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Over the last few days, major moves have been made by a handful of top ecommerce players in Southeast Asia in efforts to cement a position in payments. Each company is already well aware: if you want people to buy or use your services, it makes sense to have direct influence over their spending.

Owning the payments chain has become so important (thanks to what was witnessed in China), that Amazon announced it would pass discounts to retailers if they used its online payment service.

Earlier this week, ShopBack, a cash back ecommerce aggregator, acquired Singaporean personal finance startup for an undisclosed amount. The stated reason being it wanted to help millennials ‘better handle their money‘, but with a new team of developers, no doubt the company is looking to optimise its existing system.

What was more interesting this past week were the new discoveries made by Go-Jek and Grab users in Southeast Asian markets.

Go-Pay

The on-demand market leader in Indonesia has expanded its reach to the most unexpected locations – street food vendors.

Tweet translation: “Interesting find this afternoon: Some street vendors on the alley beside Bank BNI Kebon Sirih have accepted payment with Go-Pay. When I bought ayam penyet [fried chicken] at my regular place, I just have to scan a QR code, show the payment slip, and that’s it. So cool!”

ecommerceIQ

The popularity of Go-Jek in Indonesia is almost legendary and this example shows how far its reach goes. The difficulty for Go-Jek will be expansion outside of Indonesia to other markets in the region, where similar on-demand companies exist.

GrabPay

With Uber officially out of the picture, Grab is doubling efforts to increase the adoption of its e-wallet, GrabPay. On a trip to Manila May 7th, an ecommerceIQ Community member shared with us app screenshots of Grab promoting a new cash ‘top up’ feature. Riders can add money to their Grab accounts by simply handing their drivers cash.

This is hardly innovative as Go-Jek has offered cash top ups since 2016, a large contributing factor to its success in Indonesia, but it shows Grab’s seriousness in evolving its payments product to the local market.

 

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This new feature follows Grab’s launch of three other services the company introduced to the Singapore market: GrabAssist, GrabCar Plus, and GrabFamily.

“Grab’s vision is to be an everyday app for consumers,” said Tarin Thaniyavarn, country head of Grab Thailand.

Regulations stand in the way of Grab’s vision in Southeast Asia as most countries lack any solid regulations to ride-hailing companies. Currently, the company is unsuccessfully trying to acquire a microfinance licence from the Bank of Thailand.

What drives the adoption of new technology?

Grab is targeting hawker stalls in Singapore, Go-Jek has already successfully penetrated local vendors in Jakarta. Grab is offering cash top ups, Go-Jek has been doing so for the past two years. They both offer on-demand services, taxis, cars, bikes and the technology and mechanics of an e-wallet are not all that different player to player. They are essentially going toe to toe, what is going to push further adoption?

The real winner will be the company’s capability in effectively communicating the benefits of its payments service to users. How aware are users of its existence and its importance? How can it make their lives easier versus using good old fashioned cash or swiping a credit card?

In developed markets like the US, Apple Pay, Samsung Pay, Google Wallet have single digit adoption rates compared to credit card usage. Why? Because the country already fares well with credit cards, there is no reason to change habits.

The same case can be made for relatively cash-less markets like Singapore. The real opportunity to dominate payments is in developing markets like Indonesia and Thailand, where credit card ownership floats around only 4 percent and majority of the population owns a smartphone.

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“To enhance awareness, you really need advertising — one thing that’s not well understood [by consumers] about Samsung Pay is that it has more utility the Apple Pay; you can use it at a non-NFC terminal and that’s a huge advantage I don’t think Samsung is doing a good job of promoting.”

What’s Pinduoduo?

Pinduoduo, or PDD, is a social commerce app founded by Colin Huang, an ex-Google engineer, in September 2015. Only a couple of years old, PDD has become the fastest growing ecommerce company in China. It raised $100 million in 2017, is backed by China’s Banyan Capital and Tencent, and valued at a whopping $1.5 billion.

Source: Crunchbase

As of Feb 21, 2018, PDD ranks #3 overall in the Chinese iTunes app store ranking for free apps, after popular apps like Tik Tok (Douyin) and WeChat, and ahead of other shopping apps like Taobao. PDD went from 100 million yuan ($16 million) GMV a month in early 2016 to 4 billion yuan ($630 million) GMV a month by 2017, putting it in fourth place behind Alibaba, JD and Vipshop.

How does Pinduoduo work?

