesians shopping online?
Strongest performing shopping categories: What were they buying?
Average basket size: How much was being spent?

Below is a summary of the key learnings.

Traffic stayed constant, but shifted earlier

Overall traffic saw a marginal increase of 3% of visitors shopping during Ramadan, but the most important take away was that there was a major shift as to when they were shopping. This stems from the fact that the day starts and ends earlier. Instead of going to the office at 9am Indonesians start the day at 8am and leave around 5pm. See Figure 1.

However, for clients with Ramadan targeted or conscious campaigns and products such as Muslim Wear and Sports, these categories saw spikes in traffic of 29% and 18% respectively.

Indonesians eat, pray, shop shop shop

152% increase in traffic at 4am in all categories except fashion. Instead of waking up, praying, eating and then returning to bed, Indonesians are increasingly using the time to browse online. See Figure 2.

There was a 400% increase in traffic at 4am and a 7x increase in orders for our Muslim wear category. But these gains are not only seen for religious related retail. Sports saw a 189% increase in traffic and 26% uptake in sales at 4am. Lunch time browsing boosted during Ramadan with 12% more than normal at 11am, suggesting Indonesian Muslims are turning to ecommerce and retail consumption instead of going to lunch. See Figure 1.

6pm is the lowest time for ecommerce as people head home, but during Ramadan that drop off was even steeper with a 19% decrease. During Ramadan Indonesians are leaving work earlier and gathering with friends and family to break the day long fast at 6:30pm. See Figure 1.

The majority of shopping still takes place between 11am-2pm, but evening shopping hours were being shifted to early morning. See Figure 1.ecommerceIQ, aCommerce, eIQ

Religious related retail rules

Muslim wear category saw its sales skyrocket during Ramadan. The night long dinners, socializing with families and people returning home out of the city capital means that the demand for traditional and conservative clothing ran strong. There was a 96% increase in transactions of Muslim wear and 84% increase in revenue after Ramadan started.

And shoes. The majority of the sales in Sports rose in the shoes category.

Provocative sells, but not during Ramadan

Contrast this with modern female fashion, which saw a sharp decline in orders per day, suggesting that while Indonesia is a progressive Muslim nation, marketing provocative fashion during Ramadan needs to be done with care. We saw that the CTR for Ramadhan themed fashion (not necessarily including a hijab) but with long sleeves and little skin exposure performed stronger during this month. “Indonesians find it distasteful to see bare legs and bikinis during Ramadan,” MatahariMall.com CEO Hadi Wenas said.

A tisket, a tasket, a big sporty basket

Ramadan is not like Christmas where gift giving is the norm. Nonetheless average basket sizes saw significant increases. People were buying in much bigger quantities. For example, our sports category saw average basket size increase by 67%. The more decadent spending may be explained by the fact that prior to the start of Ramadan, working Indonesians have a major influx of disposable income as they receive their bonus for the year. The median basket size was around 120,000 IDR or 10.3 USD.

ecommerceIQ, aCommerce, eIQ

4 Strategic Recommendations for Ramadan Ecommerce

1. Shift marketing to 3am

Boost SEM, online marketing and promotional offers to between 3am-6am. Indonesian Muslims are waking up and staying up and they are shopping online as Figure 1 shows. Save money from marketing spend (online or offline) during the traditional prime time of 6pm-8pm. Prime time has shifted to the morning as families are eating together and going out in the evening. Do not miss the opportunity to capture the new age Indonesian customer.

2. Remove provocative images from homepage

That doesn’t mean you have to change your whole product to be religiously targeted or non-secular but use this month to feature more conservatively dressed models, long sleeves, no cleavage or bare chests, longer skirts etc. Or else risk facing major bounce rates (if you receive traffic at all). As a time for family and religious sacrifice, Indonesians find provocative imagery especially distasteful during Ramadan.

3. Rethink your bestsellers

For non-Muslim wear categories rethink your bestsellers and home product page to reflect Indonesian values and culture. What sold best last month will not necessarily work during Ramadan. Consider products and marketing that focus on family, community, their upcoming vacation time, etc.

4. Feature affordable items

Sites that did not feature lower priced items suffered a hit in conversions. Indonesians are price conscious year round and even if they are playing with a spike in disposable income from their bonus, thriftiness is a major factor in consumption behavior as we saw with our brands. Be aware of mixing up high priced items on the homepage with bringing the lower priced items to the forefront as well. This is a great time of year to flush out some of that inventory.

