Philippines: A leader in social struggles with online retail
Mar 29, 2012
The Philippines is the eighth-largest market in the world for Facebook—and the second largest in Asia after Indonesia—with almost 28 million regular users according to socialbakers, which measures activity on social networks. Unfortunately for the country’s entrepreneurial online retailers, however, Filipinos’ enthusiasm for social networks doesn’t translate into a significant level of online shopping activity.
“Online retail is still less than one percent of total retail in the Philippines,” says Multiply country manager Jack Madrid. Multiply, originally a photo-sharing portal, now provides free online stores to retailers in exchange for a commission on sales. The company takes care of infrastructure and general marketing chores so that merchants can concentrate on sourcing, selling, and delivering merchandise.
Multiply makes it easy for just about anyone to become an online merchant for very low capital outlay. It monitors and evaluates performance of its retailers to ensure that they keep their promises to customers, delivering products promptly for the prices stipulated, and in the agreed quantity and quality. Transactions are not yet fully digitized, regrettably, with the result that cash on delivery or payment via mobile gateways prevails for now.
Mr. Madrid recently cofounded the Digital Commerce Association of the Philippines (DCOM) with other online retailers to jumpstart the industry. It’s noteworthy that the nascent association debuted with over 40 members active in a variety of verticals. At an induction ceremony earlier this month, Mr. Madrid said, “This is an exciting time for eCommerce in our country.
“Our vision is to help make Filipino merchants globally competitive in the digital commerce space. We are still at Day One of eCommerce history and have a long way to go. But together we can achieve this vision,” he said. Mr. Madrid—a prominent figure in the digital space having previously served as the country manager for Yahoo! Philippines—is the association’s founding president.
The timing is auspicious, as Mr. Madrid observed. According to a 2011 report by iCD Research, online retailing is expected to expand almost 500% from 2010 to 2015, reaching US$3.191 billion, up from $549 million in 2010. That year, online retailing grew almost 130% following modest growth in 2009. From 2005 to 2010, music, video, and entertainment software was the fastest-growing category.
According to iCD, that’s not going to change. Music, video, and entertainment software will lead growth in online retail with growth forecast at 46% (CAGR) from 2010 to 2015. But in 2015, iCD expects Electrical and Electronics to account for 56.2% of all online retail sales at almost $1.8 billion. The next largest category will be Food and Grocery at 23.5%. Contrary to anecdotal evidence, Apparel, Accessories, and Luxury Goods will account for just 6.7%, or $214 million) of total online retail sales in 2015.
Despite what some experts say, it’s anybody’s guess why. Perhaps that category is just too traditionally social to transition to digital social. There’s also the matter of having to try on apparel to see if it fits properly, or requires adjustment. It would take a mighty credible guarantee to buy diamonds online in Asia, and if you are finally going to break down and buy that Rolex you almost certainly don’t need, you want to see it up close and personal.
For Mr. Madrid, a “general reluctance of Pinoys to buy online due to payment channels and concerns about product quality from sellers they don’t know—they prefer “suki” (vendors with whom they have a personal relationship) hobbles online shopping. So most deals are cash based,” he explained.
However, Mr. Madrid was also quick to point out that online shopping contributes in a significant way to generating interest in offline purchases. “Shoppers find stuff online but they prefer to meet sellers offline and pay cash,” he explained. If that’s the case, the contribution of online retailing—or at least selling and marketing—to total retail sales in the Philippines is likely to be significantly higher than raw sales figures suggest.
In my experience, creaky payment gateways are among the chief reasons online sales in the Philippines lag the region and developed economies. I’ve tried four gateways in all, and one of those in two different countries. The only one that is truly satisfactory is PayPal. But not PayPal Philippines, which provides processing for credit cards, but only for customers with a PayPal account. We use PayPal Hong Kong because that’s not a requirement.
PayPal Hong Kong provides full, transparent service. Anyone with a valid credit card can book a seat in a conference, or purchase a report. The lack of a fully featured, world-class payment system in the Philippines is a significant impediment to eCommerce here. Perhaps DCOM can make that a priority, so that Filipinos can shop online securely and conveniently, like most of Asia. As my wife told me last night, “So much to shop for online, so hard to pay.”
(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at firstname.lastname@example.org and follow him on Twitter, Facebook and LinkedIn. Copyright © 2012 Michael Alan Hamlin. All Rights Reserved.)