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Online retail in Philippines seen to grow to P500-B market in 5 years

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Online retail sales in the Philippines is forecast to grow to over P100 billion on 2020 and further balloon to P500 billion in 5 years, according to a top executive of the biggest online selling platform in the country.

Muhammad Hussain Khalid, vice president and head of marketplace of Lazada Philippines, said eCommerce, or commercial transactions conducted on the internet, presents a “huge opportunity in the Philippines.”

As of 2019, Khalid said eCommerce in the Philippines as of this year is valued at around $1.58 billion or around P80 billion. It is seen to grow by around 33% to $2.1 billion, or more than P100 billion, next year.

“It means there are people in the Philippines who are buying products worth P80 billion online every year,” he told participants to the Entrepreneurship Summit on June 14, 2019, one of the highlights of the Cebu Business Month.

But eCommerce accounts only for 2% of the Philippine retail industry. This means that only 2 out of 100 products are bought online.

This is very low compared to South Korea’s 20%, he said.

He cited three major reasons: lack of access to an online payment platform; concern over the quality of the products; and problem on logistics.

Lazada vice president Muhammad Hussain Khalid speaks about opportunities in online retail during the Entrepreneurship Summit on June 14, 2019. The summit is part of the Cebu Business Month. (Photo grabbed from Cebu Business Month video)

Khalid noted that although there are 67 million internet users in the Philippines, or 63% of the total Philippine population, credit card penetration is still very low at less than 5% while bank penetration is only about 40%.

This means 95 out of 100 people do not have credit cards while some 60 out of 100 people do not have a bank account or a debit card. To shop online, a customer would need a credit card or debit card to pay for his or her purchases.

Lazada addressed this problem by offering cash-on-delivery (COD).

“There’s no other way for Lazada to grow in the Philippines. We want to make sure that people anywhere in the Philippines can get access to Lazada. The only way for this to be possible is through COD,” he said.

Another major concern is on the quality of products.

Lazada alone offers around 70 million products fro 22,000 merchants who sell at least one merchandise a week.

Khalid admitted that 1% to 2% of these products offered on Lazada are fake or counterfeit.

“It’s practically impossible for us to check the quality of each one. It is possible for a seller to put a fake or counterfeit product,” he admitted.

But he assured that their algorithm ensures that such products are removed from the system.

“By the mechanics of the platform, such a product would not survive for more than 2 to 3 weeks. if a customer buys the product and complains, we straightaway deactivate not only the product but also the seller of the product,” Khalid said.

Good products with good customer reviews go up in search results and are seen by the customers first.

To address the problem on logistics, Khalid said Lazada introduced Lazada Express, its own logistics platform.

As soon as an order is made, the seller packs the product, pays a minimal fee for the services of Lazada Express, and the product is picked up for shipping.

As of 2018, Lazada collect commissions only on international brands, Khalid said.

To local merchants who wish to sell their products on Lazada, Khalid assured that there is no upfront cost nor does Lazada collect any commission.

“The only cost incurred is the shipping fee, which can be passed on to customers,” he added.

Lazada, which is majority owned by Alibaba Group Holding Limited, is the biggest online marketplace in the country. It was launched in 2012 simultaneously in these countries: Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

These markets have a combined customer base of more than 560 million. There are a total of 155,000 sellers on Lazada in Southeast Asia. (Ventures Cebu)

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