Users can download the PDD app or access it within WeChat. Like any ecommerce platform, PDD offers products across a wide range of categories from food to fashion. However, unlike Tmall and JD, PDD incentivizes users with discounts to invite friends to buy in groups.

 

For example, one container of Similac Advance Infant Formula Powder costs 59 yuan if you buy alone but only 35.5 yuan if you can get one other person to buy it too. In the screenshot below, a total of 1,822 pairs have “group-purchased” this item already.

 

 

In addition to group discounts, PDD also incentivizes customer acquisition. Getting users to follow the PDD WeChat Official Account, install the app, and sign up via WeChat login will earn them free products.

PDD also offers cash red envelopes worth 5-20 yuan to users for each friend they get to download the app and register. The entire system is then gamified through a public leaderboard.

Wait, is this new? Didn’t Groupon invent social commerce?

Groupon did arguably pioneer the group buying concept. In its early days, a certain number of users had to sign up for the same deal in order for everyone to receive the voucher. But unlike PDD, there wasn’t a direct incentive; users had to sit back and wait for anonymous users to tip the scale.

This mechanism was quickly abandoned to scale faster with minimum thresholds that acted more like gimmicks.

Groupon was labeled “social commerce” at first but in its later years, lost its social aspect.

Source: wiredtech on Flickr.com

Let’s take a step back and look at the definition of social commerce, according to ConversionXl:

“Social commerce is defined as the ability to make a product purchase from a third-party company within the native social media experience.”

Groupon emerged in the pre-mobile age of 2008 when most consumers still transacted via desktop, especially in the company’s US home market. Back then, less than 1% of ecommerce transactions were via mobile acquisition channels.

In addition, the company’s main distribution channel was email newsletters, a slow and high-friction medium and payments weren’t seamless either as users relied on a credit card or PayPal.

Now looking at 2016 in China – PDD’s first full year in operation – WeChat is the country’s dominant “super app” and leading medium to socialize online with 889 million Monthly Active Users (MAUs) by year end.

71% of ecommerce now takes place on mobile, creating a flattering backdrop for the rapid rise of PDD, which started out as an app on WeChat.

Paying for products on PDD is also remarkably easy because the app makes it automatic. After the first payment, users can opt for one-click payment via WeChat Pay that don’t require passwords.

Desktop usage, clunky email newsletters, and credit card payments limited Groupon’s true social commerce potential. Where Groupon failed, PDD is succeeding because of an ecosystem of mobile-first users and WeChat’s features that make it a super app.

Will PDD come to Southeast Asia?

Why not? Southeast Asia ecommerce is already being carved up by Alibaba and Tencent. Lazada and Tokopedia, two companies owned and invested in by Alibaba, dominate the B2C and C2C space on one end and Tencent-invested JD, Shopee, and Go-Jek are on the other end.

With Southeast Asia’s horizontal ecommerce market being consolidated into a few properties like Lazada, Tokopedia, JD and Shopee, there isn’t as much opportunity in the space as before.

New ecommerce players have to focus on dominating a specific, vertical category or provide a competitive advantage through means other than outspending peers in advertising and/or coupon subsidies.

This is where a model like PDD fits snuggly.

It also helps that one of PDD’s biggest investors is Tencent, which already has its eyes set on the rapidly growing Southeast Asian market.

Will the PDD business model work in Southeast Asia?

To determine if the PDD model would work in the region, we need to identify the criteria that were conducive to its success in China:

1. Lack of distribution channels / expensive distribution channels

If you strip away all the hype, PDD’s competitive advantage is in its customer acquisition strategy. Instead of relying on expensive channels like display advertising or paid search (e.g. Baidu ads), PDD is paying its users to get more users. For example, CPCs alone on Baidu can range from 5 to 25 yuan. Note these are clicks, not even users acquired.

Southeast Asia (excl. Singapore and Malaysia) is very similar to China in terms of lack of channels, due to a similar “no-tail” ecosystem. Whereas entrepreneurs in China had to pick their poison between Baidu, Sina and Sohu back in the day, startups in emerging Southeast Asia are limited to Facebook Ads, Google Search, and portals like Detik in Indonesia and Sanook in Thailand.

Early entrants like Lazada took advantage of low cost-per-clicks (CPCs) back in 2013 but given the raging ecommerce “bloodbath”, online ad CPCs have gone through the roof.

Having saturated online channels, Lazada started exploring offline advertising channels like TV and out-of-home media.

