What makes e-commerce click?

Special report:The rise of web-based businesses

MANILA, Philippines — Eleven years ago, RJ David turned his bedroom into a boardroom when he set up one of the most successful online buying and selling sites in the country.

David, co-founder of Sulit.com.ph – now known as OLX Philippines – can be considered among the pioneers in the country of what is now more popularly known as e-commerce.

“We knew back then that trust would be a big hindrance because Filipinos generally were still not ready to pay someone online and wait for the products to arrive at their doorsteps. Sulit worked hard to bridge that gap and figured that pushing meet-ups were a good first step to train Filipinos to trust online buying and selling,” he said.

“Through this, we also found that cars and properties were perfect for such model because most buyers wanted to see the car or the property before buying them. Sulit did not start the e-commerce that we are seeing now but it helped make Filipinos trust online buying and selling in general,” David added.

David recalled that a decade ago, internet usage in the Philippines was just less than 20 percent, with majority of those online still skeptical about online buying and selling. Aside from Sulit, he said major players competing in the market back then were a handful like eBay, auction.ph, 88db and Ayosdito.ph.

Fast forward to 2017 and the number of these market participants have more than tripled, including a lot of big regional players.

According to aCommerce, Southeast Asia’s leading e-commerce enabler and e-distributor, online retail has already accounted for 1.3 percent or $1.3 billion of total Philippine retail sales of $100 billion in 2016.

Its share is expected to increase to 4.7 percent or $9.7 billion of the projected retail sales of $206 billion by 2025, aCommerce said.

Embracing change

Given its growing popularity among Filipinos, it is no wonder e-commerce is not only the talk of the town—it is also giving traditional retail players a run for their money.

Retailers and even big conglomerates have acknowledged that e-commerce is the way moving forward.

“There is a digital change. We just have to see how to improve ourselves to have business alongside them (e-commerce platforms),” said Teresita Sy-Coson, vice chair of SM Investments Corp., owner of the country’s  biggest chain of retail stores and also the nation’s largest shopping mall developer.

Seeing the need to have an online platform, SM earlier this year entered into an agreement with Lazada to sell merchandise, starting with light-to-carry non-food items, online.

Not to be left behind was conglomerate Ayala Corp. (AC) which recently made an acquisition of a stake in e-commerce through Zalora and in fintech through Mynt, as well as investments in a company that develops hardware to complement artificial intelligence technologies and a fund that focuses on fintech.

“Our group has recently made pockets of investments that provide us with first-hand exposure in technological trends that can potentially impact our traditional businesses,” AC chairman and chief executive officer Jaime Augusto Zobel de Ayala said.

But while it may look lucrative, starting an e-commerce company from scratch is no easy task, according to PLDT chair and CEO Manuel Pangilinan, explaining why his group as well as other local firms looking to venture into e-commerce have taken a different path.

“For an e-commerce business to prosper in this country, you would need of course the e-commerce platform and the access to the products that an e-commerce can offer online to its potential customers. Since e-commerce by definition creates a payment usage, then integral to the development of e-commerce in any country is a very facile payment system, something like PayMaya, that’s essential. The third part of it is logistics because if you order a pair of shoes or food, you want the physical world to deliver a pair of shoes. The logistics part of it is very important as well,” Pangilinan said.

“It depends on where you want to start but I think it’s very bloody. You cannot divorce the virtual world from the physical world. We chosen not to start with an e-commerce business as such as some others have done. What we’ve done is we’ve taken a different approach to it. We’re not saying that’s the right approach,” he added.

Match made in heaven

There is no denying that Filipinos love to shop. Combine that with their penchant to go online through their smartphones or tablets and one would find it easy to see why e-commerce is such a hit in the country.

A survey released this month by GoDaddy, the world’s largest cloud platform dedicated to small and independent ventures, found high prevalence of side businesses in the Philippines, with 77 percent of Filipino respondents saying they have or have had income-generating endeavors on top of their regular jobs.

The survey revealed that these businesses were aided by online technologies that helped create awareness and provided sales touch points for the business, with 55 percent saying that their entrepreneurial ventures were highly dependent on technology.

Online tools of choice for side business owners were social media (69 percent), websites (43 percent), e-commerce platforms (37 percent) and digital marketing (35 percent).

The study also showed 55 percent of the respondents create goods to sell in which e-commerce ventures emerged as the top choice of would-be entrepreneurs,  followed by food service and hospitality and retail and consumer products.