Conclusion

Ecommerce during Ramadan has the potential to be explosive as seen with the amazing shift in behavior as Indonesians woke up and immediately hit the internet for online shopping. Whether those potential shoppers are captured or not depend fully on strategic timing of marketing and a consciousness of traditional values integrated into product choices and campaigns.

ASEAN Today and its Digital Potential

The number of internet users has grown rapidly over the past decade and today two-fifths of the world’s population is online. Increasingly equipped with smartphones, consumers depend on the Internet for a growing range of everyday activities, from connecting with friends and family to shopping and banking. Businesses also harness the Internet extensively across their operations. A complex dynamic value chain comprising both global and local players has developed to deliver digital services to consumers and businesses. The digital economy’s value chain broadly consists of three elements: devices, networks, and applications.

By 2025, a digital revolution could transform daily life in ASEAN, making physical cash obsolete and cities smarter safer places to live.

Download the full report: ASEAN Digital Revolution AT Kearney

APAC registered the largest absolute growth in internet user numbers – up nearly 200 million users – which translates to an impressive 12% year-on-year growth. At that pace, APAC saw half a million people use the internet for the fist time every single day in the past twelve months – that’s six new users every second.

The jump in internet users may be partly the result of improved reporting, rather than representing absolute growth in user numbers. We’ve also managed to obtain reliable numbers for social media in countries where previously we had no data, but the overall growth story is still highly compelling despite these caveats. So, just how fast have the numbers been growing since our 2015 global report last January?

  • The number of reported internet users is up by 10%, growing by 332 million
  • The number of reported social media is up by 10%, an increase of 219 million
  • Unique mobile users increased by 4% thanks to 141 million new users
  • Mobile social media users leapt 17%, adding 283 million new users

Check out the presentation at: Digital in 2016 – We Are Social Singapore

While there is plenty of buzz around brands building their own webstores instead of a strategy focused on distribution through e-tailers such as Amazon, Tmall, or Lazada, Southeast Asian brands are still undecided on whether to move online at all. This is despite ecommerce growth projected at 25%, tantamount only to China’s growth (AT Kearney 2015) but there are trailblazers – brands ahead of the curve who have decided to invest in their brand.com stores in Southeast Asia such as HP, Maybelline, Kiehl’s and Nescafe in Thailand.

In the US, brand.com accounts for only a small portion of online sales. For example, Estée Lauder’s brand sites generate 5.56% of all online sales – around $10.79B. In Southeast Asia, the number is even smaller primarily because of how early stage ecommerce is compared to Western counterparts. Yet as seen with SME Mabeza in the February Newsletter, businesses of all sizes are starting to mark their own online territory. Figure 1 shows that for enterprise level brands, there is indeed optimism in the channel. *These brands were chosen specifically because they use end-to-end services with aCommerce, decreasing the variables.

Aggregating internal data from 2015 revealed that webstores experienced 15% month-on-month GMV growth from Jan 2015 to Dec 2015 and averaged over 300% growth in the same year. The brand that grew the fastest was Maybelline then HP, Kiehl’s and lastly NESCAFÉ Dolce Gusto

Cost breakdown of a webstore strategy & ecommerce

The investment into a full brand.com strategy for a globally recognized business, which includes site development, store management, merchandising, logistics, fulfillment for one year is not black and white. There are many variables such as industry, product category, order size, volume of orders, packaging and more. To illustrate, here is a very rough breakdown of the process, but again, it does vary depending on the client and their needs.

Site development & backend.

To develop a fully integrated ecommerce store with Magento can cost anywhere between $20,000-80,000 USD. This price doesn’t include hiring a webmaster, someone technical who maintains and fixes the site issues and bugs, who can charge almost $3,000 USD monthly maintenance fee. Webhosting and bandwidth usage can also range anywhere between $2,000-10,000 USD per month, depending on the size of the business. How developed and fast the site is will directly and indirectly impact conversion rates, Google SEO rankings, average order values (AOVs), and repeat purchase rates.

Storefront.