Others like Pomelo Fashion tapped into physical stores as a more cost-efficient way to acquire users and simplify last-mile logistics.

PDD social and viral customer acquisition strategies could work quite well.

2. High mobile commerce penetration

The majority of ecommerce transactions in China now take place on mobile. In 2016, 71% of ecommerce GMV was on mobile. In the US, this number was only 20% in 2016.

In Southeast Asia, companies like Lazada and Shopee today see over 65% of their orders coming from mobile (with 21.6% using both mobile and desktop to shop), according to a recent survey by ecommerceIQ.

Needless to say, high mobile penetration in Southeast Asia along with high mobile ecommerce usage will provide a fertile ground for a business model like PDD to gain traction here.

3. Frictionless mobile payments

One of the drivers of PDD’s success is its seamless payments through WeChat Pay.

This will be a challenge for PDD in Southeast Asia as only Singapore and Malaysia are credit card dominated whereas the rest of the region is mainly a cash-on-delivery market.

Source: ecommerceIQ

Despite efforts to come up with a universal mobile payment standard, no one has succeeded as of today. Efforts like Sea’s AirPay, Ascend’s True Pay, and LINE Pay have hit a wall due to lack of distribution, lack of use case, and a plethora of other issues.

Right now, most eyes are on Go-Jek’s Go-Pay, which has a massive distribution channel by leveraging Go-Jek’s 40 million install base and 10 million Weekly Active Users (WAUs). In addition, and more importantly, Go-Jek addresses emerging Southeast Asia’s unique lack of both credit card and bank account penetration — users are able to top up their Go-Pay accounts by handing cash to Go-Jek drivers that essentially act like mobile ATM deposit machines.

While still a poor-man’s WeChat Pay, Go-Pay offers hope for business models like that of PDD to thrive in Southeast Asia.

4. Attachment to popular social platform

Without the WeChat ecosystem, PDD wouldn’t have been the company it is today. Being embedded in WeChat, PDD was able to quickly get massive distribution by tapping into the potential 889 million MAUs of WeChat.

In Southeast Asia, Facebook, Instagram, WhatsApp, and LINE are highly popular, however, none are considered super apps that offer seamless integration.

The closest to WeChat in Southeast Asia would probably be Indonesia’s Go-Jek.

While Go-Jek hasn’t entered ecommerce yet (it’s positioned only as a services marketplace and offers delivery for partners through its GO-MART product), it wouldn’t be surprising if PDD decided to leverage the Go-Jek platform, given the similarities to WeChat in China. Like PDD, Go-Jek also counts Tencent as an investor.

With an estimated third of ecommerce in markets like Thailand happening on Facebook, Instagram and LINE, the user behavior of buying through social channels already exists.

5. Access to cheap product sourcing

If you browse through PDD, you’ll notice that most of the products sold bear similarities to many of those sold on Taobao. In other words, a lot of “mass” and non-branded products. PDD thrives in China because of easy access to a supply of these products manufactured locally.

However, in Southeast Asia, these kind of products (typically sold on social media and C2C platforms) are imported from China, which leaves less margin for PDD to play with in terms of discounts and customer acquisition.

To sum up, emerging Southeast Asia meets several of the criteria behind PDD’s success in China but poses some unique challenges:
ecommerceIQ

What will happen next?

In the analysis, we’ve identified some of the drivers of PDD’s rapid rise in China and also their presence in emerging Southeast Asian markets at an earlier stage.

Given this opportunity, we can expect the following scenarios to play out over the next few months and years:

1. Local and Chinese entrepreneurs will launch PDD clones across the region

Ever since opening up to the world in the 80s, we can describe China having gone through the following three stages, with the third one still progressing as we speak:

1. Made-in-China (1980-2000)

China perceived as manufacturing base for (often cheap, low-quality) export products

2. Copy-to-China (2000-2015)

Chinese entrepreneurs, some foreign educated, bring back models that worked in the US, e.g. Search (Google -> Baidu), Portals (Yahoo -> Sina, Sohu)

3. Copy-from-China (2015-2030)

Birth of unique Chinese Internet business models (e.g. bike-sharing, payments, live streaming, social commerce, O2O). Increasing media focus on Chinese tech innovation and locals outside of China looking for Chinese models to copy

We are witnessing stage 3 happening right here in Southeast Asia. Below is a Thai post on Facebook looking to recruit staff to work on what looks like a PDD clone:

It doesn’t have to be local talent copying PDD from China to Southeast Asia. With the influx of Alibaba, Tencent and JD into the region, there are plenty of Chinese employees who’ll be noticing the similarities between Southeast Asia today and China, and jump on new opportunities.

