This piece introduces a three-part series delving into the impact of digital channels on consumer decision-making in the region that’s home to the world’s fastest-growing e-commerce markets.
While much has been said about the decline of bricks-and-mortar retail, it is still very much alive and well. In 2017, retail e-commerce sales worldwide amounted to US$2.3 trillion, accounting for only 10.2% of total retail sales. And while e-commerce revenues are projected to grow to $4.88 trillion in 2021, accounting for 17.5% of total retail sales, this hardly spells the end of traditional retail as we know it.
However, what has been changing rapidly for the past 10-plus years, is the influence that digital channels have on the consumer decision-making process. The special bond that we have with our mobile phones has increased this influence and allowed us, as consumers, to receive information quicker and to make faster impulse purchases, as well as more informed purchases. We are even able to access our friends’ opinions on products or services via social networks and chat apps, to ensure we are making the right choice. And increasingly, we are able to make purchases through chat apps directly, further blurring the consumer journey into a high-speed trip that marketers are struggling to keep up with.
To seize this opportunity, marketers need to understand a younger generation of consumers: they not only intend to shop online, they want to be entertained while doing it. This trend is particularly true in China, where social marketplaces such as PingDuoDuo, Xiaohongshu or Taobao’s Juhuasuan are leading this shopping revolution. China’s social commerce market will top US$150 billion, with 24 million merchants selling on such platforms by 2020, paving the way for Southeast-Asian countries to follow suit.
Online shopping is one of the most popular online activities globally. As digital growth continues to explode in Asia, this trend continues. The fastest growing e-commerce markets are Indonesia and India, with the exponential growth largely driven by constantly improving online access, particularly with mobile-first offerings.
The growth of the middle class across developing markets is also having a massive impact on retail growth. According to The Brookings Institution, at a global level, we are witnessing the most rapid expansion of the middle class the world has ever seen. An estimated 88% of the next billion people in the middle class will be in Asia.
For comparison, the middle-class market in advanced economies has matured and is projected to grow at only 0.5% to 1% per year, while the middle-class market in emerging economies is far more dynamic and could register annual growth rates of 6% or more. Given the still massive and growing internet opportunities in Asia, there will be an incredible impact on e-commerce and commerce as a whole. Simply put, bigger, more wealthy middle-class populations in Asia will drive economic growth and retail sales across all verticals.
In a reflection of this, in May 2018, Walmart acquired a 77% stake in the Indian e-commerce company, Flipkart Group—India’s largest e-commerce company—for $16 billion. Walmart executives view this as a long-term play in a market with a rising middle class and plenty of room for growth in mobile adoption, e-commerce and retail. Only about 15% of India’s 1.3 billion people shop online, according to Gartner. “If we were looking at this company with say a three to five-year horizon we wouldn’t invest beyond North America”, CEO Doug McMillon said of Walmart on a call with investors. The purchase is about “setting the company up for growth and profits in the future,” he said. Asia is truly the land of opportunity for the future of commerce.
Marketers will need to not only understand the influence of all channels on their customers, but also actively track, measure, and participate in the journey to beat the competition. Digital hasn’t killed brick-and-mortar retail; but it has changed it irrevocably by incorporating it further into our day-to-day lives. Therefore we all must move fast, be agile and learn to keep up with where our consumers are, not only today but in the future.