The Philippines has a consumer-driven economy where 72% of economic output is attributed to private consumption. For decades, Filipino entrepreneurs have benefitted from brick and mortar stores. But all that changed when the Wuhan virus struck. Overnight, bustling restaurants, crowded malls and busy stores were empty. Retailers today only realize 15% of their pre-COVID sales, on average.
For local businesses, the obvious strategy for survival is to pivot to e-commerce. That’s where all the action seems to be. But before plunging into the online sphere, it is important to understand the state of the industry and the dynamics at play. This is what this piece hopes to provide.
Filipinos have the distinction of having one the highest internet penetration in the region and being the most active on social media. More than 73 million Filipinos are registered internet users and 99% of them are active on one social media platform or another. The average Filipino spends a whopping nine hours and 45 minutes on-line daily, three hours and 53 minutes of which is spent browsing social media sites.
Despite being highly connected to the worldwide web, mystifyingly, Filipinos have not been quick adaptors to e-commerce. Prior to the pandemic, statistics show that only 2% of Filipino netizens have purchased goods or services online, compared to 10% of Thais, 9% of people in Hong Kong and Taiwanese, 6% of Vietnamese, 5% of Singaporeans and Indonesians, and 4% of Malaysians.
Perhaps due to the discomfort of divulging financial information online or misgivings over the reliability of e-merchants, Filipinos have been skeptical about spending money on the internet. But this changed during the five month-long quarantine. Home confinement left Filipinos no choice but to purchase food and other essentials on the internet. This triggered an explosion of e-commerce transactions.
Filipino entrepreneurs were quick to pick up. Suddenly, thousands of entrepreneurs established their own e-commerce stores, selling anything from face masks to adobo. Big businesses have doubled-down on their e-commerce efforts too. The likes of SM, Rustan’s, and Store Specialists have upgraded their systems to better serve the online community. Confidence on the safety and reliability of e-commerce has been growing steadily since the quarantine began.
Studies show an inverse correlation between mobility and e-commerce. The lower the mobility, the higher online transactions become. Last April, mobility was down by 90% and this resulted in a sharp spike in online transactions. As of July 5, mobility was still down by 57% compared to pre-COVID levels. Thus, for as long as the quarantine persists, e-commerce will grow by leaps and bounds.
What exactly is the prognosis for the e-commerce industry in the Philippines as we move forward? Paulo Campos III the CEO of Zalora Philippines shared some insights.
According to Campos, as many as 91% of Filipino internet users searched for goods and services to purchase during the quarantine period. Of all those who searched, 76% consummated the transaction. This is a clear indication that Filipinos are finally warming-up to e-commerce. From a sales turnover of $500 million in 2015, e-commerce in the Philippines is seen to top $12 billion by the year 2025. It already realized $3 billion in 2019. In the first six months of 2020, growth has already doubled in terms of number of buyers and the peso value of purchases, when compared to 2019.
A survey conducted by Global Web shows that 48% of Filipinos plan to do more online shopping after the pandemic is over. Whereas during the pre-COVID era, fashion apparel, sporting goods, and footwear were the best sellers at 54%, 18%, and 10% of the sales mix respectively, a new category has emerged in the post-COVID era. Nowadays, essentials that include personal protective equipment, sanitary goods, and groceries have emerged as brisk sellers. In just four months, essentials now comprise 6% of Zalora’s sales mix. This is why the country’s biggest internet merchant is adding more food and grocery items to its product offerings.
Time spent at home has caused consumers to delay many non-essential purchases. This has led to pent-up demand. A recent survey indicates that when the Filipino is able, he will prioritize purchasing clothing at 19%, home appliances and devices at 18%, home furniture and accessories at 15%, electronic gadgets at 15%, and smartphones at 11%.
In terms of demographics, 72% of Filipino online shoppers are female while 28% are male. Age-wise, 45% are between 25 to 35 years old, 22% are between 18 to 24 years old, 16% are between 35 to 44 years old, and 17% are 45 years old or older.
Geographically, 38% of all e-commerce transaction occur in Metro Manila, 9% in Cavite and Laguna, 6% in Cebu, 6% in Pampanga and Bulacan, 3% in Davao, 3% in Rizal, 2% in Iloilo, and 2% in Batangas. The rest of the regions are too small to be categorized.
Cash on delivery is still the preferred mode of payment comprising 67% of all transactions. This is followed by credit cards at 24%. Paypal has a 5% share of payment transactions while G-Cash has a 2% share. A massive 79% of all e-commerce transactions are consummated over the smartphone.
There is no doubt that the retail business will take a new shape in the post-COVID world. We already see it — dining-in in restaurants, shopping in stores, and wandering in malls are practices we try to avoid for fear of being infected. People are beginning to discover that working and playing at home have its unique merits. As seen with the statistics above, the Filipino is becoming more comfortable with buying goods and services online. This trend will continue.
E-commerce is now in the mainstream. Its share of wallet will only grow larger in the years to come, with or without a vaccine.
This is why it is important for every business to establish their own e-commerce platform. It is a race. Those who pivot fastest and those who can ensure safety and reliability of transactions, wins.
Andrew J. Masigan is an economist