2. PDD will enter Indonesia through Go-Jek (helped by common investor Tencent)

If PDD were to follow Alibaba and Tencent’s steps and enter Southeast Asia, we expect them to join forces with Go-Jek. By embedding itself inside Go-Jek, PDD is executing the same game plan that led to its rapid initial growth within the WeChat ecosystem. Fostered by a shared investor — Tencent — Go-Jek would be the perfect launch partner for PDD in Southeast Asia.

3. Existing players will adopt the PDD business model to compete against horizontal ecommerce plays

Local ecommerce players like MatahariMall, Konvy, and Orami could pre-empt PDD by adopting its customer acquisition strategies to compete with regional giants like Lazada and Shopee.

For Konvy and Orami, two female-focused ecommerce platforms, this move could make a lot of sense since the majority of PDD’s users in China are female, over 40 year old, and living in smaller cities.

Play on players.

Southeast Asia’s inbound tourism industry has grown by an annual average of 7.9% since 2005 and the region now accounts for over 30% of international expenditure in this sector.

But as high-end and mid-market hotel brands strive to attract a greater number of tourists to fill up their rooms, they might be missing out on an emerging demographic: the domestic Asian millennial traveler who is more likely to opt for a budget hotel.

According to E&Y, millennials and millennial-minded travelers are far more cost-conscious and experience-focused than their predecessors.

This view is augmented when you consider travel preferences in Asia. The top three requirements for travelers looking for recommendations within the region are to help them save money, make travel more comfortable, and to save time.

Preferences of APAC travelers. Chart: Amadeus

Millennials are increasingly likely to ditch glitz and glam for minimalism and function. And with travel within APAC democratized by the likes of no-frills carriers such as Air Asia, it’s only a matter of time before complementary industries start riding this wave too.

The budget hotel industry has certainly witnessed greater investor interest in the past couple of years looking to solve a key problem – standardization. It’s often that travellers booking online even after combing through ratings & reviews are commonly surprised upon arriving at the hotel.

The idea to club together existing hotels, upgrade their facilities to ensure safety & comfort, and bring them under a unified brand was popularized by India’s OYO Rooms. The startup has raked in US$450 million in funding primarily by Softbank.

Since 2000 the Chinese tourism industry has also witnessed a surge in budget hotel franchises, aiming to address the historical issue of lack of standards, safety, trust, and reliability. Franchises like the China Lodging group and 7 Days Inn are now worth billions.

ZEN Rooms is another startup that operates on a similar model and was brought to Asia by German startup incubator Rocket Internet in mid-2015. It’s now present in seven countries across Asia, namely Indonesia, Singapore, Hong Kong, the Philippines, Malaysia, Sri Lanka, and Thailand.

At the time of launch, the company pointed to the expanding nature of regional travel as a critical factor in its decision.

“…in terms of accommodation and travel, Southeast Asia behaves like one big country. There is a lot of inner-country travel. Indonesians travel from Jakarta to Bali, Malaysians from one city to another. There is a lot of inter-region travel, from Jakarta to Singapore to Bangkok to Kuala Lumpur, for example,” said co-founder Kiren Tanna while speaking to TechCrunch.

Most travelers in Asia like to journey closeby. Source: Euromonitor

In 2017, ZEN Rooms received a fresh capital injection of US$4.1 million adding further credence to its business model. New investors joined the party, namely Redbage Pacific and SBI Investment Korea.

And the Rocket Internet-backed startup isn’t the only contender in this space. Companies like Reddoorz, Nida Rooms, and Tingall have all propped up aiming to cater to an ostensible gap in the market. Cumulatively they’ve managed to attract US$10 million in funding so far.

Another competitor is Goldman Sachs-backed Red Planet. Its model is slightly different; rather than partnering with existing budget hotel operators, it chooses to own and operate its own properties. The company has over US$200 million in funding purportedly because it’s not an asset-light model, but is trying to solve the same pain points of uniformity of service.

