E-Commerce Retail Sales See Rapid Growth in ASEAN

August 11, 2014 Posted by ASEAN Briefing Reading Time: 4 minutes

E-commerce is set to soar in Southeast Asia, as internet penetration in the region has reached a momentous turning point, according to a recent UBS report.

With the rapid uptake of mobile devices and 3G networks, UBS estimates that there are about 199 million internet users in the region, meaning a 32 percent internet penetration rate, and this is set to rise to 294 million, an increase of 48 percent, within three years.

Business is thriving despite the challenges of low credit card penetration, inefficient supply chains and inhibitive customs and tax regulations, added the UBS reports.

As much as 48 percent of the world’s internet users hail from the region, circumventing traditional PCs and accessing online sites via low-cost mobile devices. Add on to that the region’s large demographic dividend – some 67 percent of ASEAN netizens are under 35 years of age – means the consumer base for e-tailing sites is vast – and its potential still largely untapped.

E-commerce is still a new market in ASEAN. To put it into context, just 18 months ago, Thailand was one of three countries in the world without 3G, alongside North Korea and Cuba. Today, internet penetration in the country is on par with 2009 China.

Currently, the region’s nascent e-tail market grosses between US$548 million to US$1.1 billion, accounting for just 0.12-0.24 percent of total retail sales, but this is set to increase five-fold by 2020. The room for growth is immense, with a long way to go before it catches up to the 8 and 8.7 percent market share of e-tail in China and the U.S.

Rising e-commerce retailers, however, may be giving traditional brick-and-mortar retailers a run for their money. Already, e-tail sites are seeing 41 times more traffic than the individual online platforms of traditional brick-and-mortar stores.

“The power shift is moving quickly against [traditional retailers], and a cohesive online strategy is now a priority…or online platforms will take [a] significant share of [their wallets],” UBS said.

The attraction for e-commerce lies in its ability to bring otherwise inaccessible products to rural areas outside of the big cities, where traditional stores have yet to set up shop. In a recent ‘flash sale’ in Thailand, where a selection of products are made available at a sale price for a short period of time, saw 42 percent of sales coming from outside Bangkok.

Social media sites are also a key driver of traffic and sales for e-tailers, especially for the C2C market. There are 171 million Facebook users in ASEAN, making up 28 percent of its global user base. E-shops on the popular social media site drive the C2C online market, which dominates online shopping in many ASEAN countries, including Indonesia, the Philippines and Malaysia. Half of the sales on Lazada, a large e-tailing platform from the Philippines, came from referrals via Facebook ads that brought users to the Lazada site.

Similar to China, UBS expects the consumer-to-consumer (C2C) e-tail market to take up more than two-thirds of the market. Due to the low credit card penetration rate, consumers prefer C2C transactions that can be paid via direct bank-to-bank transfers, or cash on delivery.

Supply, however, has yet to catch up with the growing demand for online shopping. The reliability of last-mile delivery, particularly to rural areas, is still a problem. Warehousing space is also in short supply.

Nevertheless, expectations are high for the e-commerce industry and companies are beginning to step in to meet the challenge. Singapore, the region’s logistics hub, has become the regional home to 20 out of 25 of the world’s top third-party logistics providers. In June, Chinese e-commerce giant Alibaba announced its purchase of a 10.35 percent stake in Singapore Post, one of the largest e-commerce and delivery operations in Southeast Asia. The two firms are setting up a joint venture, to expand Alibaba’s network in the region.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asean@dezshira.com or visit www.dezshira.com.

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