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:
- Invest in market education to explain how ecommerce works and provides convenience
- Training workshops for small and medium sized sellers, as well as larger traditional players can nudge more businesses to explore different channels for sales
- Improving security of their sites and adding secure payment methods to build trust between businesses and consumers concerned about fraud
- 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.