On the consumers’ end, meanwhile, there is no better way than having to shop for cheap items without having to go out of their respective homes and face the metro’s traffic gridlock.

On average, products sold online are cheaper because e-commerce companies’ cost based pricing is lower than offline retailers.

“Philippines is now on a unique position where we are more ready that most people outside e-commerce think we are. The common knowledge is the Philippines is not ready, it’s still a developing market, and it’s not ready to blossom in the online space. That is actually a fallacy that has been broken because of the shift towards mobile phones,” Shopee chief operating officer Terence Pang said.

Shopee is the leading e-commerce platform in Southeast Asia and Taiwan. It entered the Philippine market in 2015 and now has over six million downloads, over 200,000 sellers, and more than three million active listings.

“Shopee’s full focus in the Philippines is how do I bring as many of these buyers, of these users online as possible. Most of them have never made an online purchase in their lives,” Pang said.

Slow internet stalling e-commerce growth

Inanc Balci, chief executive officer of Lazada Philippines which is part of the Alibaba Group of Chinese billionaire Jack Ma, said while e-commerce companies such as Lazada were able to address problems like logistics  and payment system for the local industry, the country’s slow internet performance continue to take its toll to the growth of the industry.

“Internet connection speed is very important because something people don’t know is the log time of the app and the website is directly correlated in the number of sales you have on the website. The faster the website and the uploads, the more sales that you have. That is why it is very important for us the continuing development of connection and at the same time connection speed in the Philippines,” Balci said.

Since its entry in the Philippines in 2012, Lazada has seen an exponential growth in the industry in just a span of five years.

“Prior to Lazada, there wasn’t any large scale e-commerce company in the Philippines and there were two reasons for it. Number one is the lack of logistics infrastructure. There are a lot of logistics companies, they do a good job in traditional logistics but in e-commerce logistics it’s very different. And then the second challenge was regarding payments because as you know, Philippines is a cash-based economy. Lazada was the first company to offer nationwide cash on delivery which is the most convenient of way to pay for customer especially in the Philippines where credit card penetration is really low. This made a big difference. This made Lazada very popular and reach a critical mass and very quickly kickstart and improve e-commerce in the Philippines,” Balci said.

Despite the growth the industry is experiencing, however, Balci believes there remains a significant room for growth for e-commerce in the Philippines, which he said continues to lag behind other countries in Southeast Asia.

“We forecast the number of e-commerce customers in the Philippines to be around 10 million but there are over 60 million monthly active Facebook users in the Philippines so we believe anyone that is a monthly Facebook user can also be an e-commerce user. It’s the same experience that is why we believe that there is massive opportunity for growth,” he said.

Balci, however, admitted that not everything is perfect in the industry at the moment as frauds exist every now and then.

“Time to time there are scams especially now that we have 28 million products, it is difficult to proactively do 100 percent check but if there is any issue with the products, customers reach out to us and then we immediately refund our customers,” he said.

For one to sell products in Lazada, Balci said the enterprise must be registered with the Securities and Exchange Corporation.

Threat to traditional retail

In the US, mall  owners and prominent retail store brands are closing down shops as more consumers embrace online shopping.

Locally, it has not reached that point yet but even retail giants like the SM Group are preparing for its eventuality.

“Unlike the United States and other Western economies where brick-and mortar businesses close shops due to the fierce competition brought about by online retail businesses, malls remain an important part of the Filipino lifestyle and continue to attract consumer traffic,” property consultancy firm Colliers International said.

“This is the reason why developers and retailers do not migrate totally to e-commerce but in fact use online shopping and social media platforms to complement their physical stores. Millennials, for instance, now shop on the photo-sharing application Instagram. We believe that this is a thriving opportunity that mall operators should tap,” it added.

Colliers International is recommending that retailers complement their online businesses by firming up partnerships with logistics and warehousing firms to enable retailers to effectively carry out deliveries in far-flung areas and to complement their physical stores in the provinces.

It also called on operators and retailers to ramp up the security features of their online sites so customers wary of hacking will be encouraged to use their credit cards, debit cards, and mobile wallets more frequently for online transactions.

 “With adequate online shopping and logistics services, mall operators are able to empower Filipinos working in Metro Manila and overseas to shop online and have their family members pick up their groceries in physical stores nearest to them,” the property consultancy firms,” Colliers said.

 “We expect online shopping to thrive over the near to medium term given the private telecommunications firms’ efforts to improve internet connectivity in the country and the government’s rolling out of free internet in public places,” it added.