“The [budget] hotels in Southeast Asia lack efficiency in many aspects and that eventually translates into substandard customer satisfaction,” explains ZEN Rooms co-founder and global MD Nathan Boublil to ecommerceIQ. “That’s the difference between Southeast Asia and the West. We want to improve the budget hospitality market with better sales and distribution, technology, and lowering the cost of procurement.”

“The Southeast Asian market is largely made up of small “mom-and-pop” hotels with no structural efficiency, which penalizes both guests and the hoteliers themselves. In the end, prices have to go down and the service level has to go up so that domestic and regional travelers can fully access travel,” he adds.

The Philippines in focus

The Philippines has rapidly emerged as one of ZEN Rooms’ largest growth areas.

Nathan says the dominant budget hotel chain before them only had 11 hotels on board which his company has surpassed since, although he declines to disclose the total number of partners they have.

11 certified budget hotels compared to the 6 million international tourist arrivals in the country in 2016 presented a large gap in the market and existing infrastructure – a fact alluded to by Domingo Ramon Enerio, Chief Operating Officer of the Philippines Tourism Promotions Board.

“We ended 2014 with 4.8 million tourists; this year we’re hoping to reach 5.2 to 5.5 million. We estimate that the demand for Philippine tourism is in excess of 10 million – meaning these are people who want to visit the Philippines but couldn’t for several reasons, whether it’s flights or not enough rooms or information,” he explained to Philstar in 2015.

The government has also aggressively promoted tourism in the island-drenched nation under the “It’s more fun in the Philippines” banner.

Hence according to official estimates, there’s still a gap of about 4 million inbound tourists who would like to visit the country but aren’t able to do so. This doesn’t factor in domestic tourists who might be put off by similar challenges of finding suitable rooms. So the total number is likely to be higher.

In the Philippines, ZEN Rooms first piloted a project to bring serviced apartments under its banner in addition to regular hotels. This has grown to be immensely popular with the category running at 95% occupancy and an average customer rating in excess of 9, according to Nathan. There’s 200 such budget serviced apartments in Manila alone with plans now to introduce the category in Kuala Lumpur.

Domestic travelers account for 50% of ZEN Rooms’ customers, with regional travelers making up an additional 30%.

In the Philippines itself, domestic travel is being fueled by an emergent middle-class, strong GDP growth, and a larger number of households with young children.

A larger number of households with young children are fueling tourism in the Philippines. Source: Euromonitor

The push towards branded serviced apartments does bring ZEN Rooms in competition with property owners on Airbnb but Nathan says they’re succeeding due to economies of scale and lower prices.

Typically Airbnb owners can’t offer things like late night check-ins or daily housekeeping unless they partner with a management agency like GuestReady. This also drives up costs as the agency will typically charge a commission.

Nathan points out that ZEN Rooms’ existing operations drive synergies between the two business units. As they’re already helping improve the level of service in budget hotels, the team can leverage its expertise and manpower towards serviced apartments. This helps facilitate things like late check-ins and quality controlled daily housekeeping.

The French entrepreneur is taking a long-term view of the market.

Really, we’re just starting our expansion in Southeast Asia, the region is huge and inter-country travel is growing very fast,” he notes.

Southeast Asia is, in fact, the world’s fastest-growing travel region according to the World Travel & Tourism Council.

And there’s little doubt about a palpable sense of optimism engulfing the region: 80 million new consumers came online via their phones last year, representing a 31% increase as compared to 2016. Asian millennials are also addicted to social media, internet shopping, and increasingly rely on the web for travel & tourism research.

It’s time for no-name, obscure hotels to partner up with players like ZEN Rooms in order to gain more exposure, efficiency and latch on to emerging millennial travel needs.

As the year’s largest online sales campaigns wrap up, research from Google and Temasek predict Southeast Asia is well on its way towards becoming a digital powerhouse worth much more than $200 billion USD in eight short years. How did shoppers behave during Single’s Day in light of all the work poured into gaining their trust and promoting online shopping?

From exclusive updates provided by the companies to ecommerceIQ, here is how Google’s recent report correlates with real time results.

