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July 2016

Favourable demographic fundamentals and growing income levels in several South East Asian countries are good news for international retailers looking to capitalise on the opportunities these growing consumer markets offer.


In a recent announcement, Dr. Chua Yang Liang, Head of Research, JLL South East Asia and Singapore, argued that South East Asia (SEA) is the market to watch for global retailer expansion.

This is evidenced through the recent entrance of major e-commerce companies, including Chinese Alibaba and, into the SEA market through acquisition and setting up sub-domains in Singapore and Indonesia. In addition, Japan’s SoftBank, Sequoia Capital and SB Pan-Asia Fund invested a total of USD 100 million in Tokyopedia – Indonesian’s largest online marketplace.

According to JLL, such news reflect the confidence investors have on the potential of retail opportunities in SEA, particularly in Indonesia and the Philippines. The demographic fundamentals of these countries speak for themselves: “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,” says Dr. Liang.

Furthermore, continual urbanisation with a young and educated population will support economic growth in these cities, argues Liang. “As individuals accumulate wealth and income grows, discretionary spending is likely to increase and drive both online and physical retail demand,” he says.

Retailers that could potentially profit from this development are the typical consumption products i.e. fast fashion, IT gadgets, and mid-level FB (fast food, family restaurants, cafés), says Liang, noting that over the past few quarters, there has been a noticeable influx of international retailers into the market including Costa Coffee, Coffee Bean, Old Navy, Gap and Cotton On.

Forward for foreign brands

Testament to retailers’ confidence in the Philippine and Indonesian consumer markets is the emergence of more foreign brands, according to JLL. Examples are the entrance of American headwear fashion brand New Era together with Gap, Under Armour, Applebee’s and Taiwanese dumpling restaurant Din Tai Fung, in Manila. In Indonesia, Japanese fast fashion store Uniqlo has now expanded to nine stores across Jakarta, while in April Old Navy opened its first outlet in Central Park Mall in west Jakarta.

The rate of [brand] penetration is quite impressive based on what we learnt from our local intelligence. Indonesia aside, the retail trend in the Philippines is likely to continue on its trajectory path as increasingly more retailers are aware of the rising affluence and consumption needs of Filipinos,” says Liang.

Retail real estate

In roughly two years’ time, with the expected completion of expansion works at SM Mall of Asia in Bay City, Pasay, the Philippines will be home to the world’s potentially largest mall with an estimated Gross Floor Area (GFA) of more than 600,000 – 700,000 square metres, says Liang.

And since the Manila market is developing on the back of strong underlying demand (young population with rising income), JLL expect more of such retail development to occur around the key employment nodes in the future, i.e. where the BPO activities are situated.

“Bonifacio Global City and Ortigas within the Metro Manila area, Cebu City and Davao City, are all likely to see the development of more integrated mixed-use developments, to meet both the day and night working resident population’s needs,” says Liang.

Online retail

But it’s not just traditional brick and mortar retail that profits from SEA’s rising consumer markets. In fact, online retail bears huge potential in the region, believes Liang.

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.

Not only will this have implications for the development of the retail industry itself, but the rise of the “e-commerce platform will continue to drive changes in the way retailers connect with their customers.

“While traditional brick and mortar shops will continue to be the focus of retail sales, multimodal channel will be a norm. We could expect the blurring of on- and offline retail shops where brick and mortar shops will increasingly function as a product gallery or collection point for online buyers as well,” comments Liang.

Retailers need to adapt to these changes in order to stay competitive. “Those retailers that can offer an experiential element to their customers will do well in this digital age,” says Liang. “In other words, the composition of retail would shift from merely purchasing-centric (order/buy now and consume later) to activity and immediate consumption focus e.g. individual or group activity (such as workshops, shows, entertainment, FB) where the experience can be jointly shared with others in the group as well,” he adds.

The way forward

For Liang, the future of the retail experience is one where the flow of data and information between the host environment (shopping centre) and the client (individual or group of shoppers) would be seamless.

This means that customers would be able to search products, event programmes, and delivery services at the shopping centre level directly on their mobile phone, “facilitating the e-nteraction between an individual or group with the physical space.

“In other words, one can buy online from multiple retail brick and mortar shops and have all the products to be delivered by one single delivery provider on site as compared to the current multiple deliveries,” Liang explains.

In this scenario, brands that are ethical and socially engaged with the community, are likely to perform well, believes Liang, while traditional established brands will also shine given the demand from the rising affluent group in South East Asia.

Challenges to e-commerce

The huge market potential for e-commerce in the ASEAN region is unquestionable, “if only we can increase the internet penetration,” says Liang.

Insufficient internet penetration in SEA is in fact one of the key challenges which currently hinder e-commerce from fully taking off.

“Internet connectivity and a logistic framework need to be established in order for e-commerce to flourish. It’s literally the first and last mile connection – first mile referring to the internet connectivity/coverage to facilitate more internet usage and consequently online purchases, while the last mile refers to the delivery of the products directly to the home,” explains Liang.

Improvement of the logistics infrastructure in SEA is also important because the region’s consumers prefer ‘cash on delivery’ for their online purchases in contrast to non-cash payment methods favoured in other markets.

“Door to door delivery is preferred in top cities in SEA or [forecast to] ‘pick up’ in the rest of SEA. This implies that to increase online purchases, SEA cities must improve their logistic infrastructure to facilitate this final leg of the e-transaction,” explains Liang.

The analyst suggests that in order to tackle the challenge, 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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