Who will win in Asean’s cut-throat e-commerce space?

E-commerce sales in Asean are expected to reach US$153bn by 2025, from US$38.2bn in 2019. Given the competitive arena, we outline what will give players an edge.

Asean’s cut-throat e-commerce space

Key summary points

  • E-commerce sales as a percentage of retail sales in Asean is nine years behind China
  • Logistics and fragmented e-commerce market are major roadblocks
  • Take rates in Asean are close to China’s but profitability is quite different
  • Players in Asean will require much higher take rate than China to achieve breakeven
  • Winners to focus on market share growth over profitability at this early growth stage

Asean’s e-commerce market lags China’s. The number of online shoppers in Asean as a percentage of the population stands at around 26% in 2019, putting the Asean region five years behind China. However, with e-commerce sales as a percentage of retail sales at around 4% in 2019, Asean is nine years behind China. Clearly, people in Asean are buying products online but are more cautious in raising their wallet-share of e-commerce purchases. What can explain this?

Logistics and fragmented e-commerce market are major roadblocks. Buying online often comes with a few days’ delay for delivery of goods, with high delivery charges offsetting the price advantage of e-commerce. In addition, the e-commerce market’s fragmented nature means the risk of fraud (identity theft and spurious websites) is high, especially with smaller e-commerce players. Product availability and delivery fee are the biggest pain points for customers in Jakarta while delivery fee and delivery time are biggest pain points for customers outside Jakarta.

Take rates in Asean are close to China’s but profitability is quite different. Take rate is the percentage of the transaction value captured by the e-commerce player for a sale they facilitated through their platforms. While take rates in Indonesia are close to China’s, the composition is quite different. For Alibaba, 70% of the take rate is from advertising and shopfront fee, which is highly profitable. In Asean, 30-50% of the take rate is from value-added services (VAS) like warehousing & fulfilment, cross-border logistics, etc. which is close to zero margin. In our estimates, players in Asean will require much higher take rate than China to achieve breakeven.

Winners to focus on market share growth over profitability at this early growth stage. We see the share of VAS continuing to rise as key e-commerce players undertake more warehousing and fulfilment services to resolve customer pain points. With gross merchandise value in Indonesia and Vietnam expected to quadruple by 2025, players with adequate funding in place can grow their revenue even faster by inching up their take rates.

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