Lazada Group Single’s Day and Online Revolution:

  • Single’s Day (11.11) generated USD$123 million gross merchandise value (GMV), 171% year-on-year growth
  • Shoppers ordered 6.5 million items, 191% year-on-year growth
  • 70% of orders were placed from mobile devices
  • Sells 12 limited edition Volkswagen Beetles within 20 minutes, each costing RM112,112 (USD$27,441) during Lazada Malaysia Online Revolution (12.12)
  • Apple products offered officially on Lazada as the brand’s authorised online reseller, opens shop-in-shop (SiS)

11street Malaysia 

  • 600% increase in cross-border product orders, 400% increase in total orders (compared to a regular day)
  • Most popular products: GPS, mobile accessories, smartphones, TV sets, theme park tickets
  • Traffic to the website doubled, 85% contributed by mobile

Shopee 9.9 Mobile Shopping Day 

  • 350% increase in orders, 500% increase in traffic
  • Most popular products: make up brushes, smart watches, canvas backpacks
  • 7 million chats, 30,000 participating sellers
  • Highest number of items ordered by one buyer was 218
  • Find more here

The results from this year’s mega sales campaigns work well with new predictions by Google & Temasek in their latest e-Conomy SEA Spotlight report:

  • Ecommerce sales of first-hand goods will reach $10.9 billion in GMV in 2017, up from $5.5 billion in 2015 (driven by top players like Lazada, Shopee, and Tokopedia)
  • Southeast Asia’s internet economy will reach $50 billion in 2017, growing at 27% CAGR
  • The region’s internet economy accounts for 2% of Southeast Asia’s GDP, will increase to 6% by 2025
  • There will be 330 million monthly active internet users by year end, 90% of which are smartphone users
  • Search interest for ecommerce brands growing more than two-fold in two years thanks to promotional activities and marketing investments by leading regional/global ecommerce players and co-marketing initiatives with top brands in electronics, fashion and consumer goods industries.

ecommerceIQ

It’s shaping up to be a good end to 2017 for ecommerce players, investors and shoppers in Southeast Asia. Stay tuned for 2018 ecommerce predictions.

For more charts & graphs related to ecommerce in Southeast Asia, check out our database.

The Background  

In Japan, there is a renowned chain of stores with an iconic penguin-mascot that is a must-see for tourists, serving almost 300 million customers a year. The famous merchandise stores started with humble beginnings offering a collection of discarded goods and samples from companies on the verge of bankruptcy in 1978.

With insufficient resources to hire workers, founder Takao Yasuda spent long nights restocking shelves and took note of the high number of late night shoppers who mistakenly came into his shop thinking it was still open.

Yasuda opened the first 24-hour store Don Quijote (also known as Donki) in 1989. Don Quijote, pronounced ‘dawn kee-ho-tay’, operates with the rare concept of a compressed display in which items are displayed in clusters, causing aisles to feel like mazes.

Browsers can find anything under the sun, from toilet paper, snacks, sex toys to luxury cosmetic brands and pre-loved Rolex watches.

The point of the display is hard to find, hard to take and hard to buy,” — Takao Yasuda, founder of Don Quijote Co.

Mr. Takao Yasuda, standing in front of handwritten cardboard signs and stacked displays in one of his Don Quijote stores. Source: Reuters

Strange to think that any shop owner would want their items to be hard to find but Yasuda’s compressed display is actually a brilliant strategy that led the business to grow to 350 stores in Japan and the US, with annual consolidated sales topping $7.4 billion in Japan.

Shoppers seemed to have taken to the treasure-hunt mentality making the stores a popular destination for tourists visiting Japan.

Japanese retail is built on the concept of saving time. We want our customers to spend more time at our stores,” — says Yasuda

By adopting a unique retail strategy to become a consumer magnet, what could possibly go wrong with Japan’s largest discount store?

The Challenge

Japan has always been among the world’s most loved destinations for travel and culinary experiences but in 2014, the country fell to 22nd as the most-visited destinations. Due to language barriers, foreign tourists contributed to only 3.5% of revenues, generated in major cities like Tokyo and Osaka.


Being a business that relies heavily on revenue generated by tourists who spend on average more than 40,000 yen ($365) each visit, compared with local shoppers’ 2,400 yen, Don Quijote recognized the need to spur the country’s dwindling tourism or be less dependent on it.

But around this time, the Japanese government increased consumption tax from 5% to 8%, sending Japan’s economy into freefall at an annual pace of 6.8% from April to June in 2014.

Despite the decrease of household spending at a worse-than-expected rate of 4.7%, Don Quijote’s sales rose 2.3%.  

But Yasuda knew it wasn’t enough, the company needed to find another stable revenue stream.

