South East Asia – the next consumer market

May 6, 2016 / By  

In April 2016, Alibaba announced it was taking a majority stake in – a regional e-commerce platform headquartered in Singapore, with a reported gross market value of USD 1.3 billion in 2015 across all its six markets in South East Asia (SEA). – a Chinese online retailer of Chinese computer, consumer electronics and lifestyle products – also made its foray into SEA’s largest economy and the world’s fourth most populated country, Indonesia, in late 2015, with a sub-domain for their site targeted at the Indonesian consumer market. Separately, Japan’s SoftBank, Sequoia Capital and SB Pan-Asia Fund invested a total of USD 100 million in Tokyopedia – Indonesian’s largest online marketplace. Come 2017-18, with the expected completion of expansion works at SM Mall of Asia in Bay City, Pasay, Philippines, this mall could become the world’s largest with an estimated GFA of more than 600,000-700,000 sqm.

Such news reflects the confidence investors have on the potential of retail opportunities in SEA, particularly in Indonesia and the Philippines. Jakarta and Manila have more than 140 million and 45 million urbanites, respectively, and are expected to grow at an average of 0.9 to 3.2 million people per annum between now and 2025. Besides their sheer size, the populations in these two cities are highly literate young adults. The median age in Indonesia and the Philippines today is 28 and 24 years, with a literacy rate of 94% and 96% respectively. Continual urbanisation with a young and educated population will support economic growth in these cities. As individuals accumulate wealth and income grows, discretionary spending is likely to increase and drive both online and physical retail demand.

Testament to retailers’ confidence in the Philippine and Indonesia consumer markets is the emergence of more foreign brands. In Manila for example, New Era – an American headwear fashion brand – together with Gap, Under Armour, Applebee’s and Taiwanese dumpling restaurant Din Tai Fung, forayed into the Manila market in 2015. In Indonesia, Japanese fast fashion store Uniqlo, which first set up shop in 2013, has now expanded to nine stores across Jakarta, while in April Old Navy opened its first outlet in Central Park Mall in west Jakarta.

On the e-commerce front, the potential is huge. According to a recent survey by Bain & Company and Google, the online retail penetration level in SEA is below 4% of total retail spend – well behind the levels in developed and other developing markets. According to the report, online retail sales in SEA could hit USD 70 billion by 2020 from the current USD 6 billion. The key challenges for the region are the weak logistics infrastructure and low networked readiness in countries other than Singapore and Malaysia. Governments could liberalise and invest more into their Information and Communication Technology industry and infrastructure, and adopt national logistics policies that focus not only on physical transportation but issues faced by traders and logistics service providers, to help facilitate the growth of e-commerce in SEA.

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