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The Philippines often comes second by various factors when compared to its peers in Southeast Asia. It’s the second most populous country in the region after Indonesia with 103 million civilians. It’s also the second poorest country after Vietnam and currently has the second smallest ecommerce market at $0.5 billion.

Google & Temasek predicted a rosy future for the Philippines’ ecommerce market to become bigger than that of Singapore, Vietnam and Malaysia by 2025 at $9.7 billion.

However, there are several signs indicating online retail has a long way to go before it picks up in the country:

  • Low ecommerce spending
  • Lack of local ecommerce players
  • Slow internet

Can the Philippines’ ecommerce actually reach its predicted potential? We take a deeper look at some of the reasons why it will be challenging.

First, the good things

The Philippines population is projected to increase by 13% to 116 million by 2025, presenting a bigger market for businesses to sell their products.

Beneficial for ecommerce growth is also the 10 million Filipinos living and working overseas.

Around 3.5 million of them work and live in the US, which has advanced their online shopping behaviour and paved the way for innovative cross-border logistics businesses offering deliveries from the US to the Philippines.

Overseas workers have also facilitated the birth of many digital payments businesses in the country as they send remittances home to their family.

Filipino overseas workers sent home $29.7 billion in 2015.

These money transfers have made the Philippines the top third remittance-receiving country in the world after India and China and spurted the growth of fintech startups providing transfer services, such as Ayannah, Coins.ph, BloomSolutions, using blockchain technology to serve the unbanked.

The innovative payments and logistics solutions work in favor for ecommerce development as online companies are dependent on the ease of payments and the efficiency of logistics networks for speedy delivery to attract customers.

As a result, Lazada, the Southeast Asia’s marketplace for everything, ranks as the 7th most visited website in the Philippines.

No money, no honey?

Despite the mentioned factors, ecommerce has not yet picked up as quickly in the Philippines as it has elsewhere in Southeast Asia. Although 30 million people reported shopping online in 2016, the Philippines has the lowest average annual retail ecommerce spending per person.  

A Filipino spent on average $33 shopping online in 2016.

Even the Vietnamese, who are the poorest of Southeast Asian nations spent 67% more per person shopping online and Malaysians with two times less online shoppers spent twice as much as Filipinos in 2016.

According to Statista, people shopping online in the Philippines are expected to increase by 42% to 48.8 million in the next five years and the average annual spend on ecommerce per person will reach only $48 in 2021.

For comparison, the Vietnamese are expected to spend on average $96 and Malaysians – $129 in 2021.

Where are the local players?

Low online spending per person is not inspiring local businesses to invest in ecommerce  as seen by presence of a few local ecommerce players.

The Philippines is a market where Southeast Asia’s darling Lazada is dominating ecommerce with around 40 million monthly visits.

Local ecommerce players, be it marketplaces or vertical webstores, are not even close to Lazada in terms of number of visitors.

And overall, the competition is rather thin in any category but more brands are working to capture the growing ecommerce potential.

There are a few first movers that are choosing a full ecommerce strategy such as local telecommunications service provider Globe Telecom and retail brand Bench, or global brands Payless ShoeSource and Adidas, and performing quite well. It’s also common for traditional brick-and-mortar retailers such as SM Store to open a shop-in-shop on Lazada to test the ecommerce waters first before investing in a brand.com strategy.

Slow and slower

Filipinos are connected to and browsing the second slowest internet connection in the Asia Pacific region. While a speedy internet doesn’t guarantee strong ecommerce behavior, it does impact a good user experience. Who would be willing to browse for a new phone or a pair of shoes if it takes ages to load pictures and product descriptions?

On top of this, the country ranks lowest among its Southeast Asian neighbors in terms of ease of doing business because of slow and complex procedures of starting a business, enforcing contracts and protecting minority investors, which doesn’t help to boost online trade either.

So how to reach its golden potential?

While the large population, familiarity with cross-border deliveries and digital payments offers a great foundation for ecommerce growth, projections of its future market growth greatly vary.

Statista projects the Philippines ecommerce will reach only $2.345 billion in 2021 making the country the smallest of markets in Southeast Asia, while Google and Temasek expect the market to be $9.7 billion by 2025.

The difference will depend on the number of first-movers that kick off the snowball effect.

Recently Ayala Group, one of the largest conglomerates in the country, acquired a 49% stake in online fashion retailer Zalora Philippines. The group hopes its footprint in banking, real estate and telecommunications will generate synergies throughout the ecommerce value chain.

