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Post-pandemic, Asean e-commerce growth 'inevitable': Credit Suisse

Jovi Ho
Jovi Ho • 9 min read
Post-pandemic, Asean e-commerce growth 'inevitable': Credit Suisse
Singapore and Malaysia generate a third of total online retail sales in Asean despite having just 8% of the region's population.
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Asean e-commerce is set to accelerate with greater internet and mobile penetration, as Covid-19 reshapes the retail landscape for more than half a billion consumers across six key markets.

The projections, mostly slated for 2025, are a tall order for the Asean nations in question. However, the speakers at the 24th Credit Suisse Asian Investment Conference — which was held virtually on March 26 — are confident of the region’s deep virtual pockets.

Besides growing affluence, social media and a mobile-first generation will shape how retailers engage with consumers, while the use of big data will create a feedback loop for brands to improve on their offerings.

Digital consumers in Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines will be spending three times as much in 2025, as Internet economies across Asean are seen to chalk up compound annual growth rates (CAGR) of 19% and 30% between now and then.

In addition, retail e-commerce market size in the region is projected to grow to US$88 billion ($117.7 billion) by 2025. “Asean is highly attractive for e-commerce, with mobile adoption rates expected to almost double between 2019 and 2030. Consumers will be connected 24/7 and will demand convenience through easy access to multiple sales channels,” says Varun Ahuja, Credit Suisse’s Asia telecoms and Internet securities research analyst.

See: Southeast Asia's internet economy to triple to over US$300 bil by 2025

The growing popularity of e-commerce across the world is not merely a growing trend, but an “inevitable” one, notes Credit Suisse. Research and forecasts by various major parties are pointing to the same direction.

For example, in a report by Google, Temasek and Bain & Co from last year, online shopping is forecast to hit US$172 billion ($230.2 billion) by 2025, surpassing a previous US$153 billion estimate. Management consulting company FMI and Nielsen, on other hand, expect that approximately 70% of US consumers will buy groceries online by 2025.

Specifically for Asean, the growing popularity of e-commerce can be attributed to a few key reasons. For one, there is a very significant base of some 600 million consumers. They tend to be on the younger side and are tech-savvy and have easy access online either with their smartphones and, or their computers, says Credit Suisse.

This number is growing. Southeast Asia added 40 million new Internet users in 2020, according to the same report by Google, Temasek and Bain & Co. They also estimate that one in three digital service users came online for the first time due to Covid-19.

Online penetration rate

Among the six markets studied, their online penetration rate vary but the underlying trend points to a meaningful level that makes it conducive for e-commerce to grow. “E-commerce is still at a very early stage in Indonesia, the Philippines, Thailand and Vietnam, and remains an important reservoir of growth for the region,” says Credit Suisse.

Singapore and Malaysia, however, are clear leaders in this space. The two markets together generate one-third of total online retail sales in the region, though they only account for 8% of the region’s population.

In Singapore’s case, it can be attributed to the ubiquitous availability of internet access. With more than fourfifths of its 5.8 million residents online, Singapore boasts the highest penetration rates for Internet, social media and mobile usage.

Thailand boasts comparable figures, even with a population nearly 12 times larger than Singapore. For example, 82.5% of its residents are on the Internet, with 80.5% on mobile devices and 73.8% on social media platforms.

Meanwhile, exactly half of Indonesia’s 265.4 million residents are on the Internet, with 49% on social media.

Even with the largest population among the six countries studied, 67% of Indonesia’s residents own mobile devices.

Malaysia, meanwhile, has been sporting a clear trend in rising online sales since the start of its first Movement Control Order (MCO), with 33% of the population stocking up for the lockdowns through online shopping. Bricks-andmortar “minimarkets” saw a 19% rise in sales in June last year, as consumers visited neighbourhood stores for groceries.

Consumers were also noted to be price sensitive, and are willing to seek out low prices or special offers. As restrictions ease, Credit Suisse believes that Malaysian consumers will increasingly seek convenience and search for cheaper alternatives, thus downgrading to value brands.

While Indonesia saw a dramatic increase in e-commerce sales, which surged 54% y-o-y in 2020, consumers’ lifestyle habits pose a challenge to e-commerce growth, adds Credit Suisse. High logistics cost, consumers’ preference for interactions with sales employees and lifestyle habits, such as family activities in malls, will largely remain unchanged after the pandemic, driving consumers to purchase offline.

The growth momentum of e-commerce in the Philippines started before the outbreak and continued during the pandemic, recording a 19% increase in the year to date till April 2020. However, a lack of infrastructure and digital payment options have impeded a significant migration to e-commerce, which remains a small channel today. Two out of three Filipinos do not own a digital wallet or account, and poor mobile connectivity makes online shopping a hassle, says Credit Suisse.

