Message for Southeast Asia’s brick-and-mortar retailers: E-commerce companies could soon be eating your lunch.
That’s according to a recent study by UBS UBSN.VX +0.06%, which showed the region’s consumers are already flocking to e-commerce sites at the expense of traditional retailers’ platforms.
Internet penetration in the populous region is higher than many assume, and will soon skyrocket thanks to the increasing use of low-cost smartphones and the availability of mobile Web connections, according UBS’s head of research and strategy in Thailand, Raymond Maguire, who authored the report.
That threatens traditional retailers, since Southeast Asia’s consumers are already visiting online retailers 41 times for every single visit to traditional platforms, despite obstacles such as poor retail logistics systems and limited credit card usage. Online retailers, which have already gained market share on brick and mortar stores, will flourish as more and more users get Web access, Maguire writes in the report, which was released last month to UBS’s clients.
“The power balance has already tipped to the online platforms,” Maguire said. “The traditional retailers really have to get their act together.”
While he noted the region still lacks significant price disrupting online retailers that offer goods at deep discounts, he identified Lazada, Rocket Internet‘s Southeast Asia Amazon clone, as being popular in many markets. Maguire also pointed out that companies making in-roads in the region include Chinese ecommerce giant Alibabaand Japan’s biggest online retailer, Rakuten.
While online shopping in Southeast Asia only accounts for 0.2% of all retail sales now, if it rises to 5%, the market could be worth some $21.8 billion. By comparison, in China, e-commerce accounts for 8% of retail sales.
In what he says is a first, Maguire analyzed traffic from the 10,000 most popular retailing sites in individual markets using big data algorithms. He found that visits to e-commerce sites were far higher than to traditional retailers, which accounted for just 2.4% of visits.
Maguire likens Southeast Asia now to China between 2006 and 2008, when Internet penetration more than doubled as multitudes of consumers snapped up PCs equipped with broadband connections, leading to the rise of successful e-commerce firms.
Indeed, some 199 million people in Southeast Asia are now online, Maguire reckons. That is significantly higher than an estimate by market-research company comScore last year, which put the number at 62 million.
Maguire projects the number of people online in Southeast Asia will rise 48% to 294 million in just three years. Meanwhile, Internet penetration across Southeast Asia now stands at 32%, and will rise to 48% by 2017, he estimates.