FOR all its promise, Southeast Asia certainly is not an easy terrain for e-commerce. In fact, this year two large e-commerce platforms closed shop in the region, including in Malaysia.
In February, Japanese e-commerce giant Rakuten announced that it would close its platforms in Malaysia, Singapore and Indonesia after several years in business.
The Catcha Group’s Ensogo announced in March that it was shutting down its flash deals and marketplace business units in the region, including in Malaysia, Singapore, Thailand and Indonesia.
Daily deal websites such as Groupon have also been struggling in Malaysia and the region.
For now, Malaysia’s business-to-consumer (B2C) e-commerce space is dominated by three market leaders — Lelong.my, Lazada Malaysia and 11street Malaysia.
Lelong.my is a homegrown platform and one of the early movers in Malaysia’s e-commerce scene.
Lazada was founded by German Internet company Rocket Internet and has a presence all over Southeast Asia. China’s Alibaba Group recently invested US$1 billion in a controlling stake in Lazada, ostensibly to get in on the Asean e-commerce growth story.
11street Malaysia is a joint venture between telecommunications firm Celcom Axiata Bhd and South Korea’s SK Planet Co Ltd, which operates 11street in its home country.
Competition in the e-commerce space has intensified, given the seemingly borderless nature of Internet commerce.
Apart from fighting each other and the smaller e-retailers, the big three are in a race of sorts with foreign internet retail giants that Malaysians have access to, including eBay, Amazon, Taobao and other popular retailers outside the country.
According to Euromonitor, third-party merchants accounted for a third of internet retail sales in 2015, followed by Amazon with about 14%, though the latter has seen a 2% decline in its share of retail sales value from 2012, as consumers bought from other websites.
Apart from internet-based companies, several local companies are jumping on the e-commerce bandwagon. Hong Leong Group’s GEMFIVE B2C platform opened last May and apparel manufacturer Padini Holdings Bhd recently announced plans for an e-retail site for its own products.
Then there are satellite pay-TV provider Astro Malaysia Holdings Bhd, which started Go Shop in January last year, and media company Media Prima Bhd’s e-commerce platform CJ WOW Shop. Both are joint ventures with South Korean partners, with the media companies hoping to leverage their existing platforms to push sales.
All these different platforms are heating up the competition in the e-commerce landscape on multiple fronts.
“They are competing for buyers and they are competing for sellers. E-commerce is like that. You need to grab both sides for it to work,” says an executive with a local e-commerce platform.
In a bid to court consumers, internet retail platforms have been furiously dishing out price subsidies — often in the form of promo codes, first-time buyer discounts and special flash sales.
“This means customer acquisition costs are not cheap because you are effectively subsidising customer purchases with your discounts, but that is the way the game goes when you come into the market,” says the executive.
Platforms — particularly Lazada and 11street — have in the last year significantly ramped up their product offerings almost tenfold to over six million stock keeping units (SKUs) each. Compare this with early 2015, when only Lelong.my had more than one million SKUs, says CLSA in a report on e-commerce.
This ramp-up in SKUs could drive accelerated growth in B2C online sales in Malaysia by 20% in 2016, from 15% a year ago, CLSA says. Overall, CLSA is also forecasting that online sales will slowly take a larger share of total sales in Malaysia, from 2.5% in 2015 to 4.1% in 2020.
Lazada Malaysia has been working with established brands to bring traditionally offline retailers aboard its platform.
It has partnered big brands and renowned retailers — including Levi’s, L’Oréal, Samsung and Nestlé — in a bid to increase its range of products. For example, Lazada just launched its “Brands for All” campaign that features over 1,000 brands and 55,000 international and local merchants. For Lazada, a B2C platform, this could be a win-win.
“Brands are realising the importance of having an online presence as this equates to a bigger reach and an increase in the number of consumers,” says Lazada Malaysia CEO Hans-Peter Ressel.
A DBS report on e-commerce in Asia concluded that offline retailers in countries like Malaysia, Indonesia and Thailand are not facing as big a threat from online players as China and Singapore, where retailers are already losing market share.
But this is not to be taken for granted. In fact, there is much potential for traditionally offline retailers to use online as another channel to grow sales. DBS warns that department stores and other retailers with relatively lower sales psf are likely to have their business models disrupted in the near future.
“Retail segments that could see some tough competition from pure e-commerce operators include handbag and luggage, cosmetics, home appliances and food products. Retailers selling lifestyle and luxury products, meanwhile, may be more resilient as competition from online merchants is much less aggressive in these areas,” says DBS in its report.
According to Ressel, Lazada is increasingly focusing on consumers living outside the Klang Valley and Kuala Lumpur, areas where people may find it hard to access quality branded products.
“We’ve found that 81% of our shoppers reside outside Kuala Lumpur and they often have limited access to quality branded products and shopping malls. This has presented a key opportunity for us to cater for various markets in the country and expand our product offerings.
“Consumers recognise that we provide more than just electronic gadgets. Diapers, stainless steel food containers, digital bathroom scales and even make-up are some of our popular products,” says Ressel.
Since Lazada Malaysia started in 2012, it has seen a huge shift in the demographic of online shoppers toward an older, more diverse group. Today, over 55% of Lazada’s customers are female and the median age is 30 and above, compared with the early days when most of its shoppers were younger.
In a similar vein, 11street Malaysia CEO Hoseok Kim says Malaysia’s nascent e-commerce market still offers countless opportunities for offline businesses.
One opportunity that Kim sees is more local businesses venturing online by applying an omni-channel strategy, operating online and offline businesses concurrently. However, Kim acknowledges that offline sellers and brands in Malaysia are hindered by the lack of knowledge on how to operate online.
“One of the main challenges is that offline businesses do not know how to start an online business — from building a website, setting up payment methods, delivering products, linking sales to inventory management, managing consumer complaints and so on,” Kim says.
11street’s strategy to win more shoppers is to embark on a mobile-heavy strategy, grow its product offerings and offer competitive prices.
Kim points out that consumers who shop on their personal computers and those who shop via mobile phone have vastly different behaviours.
“On PCs, most people look for specific things to buy, searching for the products they need. Mobile shoppers mostly do not have anything in particular that they want to buy. They browse to explore what there is, simply because they enjoy shopping.
“From this behaviour, we can see that mobile shopping is fast becoming a lifestyle as you can do it anytime, anywhere,” says Kim.
11street is increasing its focus on mobile shopping by enhancing the user experience via well-curated mobile content among other initiatives.
Where, then, does it leave a smaller, new entrant like Astro Go Shop? Its model is slightly different from the other B2C players as it leverages its broadcast and media platforms to sell products via infomercials.
Astro Go Shop CEO Grace Lee says the pay-TV provider is banking on its media platforms to reach a potential customer base of about five million households or an average of 20 million individuals.
Astro Go Shop has Malay and Chinese language channels in Malaysia that are broadcast around the clock on Astro Pay-TV, Astro on the Go and NJOI, a subscription-based free TV service. It is also leveraging online platforms and Astro Radio stations.
“In terms of infrastructure, we are able to tap Astro’s production, broadcasting, customer service, payment gateway and media assets to drive growth and narrow the investment period to achieve profitability quickly,” says Lee.
According to her, Astro Go Shop posted RM189 million in revenue for its FY2015 ended Jan 31 and received orders for over 1.7 million products from January 2015 to July 2016.
The next step for Astro Go Shop is to go regional. Plans are to expand to Singapore, in partnership with StarHub Cable Vision, to reach over 500,000 households there.
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