The Strategy

The important thing is to create a framework that attracts visitors to Japan, and that requires cooperation that goes beyond one company or industry,” — Yasuda told Reuters

Don Quijote’s strategy to pack its stores with more shoppers was incentives for more spending. The company signed deals with countless hotels and travel agencies to distribute membership cards that offered 3% cash back at Don Quijote.

The largest discount store in Japan was also reportedly behind the Japanese government’s decision to exempt tax for visitors. Starting Oct 1, all Don Quijote stores allow non-residents to shop tax-free nationwide and even pack the goods to follow airline guidelines.  

With emerging technologies and advancements in digital marketing and logistics, it seemed there was no better time to launch ecommerce.

Don Qujote’s online shopping website.

Don Quijote’s online shopping website positioned itself as the number one source for authentic, popular products from Japan straight to your home.

“When it comes to capturing inbound visitors, Don Quijote is unrivaled,” said Ryota Himeno, retail analyst at Barclays.

Although no official sales records from Don Quijote’s ecommerce site were found, an analysis at Barrons predicted that Don Quijote’s “store is immune [to the arrival of Amazon] because its price points are below the minimum break-even points for most ecommerce sites.” 

But its success, whether from online or offline stores, boils down to Don Quijote’s strong marketing tactics. Not only did the company specifically chose prime tourist locations across Japan to open its stores, the discount chain has adopted its own mascot.

The blue penguin donning a red cap is paired with its very own theme song called “Miracle Shopping” that plays on repeat in stores, bringing the Don Quijote stores to life.

Don Quijote has become woven into people’s lifestyles. For them, spending time at one of our stores has become part of their lives.”

The Japanese brand’s ability to attract flocks of young people and tourists to its stores has gained the attention of other notable retailers such as FamilyMart Uny that will transfer a 40 percent equity sake in wholly owned subsidiary Uny Co., a general merchandiser from Inazawa, Aichi Prefecture, to Don Quijote.

The Future

In addition to turning some of FamilyMart Uny’s stores into Don Quijotes, the pair are in talks about developing a service similar to Alibaba’s Alipay, which currently over 4,000 Japanese vendors are accepting, including both Don Quijote and FamilyMart.

Earlier this year, the company announced its goal to reach operating profits of $537 million by 2020 – 20% higher than the current target.

In order to achieve this, the company also opened its first store in Southeast Asia in Singapore, a country-state Yasuda actually relocated to for retirement. Why did he choose Singapore as HQ for the region?

Singapore is a very important market for us. It is also a good base for us as people speak English here and it makes it easier for us to expand globally.”

Singaporeans queueing outside Don Quijote (debuted as ‘Don Don Donki’ in Singapore) before it was officially opened on December 1. Source: Straits Times

The 1,397 sqm double-storey building is also offering in partnership with Hokkaido Marche, a themed retail and dining experience. There are also plans to launch at least 10 more stores by 2022.

This is exactly what Yasuda wants – having customers staying in the stores longer.

Yasuda looks to capture the hearts of Thais next, where about 901,400 of Thais visit Japan every year, ranked as the 6th highest foreign visitors to Japan. In fact, Thais were among the top overseas customers of ‘Donki’, after the Koreans, Chinese and Taiwanese.

If Yasuda gets his way, there will be a piece of Japan everywhere in the world.

 

As internet adoption grows at a double digit pace year on year in Southeast Asia – a 31 percent increase last year – retailers and brands must find ways to capture the wave of the some 80 million new consumers coming online.

Internet shopping has become one of the most robust areas of growth in the last few years, especially in markets like Indonesia and Thailand as both international and local ecommerce players pour money into winning the emerging digital customer in the region.

In such a fragmented market segmented varying in cultures and languages, there are a few common key threads to be noted about the region’s increasingly affluent shoppers:

  • Southeast Asia is mobile first. Mobile subscriptions have increased by 8% since last year, adding an additional 60 million users.
  • Southeast Asian’s are the most actively engaged with social media. Indonesia is sometimes referred to as “Twitter city” whereas Total Access Communication Pcl, estimates that Thais spend up to six hours a day on Facebook and Youtube – the 8th highest in the world.
  • Southeast Asia has low credit card penetration and a large unbanked population – 73 percent – due to a lack of financial maturity.
  • There is an overall low trust in anything ‘digital’ due to its novelty and user unfamiliarity.

So how do retailers, brand stores and marketplaces attract more consumers to shop on their websites?

One highly successful and proven method is to incentivize with large discounts, leading to the emergence of some of the region’s most infamous flash sales.

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