The ecommerce sector in the Philippines is booming. Growth has been running well into double digits for several years now and analysts are forecasting online sales to surge to US$9.7bn by 2025 – up from just US$0.5bn in 2015. Yet, there is no denying that online retail is currently still lagging when compared with the country’s neighbours.
After Vietnam, the Philippines has the smallest ecommerce market in Southeast Asia and it currently only accounts for 2% of overall retail sales. Compare that to China for instance, where online was responsible for 18.4% of overall retail sales last year. The current state of play is reflected in Tofugear’s own consumer research, which found that the Philippines was one of the few countries across Asia where shoppers still preferred to shop in physical stores rather than online.
Unique challenges
In some ways, it shouldn’t come as a surprise that the Philippines is still behind the curve when it comes to etail. The country has a very challenging geography as it is made up of more than 7,500 islands, while its three largest urban areas – Manila, Cebu and Davao – are all based on different islands. Distribution and poor infrastructure are a real problem – particularly when it comes to last mile handling. The country also has one of the slowest internet speeds in the region.
At the same time, consumers are still distrustful of the online channel. Tofugear’s research shows that the vast majority of shoppers (89%) still prefer to shop in stores because they want to see products in real life. Meanwhile, their biggest frustrations with the online channel are the inaccurate representation of products, as well as high shipping costs.
Untapped potential
The Philippines is the second-most populous ASEAN country and although the distribution of income is uneven it has a growing middle class. This is helping to attract foreign retailers to the country, with for instance IKEA having announced that it will open its first Philippines store in Manila in 2020.
Meanwhile, the vast majority of its tech-savvy consumers access the internet through their mobile phones, with around half of the population in possession of a smartphone. In fact, the Philippines has one of the most prolific mobile usage rates in Asia, with our research finding that nearly half of all consumers use their mobile phones for more than eight hours a day (compared to 22% across Asia as a whole).
Gaining an edge
It is critical for retailers that sell online in the Philippines to provide flexible payment methods as nearly two-thirds of the population do not have a bank account. For instance, statistics from eMarketer show that nearly half of all consumers prefer to pay for online orders via cash on delivery. Another growing trend is the use of pre-paid cards that are offered by banks and mobile providers.
When it comes to the logistical challenges of trading online, omnichannel retailers with a nationwide presence are best-placed to increase their slice of the Philippines’ ecommerce pie. This is because they are potentially able to transform their store networks into distribution hubs for fulfilment.
However, to truly capitalise on a retailer’s existing infrastructure, investment in back-end systems is required – in particular a distributed order management system. Such a system allows retailers to gain a single view of inventory, where online orders can be fulfilled intelligently from any location that has stock availability. In practice, it would allow a retailer to fulfil online orders from the store nearest to a customer.
The benefits of this kind of investment are clear cut in market like the Philippines. While online marketplaces such as Lazada have already invested heavily in their distribution capabilities, distributed order management systems means retailers do not need to make costly investment in warehouses and related hardware. As a result, investment in ecommerce becomes much more about operational expenses rather than capital expenditure.
There is also the potential to have a more efficient ecommerce business as fulfilment costs are minimised if orders can be fulfilled from locations nearest to a customer, rather than a centralised distribution hub. The cost of returns – a significant cost factor for any ecommerce business – can also be kept in check.
With consumers in the Philippines still distrustful of online transactions, online retail could gain a real boost if shoppers knew they would be able to return or exchange products in nearby stores. Distributed order management systems could also facilitate the introduction of new business models such as subscription and rental services. A fashion rental business similar to Rent the Runway could for instance be lucrative in the Philippines given the spending profile and demographics of its population.
For any further information on how unified commerce and distributed order management systems can help your business gain an edge in the fast-growing Philippines market – or indeed elsewhere in Asia – please get in touch with us at [email protected].
As Head of Research at Tofugear, Philip provides insight on how retailers are adapting their digital strategies to target the connected consumer. Prior to relocating to Hong Kong, he led Retail Week’s research team in London, researching the tech and ecommerce strategies of the UK’s leading retailers.