If the takeover proves successful, it could inspire others to follow and contribute to ecommerce growth.

To increase ecommerce growth in the country, there are several things needed to be done. Some of the issues are up to the Philippines government, such as increasing the internet speed by breaking the existing telecommunications market duopoly and opening it up to competition or easing the company registration process.

There are few things businesses themselves can also do to add to the growth:

  1. Invest in market education to explain how ecommerce works and provides convenience
  2. Training workshops for small and medium sized sellers, as well as larger traditional players can nudge more businesses to explore different channels for sales
  3. Improving security of their sites and adding secure payment methods to build trust   between businesses and consumers concerned about fraud
  4. Attract more customers online by selling ‘lifestyle’ services, insurance, etc.

The collaborative effort in the entire ecosystem between brands, retailers, service providers, logistics players, marketing agencies, consumers, etc. will help take the Philippines ecommerce market to the billions.

By: Aija Krutaine

Here’s what you need to know.

1. Lalamove to launch same day delivery service in Bangkok by June

Apart from the technology development for the same day delivery service, Lalamove will use the funding to expand its on-demand delivery services from current 45 cities to 100 cities by end of year. Currently, Lalamove operates in Hong Kong, Singapore, Bangkok, Taipei, Manila and 40 cities in mainland China.

Currently, Lalamove’s on-demand delivery service extends to the food industry. By extending same-day delivery to other industries, the startup hopes to attract more ecommerce companies and online retailers.  Regional director of city operations at Lalamove commented,

We choose to test the new service in Bangkok as it marked the highest growth in 2016 in terms of usage and the service value outside China – Santit Jirawongkraisorn

Read the rest of the story here.

 

2. Ant Financial makes its first investment in the Philippines through Mynt

Mynt is a wholly-owned subsidiary of Globe Capital Venture Holdings Incorporated (GCVHI) under Globe Telecom and Ayala Corporation. The deal represents Ant Financial’s first-ever investment in the Philippines and gives Mynt access to the digital payment giant’s know-how in using technology to provide equal access to financial services.

Read the rest of the story here.

 

3. Online lenders will face new regulations in Indonesia

Indonesia’s financial services authority (OJK) is working on new rules for online money lenders.

What will the new regulations do? The rules will put a cap on the the maximum amount balance sheet lenders can hand out. The aim is to keep the loan size small so online balance sheet lenders would fill a gap rather than compete directly with banks.

The regulations concern online lenders who give out loans from their own capital.

Read the rest of the story here.

4. Community Chatter: Omise to launch new e-wallet platform in Q4

Source: Omise founder, Jun Hasegawa’s twitter

Payment platform Omise is set to launch a new e-wallet feature, Omise Go which will be powered by ethereum. It will be a platform for payments, remittances and more for the unbanked population.

Read more about Jun Hasegawa in eIQ’s SPARK40 list of ecommerce professionals here

 

ZALORA, in partnership with Globe Telecom, recently opened its second pop-up store which aims to ease Filipino shoppers into the convenience of online shopping.

Fast fashion continues to evolve and adapt to the shifting demands of consumers, and the partnership between ZALORA and Globe provides a new innovative experience for customers, who were given the opportunity to shop offline for an online marketplace.

Globe Postpaid customers are in for special perks with discounts at the ZALORA Pop Up Store. This discount offer can be availed as many times until Jan 31, 2017, providing half a year’s worth of discounts.

Deviating from the common cashier system, the ZALORA Pop-up Store lets visitors use the power of their mobile phones or through the provided gadgets.

ZALORA has rolled out its brick and mortar initiative in Singapore last year, as an attempt to bring the online experience offline, where customers can browse through racks and get a physical sense of the clothes usually sold online. The purchased products will then be delivered to the customers’ doorsteps.

ZALORA’s temporary retail concept is a good way to reach out to customers at different locations across the world at different periods of time, and allows the brand to inject fresh concepts to buyers who may be bored of simply clicking online to find clothes.

In a highly competitive market, retailers and online marketplaces have to constantly innovative the customer experience in order to maintain shoppers’ loyalty and interest. ZALORA’s offline and online collaboration aims to provide full service to customers, from offering physical products to try on, free wifi to browse collections online and hands-free shipping.

A version of this appeared in Orange Magazine on August 3. Read the full version here.