Your team will also require a Store and Merchandising Manager. This process covers merchandising, inventory, promotions on site, updating images and more across the brand.com site as well as other channels such as Lazada, starting at $4,000 USD per month. This is not a low-level operational role; Store and Merchandising Managers for ecommerce sites make scientific, data-driven decisions to optimize product and promotional placements across the site. Good and average store managers often mean the difference between 1x and 3x your monthly average order values.

Fulfillment.

Fulfillment and delivery can range between $1-5 USD per order depending on location and weight of order, customer service requirements, etc. Based on your company’s volume, the cost of logistics will vary greatly. Due to low credit card penetration and inexperience with online shopping, last mile in Southeast Asia requires options such as cash-on-delivery and reverse logistics to appeal to customers trying ecommerce for the first time. 

Marketing.

Kevin Costner’s famous line in Field of Dreams, “if you build it, they will come,” does not apply to ecommerce shops. A brand webstore needs online marketing campaigns that include Google Adwords, Facebook marketing, dynamic re-targeting , email newsletters, and more. There is too much competition that exists online meaning sites will not sell unless they pay for the attention of the consumer. Even the most popular of brands have large marketing budgets.

Brands are expected to spend between 20-30% of sales revenue on marketing and advertising. For offline brands and retailers, the cost of sales (CoS) metric is typically a single digit percentage. However, for ecommerce, this number is higher, especially during the first two years of operations, when the main focus should be on building the brand, acquiring customers, and increasing the subscriber database. Once the number of repeat customers increases, revenues go up and CoS will go down. Multi-channel brands and retailers often struggle to build a case for ecommerce because the entrenched mindset still expects single digit CoS but to succeed online, brands need to look at the long-term benefits and set expectations for CoS accordingly.

Overall, businesses are looking to at least $100,000 USD investment over a one year period and this does not factor in the variable factors: logistics or marketing.

Why businesses are investing in brand.com stores in Southeast Asia

Brand.com stores in Southeast Asia are an important channel. As Fig. 2 in Graph 1 indicates, this channel was the largest driver of gross margins in 2015 with over 45% MoM. Beyond sales, there are three critical reasons why brands are building out their webstores: 

  1. Owning customer data – This is important because applying this data can increase customer lifetime value in the long run via targeted, personalized marketing, particularly O2O opportunities & loyalty reward programs.
  2. Total control of branding – For high-end businesses, brand identity is as important as the product itself. Owning your own webstore allows you to fully showcase and build a solid brand that your customers can identify with. You have complete freedom on how you wish to market your shop. 
  3. Higher margins – By selling on your own domain, there will be no expensive commission or payment processing fees. 

So is it worth it?

Yes, but the answer is not that simple even for enterprise level brands. These are some factors to consider beforehand:

  • How many SKUs does your brand have? If you are an FMCG brand who only sells toothpaste, consumers will not buy it online as it is a product that can be easily purchased offline amongst a larger selection (eg. grocery store). To drive traffic to your site, you can offer an immensely beneficial reason for shopping on your webstore. Take the Dollar Shave Club for example, an ecommerce business that generated a mass volume of orders from a small range of products ($1 razors). The secret? A subscription model. On the other hand, in the case when a major brand, like P&G for example, has a wide range such of toothpaste, shampoo, dog food and everything for the home, it may be worth creating a branded store.
  • What is the average order volume and average order value? Low-priced items do not make the investment into brand.com worth it unless coupled with other strategies such as order bundling, subscription models or charging delivery fees. 
  • How loyal are your customers to the brand? When fake items are rampant in Southeast Asia, customers are loyal to an outlet they can trust and a brand.com store guarantees that. People who buy high-end goods are also not necessarily bargain hunters and are looking for a site they can trust coupled with convenience.

As more entrants tackle Southeast Asia, like imminent Alibaba and Amazon, this may change over time, but our data shows that Lazada remains the most powerful marketplace for non-fashion and luxury brands at 36% of GMV. Other channels such as mobile, online pop-shops and other marketplaces play an important role as well.

The key take away from brand.com stores in Southeast Asia and channel data in figure 1 and 2 is that businesses should be taking a multi-channel approach.

“What our 2015 data shows is that it is important to realize that brand.com strategy is a complement and not a replacement of a wider distribution strategy,” said Raphaël Gaillot, Director of Merchandising at aCommerce.

And as ecommerce in Southeast Asia matures and more brands take the plunge, it is equally important for brands to be creative in ecommerce strategies because there is not a one-size fits all model.