E-commerce surge changing Indonesia shopping habits

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According to Morgan Stanley, Indonesia is only five years behind China in terms of e-commerce penetration. The bank estimates e-commerce sales will cross US$50b by 2023, implying a 32% CAGR.

In a Jan 2019 report, Morgan Stanley, through their AlphaWise proprietary survey, reports that Indonesia e-commerce is bigger than the general public perceives it to be.

Their previous estimate of US$7.3b of sales (4.4% of total sales) through online channels has now been revised upwards to US$13b (approx 8% of total retail sales) in 2018.

Their survey also validates the growing prevalence of online shopping. Given the lack of information in the space, Morgan Stanley conducted face-to-face interviews with 1,582 people across eight cities in Indonesia to gather insights.

Clothing & footwear is the most popular category, with 93% of users buying this category online in the last 12 months. This is in comparison with just 16-25% for consumer electronics and mobile devices.

Indonesia now has similar penetration levels in e-commerce as select developed markets. This is expected to double in the next 5 years.

Specifically in Indonesia, the top 4 players have a reasonable share of the e-commerce market.

Four players control most of the e-commerce market – Lazada, Shopee, Tokopedia and Bukalapak.

Morgan Stanley estimates that the first 3 have 20-30% market share while Bukalapak has share in the low teens.

There are no official gross merchandise value numbers from the companies so these are estimated from company disclosures, media reports and conversation with industry players.

The key insight is that Lazada, a pioneer of e-commerce in ASEAN, is still the most preferred. Shopee was the second most preferred website (but is #1 in smaller cities) and Tokopedia’s preference and usage was lower beyond Jakarta.

Online shopping has modified purchasing patterns, with majority of respondents in Morgan Stanley’s survey stating online shopping will become their main method of shopping.

One insight is that speed is preferred over price, with consumers preferring to pay for fast delivery. Assortment and offers/prices was ranked lower in preference.

Another insight is that mobile wins in Indonesia, given that a majority of internet traffic originates from mobile devices instead of desktops.

Apparel is also a popular shopping category, with 93% of respondents having shopping online for clothing & shoes compared to 16-25% for mobile phones and consumer electronics.

Morgan Stanley’s channel checks show that online prices are 16-30% lower than offline prices in Indonesia.

The largest discount is in footwear (30%), followed by cosmetics (27%), apparel (23%) and electronics (16%).

It pays to generally buy products off the internet than in a brick & mortar store.

Digital advertising spend has been rising as a proportion of media spend with retailers aiming to grow their market share or even just survive.

Based on fundamentals, the e-commerce market continues to be on a growth trajectory, with many of the enablers moving in the right direction.

Smartphone subscribers and penetration (17% in 2013 to 67% in 2018) is rising, as a number of adults with a bank account (rising from 20% in 2011 to 49% in 2017).

Data prices are also low at USS$0.5 per 1 GB compared to China at US$2.1 per 1 GB, as of 2018.

However, logistics remain costly with average shopping cost to outside Java about 3x higher than within Java.

Source: Jakarta Post, Morgan Stanley, Google, Temasek

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