High smartphone penetration and social media usage suggest strong growth potential for the Philippines’ nascent e-commerce segment in the medium to long term, though online activity is still low as a share of total retail sales. This opens the possibility for disruption in an industry long dominated by traditional brick-andmortar shops – an opportunity these very same businesses are best-placed to capitalise on, according to the Philippine Retailers Association (PRA). Currently, online sales make up less than 2% of the total, compared to around 10% in the developed world, according to PRA president, Paul Santos. “But it’s getting a lot of buzz, because it’s starting from a low base, it’s growing, and there’s a lot of innovation from that sector,” he said.
Moving In
This view is confirmed by the recent moves of several big players, such as Chinese e-commerce giant Alibaba, which entered the Philippine market in mid-2016 by buying a $1bn controlling stake in Lazada, a Singapore based e-commerce platform that launched in five regional countries in 2012 and held a 91% market share in the Philippine e-commerce segment in 2017. One year later, Alibaba injected another $1bn into Lazada, raising its stake to 83%.
Shopee, the second-largest e-tailer in the Philippines – despite revenues one-tenth that of Lazada – has grown quickly by partnering with local shops to launch online operations and establishing a digital “university” to help its sellers navigate the transition. Zalora, the third-largest e-tailer, partnered with Ayala Group in 2017 to launch digital payments through the latter’s Globe GC ash platform. Robinsons Retail Holdings, which runs a local supermarket network worth $2.7bn, plans to triple the number of its supermarket outlets shipping digital orders in 2018. Amazon, having announced its entry into Singapore in July 2017, has positioned itself to extend its service to the Philippines.
Meanwhile, Grab, a ride-hailing company that doubles as a delivery service, has invested in building its operational bases in the Philippines and seven of its neighbours, reaching 2.1m drivers and acquiring Uber’s South-east Asia business in March 2018.
Market Context
While granular forecasts for the Philippines are scant, US-based consulting firm Frost & Sullivan estimated e-commerce in South-east Asia to be worth $16bn in 2016 and expects this to more than quadruple to $71bn by 2021, raising its share of the retail market from 4.1% to 11.5%. Several conditions suggest the Philippines will be a key driver of this. Smartphone penetration among its 105m consumers increased to 59% in 2016 and it is projected to rise to 71% by 2020, according to data provider GSMA Intelligence. Cultural habits such as social media sharing may also drive online sales: GSMA found Filipinos are among the most avid social media users worldwide, spending 4.3 hours per day on various networks in 2016.
With inflation hovering around 3-4% as of early 2018, rising prices could also steer more budget-conscious buyers towards online markets, where price comparison is easier and competition is higher. The central bank, Bangko Sentral ng Pilipinas (BSP), has kept interest rates low, at 3%, despite forecasting inflation to breach its target range in 2018 and a caution from the World Bank in April 2018 that the rapidly growing economy may be at risk of overheating due to increased public expenditure and high credit growth. As of the first quarter of 2018, consumer confidence was positive, but had fallen from the buoyant levels recorded in 2017, according to the BSP’s overall confidence index.
State Action
In 2017 the “Philippine Roadmap For Digital Startups” initiative spawned four accelerator programmes, facilitating tech partnerships that could help to improve digital payment systems. Meanwhile, the Department of Trade and Industry brought together 150 private and public stakeholders to exchange ideas on bringing more micro-, small, and medium-sized enterprises into the digital ecosystem. Among other goals, the resultant E-Commerce Roadmap 2016-20 aims to see online sales drive 25% of the country’s GDP.
