E-Commerce Surges in Southeast Asia

Present growth trends and adoption of e-commerce in Southeast Asia are reminiscent of the United States in 1997. In that year, a young American company called Amazon.com reported sales growth over 800% 1. Two decades on, Amazon's growth story has become well-known and e-commerce has become a significant part of the U.S. retail economy. In Southeast Asia, a collective market of over 650 million urbanizing and upwardly mobile people have seen many companies poised to prosper in the burgeoning e-commerce sector and many have set their sights to scale in Indonesia.

E-commerce was around 2% to 3% of total (retail) sales in Southeast Asia in 2018, compared to 10% in the U.S. and 20% in China2. However, gross merchandise value in the region is expected to increase fourfold to US$102 billion from US$23 billion over the next seven years, according to a joint study by Google and Singapore's Temasek Holdings in November 2018. Growth is being driven by factors including improved logistics, the proliferation of payment facilities and higher incomes. Greater smartphone penetration is also having a profound impact amid the limited presence of retail stores in regional areas. Recent research by Hootsuite, a social media management platform, found that internet users in Southeast Asia spend over four hours per day on their mobile devices. By comparison, users in the U.K. and the U.S. spend around two hours per day. While e-commerce is experiencing rapid growth across Southeast Asia, Indonesia representing two out of every five people in the region, leads the way and accounts for more than $1 of every $2 spent.

Indonesia's Competitive Players

In Indonesia, structural economic developments have improved its digital and physical highways, facilitating internet transactions and their fulfilment. The cost of mobile data has collapsed by roughly 80% over the past five years, boosting online commerce. In a complementary development, Indonesia has seen its toll road network more than double in length over a similar period, allowing a better flow of goods across the country. These developments attracted large capital investments in the e-commerce sector. Indonesia's e-commerce has grown to 4.7% of total retail sales in 2018, up from 1.3% in 2014, according to CLSA and Euromonitor. During that period, offline retailers struggled and strong Indonesian retail franchises in 2017 reported their lowest sales growth in a decade. Share price performance of these retailers was weak as profitability stalled.