“E-commerce value rose during the pandemic, but as only a meagre 6% of Filipinos shop online, bricks-and-mortar stores therefore remain central to retailing in the market,” says Hazel Tanedo, Credit Suisse’s consumer securities research analyst for Philippines.

“Traditional sales channels such as sari-sari (sundry) stores and hypermarkets have remained the primary drivers for fast-moving consumer goods sales in the Philippines”.

The e-commerce market in Vietnam is forecast to grow at approximately 29% CAGR, the second-highest in Asean after the Philippines, to reach US$52 billion in value in 2025. Vietnam is propelled by the low e-commerce penetration compared to regional average, and a young population with a high technology-adoption rate.

See also: Is the circular economy Asean’s secret weapon for Covid-19 recovery?

Thailand has also already seen fast e-commerce spending over the past few years following major investment by local and overseas operators. However, the market remains in an early stage of development and is highly fragmented, with the top five players accounting for less than 30% of market share.

“We believe an accelerating shift of spending to the digital channel among Thai consumers is due, and it is critical for retailers to find the right balance between established offline stores and emerging omnichannel platforms,” says Warayut Luangmettakul, Credit Suisse’s consumer securities research analyst for Thailand.

“Major existing online operators are Chinese e-commerce giants, and they are in for the long term, while the offline operators are very actively building their omnichannel platforms to capture the new demand,” adds Luangmettakul.

Omnichannel experience

Indeed, online consumption is not taking place in isolation. Credit Suisse says the so-called omnichannel experience — combining both physical, and online interactions — is ultimately what consumers desire.

Among the main drivers of the rise in the Asean e-commerce sector are the growth of shopping portals, as well as a burgeoning middle class with disposable income, resulting in an increase in consumer spending, says Credit Suisse. An omnichannel approach remains important for consumer interaction, as consumers seek “engagement-centric” experiences at physical retail locations, like Singapore’s Jewel Changi Airport and Funan Mall.

“We expect a growth in omnichannel commerce, where consumers can enjoy a unified user experience across a seller’s offline and online channels, be it the e-commerce website, the mobile application or the bricks-andmortar store,” says Ahuja.

As such, retailers and shopping centre players are likely to focus on experiential and activity-based shopping in an effort to draw consumers away from their screens and into malls. As at May 2020, 78% of Asia Pacific consumers are already omnichannel shoppers.

Omnichannel retail focuses on providing seamless customer experience, whether the client is shopping online from a mobile device, a desktop computer or in person at a bricks-and-mortar store. “In Asean’s increasingly competitive e-commerce space, businesses are shifting from the retail-centric model to engagement-centric models, in order to maximise consumer touchpoints, including those on social media, which now plays a critical role in consumers’ purchasing decisions,” says Tanedo.

Recently, e-commerce giant Lazada, a subsidiary of Alibaba Group, took over some of the space at Raffles City vacated by department store Robinsons. Lazada is using the space to showcase the goods it is selling so that potential buyers can touch and feel the wares before they buy online.

Bricks-and-mortar malls have also turned into experiential hubs, notes Credit Suisse. Jewel Changi Airport is one such example: Its retail offerings take a backseat in lieu of family-friendly attractions like the HSBC Rain Vortex, Shiseido Forest Valley, Canopy Bridge and Manulife Sky Nets, among others.

Pandemic panic

The worst of the pandemic might be over but the after-effects are starting to be felt across the whole retail scene. Singaporeans may remember incidents of panic buying at supermarkets in early-2020, for example.

While online sales of certain categories like furniture and electronics spiked close to 100% of sales during the “circuit breaker”, supermarket and hypermarket online sales remained relatively flat, approaching 10% only in 4Q2020.

Online sales penetration peaked at around 25% of total retail during last year’s circuit breaker, before stabilising to 10.8% in July 2020. This is nearly double of 2019’s average of 5.8%. Credit Suisse believes that online retail sales penetration will not revert to pre-Covid-19 levels, but will instead continue to gradually grow, particularly as businesses acclimatise to the new normal.

In addition, Phase Three of Singapore’s reopening could potentially last over a year, cementing consumer habits and expectations formed early in the pandemic. Despite the popularity of e-commerce in Singapore, Credit Suisse also notes that “many retailers, especially those trading non-essential products, have been laser-focused on survival, neglecting adoption of digital commerce solutions”.

As of February, more than 85% of heartland shops here have been offered help in going digital via the “Heartlands Go Digital” programme, said Minister of State for Trade and Industry Low Yen Ling during the Committee of Supply debate on March 2.

By offering discounted solutions from five digital solution providers like Carousell, Fave, Grab, Nets and Shopee, Low said the Heartlands Go Digital programme will help 20,000 heartland shops adopt e-payment solutions and get onboard with e-commerce by the end of March.

Credit Suisse adds: “If the government-led program Heartlands Go Digital gains traction, it is likely that larger retailers would need to have similar, if not better, digital capabilities. The program could therefore result in widespread e-commerce adoption across Singapore”

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