Southeast Asia is the new prime spot for m-commerce, given the massive online retail market driven by the burgeoning smartphone and internet penetration rates. While developed markets like Singapore have the highest rates of smartphone penetration, developing markets like the Philippines and Thailand are, in fact, leading the region in terms of m-commerce retail value. With a youthful population base that is increasingly digitally connected, along with better payment options, these markets are poised to dominate internet retailing within the region.
The Digital Generation
The populations of the Philippines and Malaysia are relatively youthful with 54% and 45% falling within the 0-to-24-year-old age band, respectively. The fertility rate is above the replacement rate at 3.0 births per female in the Philippines, hence the significantly higher rate of natural increase. Singapore presents a sharp contrast, with only 27% of its population within the same age band. Singapore is one of the fastest-ageing societies in Asia and the numbers of those over 65 will increase by 40% in 2013-2020. Internet retail will appeal the most to younger consumers as they are generally more technology-savvy and digitally-connected and tend to receive the highest level of e-commerce exposure. Internet retail is also a novelty for those who are more receptive to internet shopping and are prone to impulse buying due to lower financial awareness.
The Connected Generation
High smartphone penetration in the Southeast Asian countries will fuel the demand for mobile internet retail. In Singapore, 87% of mobile phones sold in 2014 have been smartphones. Mobile phones grew by 6% in retail volume terms, with smartphones recording 10% volume growth. The Philippines recorded the highest volume growth, with smartphones growing by 60% in terms of retail volume, hitting 10.8 million units in 2014. In Malaysia, smartphone usage is equally prevalent, with 7.3 million smartphone users in 2014. Smartphones growth was largely fuelled by low-cost smartphones as mobile network operators push their mobile subscribers to switch from feature phones to smartphones in a bid to drive data revenue, which tends to be higher value than voice revenue.
Thailand and the Philippines are set to become the biggest m-commerce markets in the region. In each of these countries, m-commerce is expected to reach US$9 million by 2018. The trend of smartphones started to emerge along with e-commerce thanks to wide adoption by consumers in these two markets. Many operators developed new applications compatible with both iOS and Android in order to make it easier for consumers to get updates on new products. For example, multinational retail conglomerates like Zalora Philippines Inc and Thailand’s Big C Supercenter PCL have developed mobile applications for on-the-go consumers. Rakuten (Thailand) Co Ltd has partnered with Line, a popular mobile messaging application, to push online sales to Thai consumers. Peer influence via social media applications as well as a greater willingness to accept information through mobile applications has made Thailand a pilot success for the mobile retail market. Huge market potential remains for those players that can persuade the remaining smartphone users who are not shopping online to hop onto the bandwagon.
Chart 1: Big C Supercenter PCL Mobile App
Source: Screenshots from smartphone
More Payment Options
Cash on Delivery (COD) through couriers, 7-11 stores or local supermarkets is a popular payment option for online shoppers in regions where large populations remain unbanked and suspicious of cashless payment modes. Cash on Delivery helps to reduce monetary risks for consumers and extends the mobile shopping market to those who lack access to transfer payment services. Leading online players, such as Bhinneka Mentari Dimensi PT in Indonesia and Mobile World JSC in Vietnam, offer Cash on Delivery for their customers. As a result, increased ease of payments will continue to propel m-commerce in Southeast Asia.
Personalised Shopping Key to Growth
Looking at the product categories, consumers are purchasing a variety of products. Apparel and footwear is a strong contributor with 37% of the internet retail market in the Philippines in 2013. Owing to the westernised culture and heavy influence of social media, consumer preferences can be expected to be more personalised and to pursue fashion trends more aggressively. Additionally, the lower price point of apparel and footwear can attract first-time buyers who are hesitant about making big-ticket purchases. Consumer electronics and video games hardware internet retailing took the lion’s share of the market for Indonesia and Thailand at 50% and 33%, respectively, in 2013. Much of these purchases are driven by the robust demand for consumer electronics, such as smartphones and tablets, which will, in turn, feed online retail market growth.
As smartphone penetration rates continue to soar in Southeast Asia, m-commerce will most definitely be the latest explosive sales channel for businesses. Future growth will hinge on consumers’ mobile retail experience and the ease of payments offered by retailers.