Factors Supporting eCommerce

Middle class growth up until 2019 formed Philippines’ eCommerce base

According to the World Bank, the Philippines is one of the most dynamic economies in the East Asia Pacific region. The Philippines has seen rapid urbanisation the past few years until 2019, saw strong middle class growth along with a large and young population. This country had sustained average annual growth of 6.4% from 2010 – 2019, up from an average of 4.5% from 2000 – 2009 and is on its way to becoming an upper-middle-income country (US$ 3896 – 12,055) in the near term.¹⁰

Even though the external economy back in 2019 and caused the country’s GDP growth to slow to 5.6 per cent in Q1 2019, the World Bank previously estimated growth would accelerate back to 6.1% in 2020 and 6.2% in 2021 thanks to its strong domestic consumption.¹¹ In fact, strong domestic consumption was one of the reasons why the Philippines’ GDP growth began recovering in Q4 2019 before the coronavirus pandemic hit.¹²

The Philippines had been making significant progress in reducing poverty. The World Bank also reports that poverty declined from 26.6% in 2006 to 21.6% in 2015 while the Gini coefficient declined from 42.9 to 40.1. Lower Gini coefficients mean lower levels of income inequality.¹³

Prior to 2020, a bullish economy propelled an emerging middle class of tech-savvy millennial spenders, the oldest of whom are now assuming managerial positions in organisations. In fact, the World Economic Forum previously predicted that this middle-class segment would outspend Italy’s middle class by 2030 in a 2018 report.¹⁴

These all helped to build up the Philippines’ middle class base who were forced to accelerate their adoption of eCommerce as lockdowns began in 2020.

COVID-19 Accelerates eCommerce Adoption

Similar to other countries, 2020’s COVID-19 pandemic led to social distancing rulings which led to eCommerce needing to fill the gap that brick-and-mortar stores left behind. Lockdowns needed to take place to try and stem infections among Philippines’ populace, known locally as community quarantines (CQ’s). As of the time of writing, the Metro Manila region was placed under a new enhanced community quarantine (ECQ) in August 2021.¹⁵ You can find the areas under restrictions from August 1st 2021 here.¹⁶

While the Philippines has one of the highest numbers of internet users in Southeast Asia, prior to the pandemic online shopping only accounted for 2 per cent of total retail spending according to the Oxford Business Group. Oxford Business Group mentioned that the pandemic drove many online, with nearly 4 in 5 Filipinos having shopped online at least once in the 30 day period by July 2020, with most of them using a mobile device to make their purchases.¹⁷

Oxford Business Review also listed how other businesses adapted. UNIQLO launched click-and-collect and delivery options in July 2020. Malls began offering curbside and drive-through pick-up options while many malls began personal shopper services.¹⁸

Live-stream selling also began picking up steam during this period in the Philippines. Shopee launched a live-streaming platform on their eCommerce marketplace back in June 2019 where sellers can promote their products and offer discounts to their stream viewers. Shopee Live recorded 30 million live stream views in April 2020.¹⁹

Statista ran a survey on the usage of online shopping before, during and after the pandemic. Using ‘before the pandemic’ as a baseline, online shopping usage doubled during the lockdown periods and settled to 60 per cent more than ‘before pandemic’ levels of usage.²⁰

With lockdowns still occurring even in 2021, it’s likely that eCommerce usage will continue to gain steam in the Philippines in the months ahead.

Growing government support

Recognising the importance of eCommerce for the Philippine economy, the country’s Department of Trade and Industry (DTI) developed the Philippine eCommerce Roadmap 2016-2020²¹. Its primary goal is to get online business activities to account for 25 per cent of the country’s GDP by 2020, up from 10 per cent in 2015.

The government is committed to seeing through this roadmap, and has made especially in the areas of:

• Infrastructure – improving Internet access, eGovernment systems, eBanking, ePayment, tax systems, consumer protection, and logistics
• Investments – supporting and promoting opportunities such as foreign direct investment and capital flows
• Innovation – helping digital startups enter the commercial market

With the importance of eCommerce becoming more pronounced in 2020, the Department of Trade and Industry launched an updated e-Commerce Philippines 2022 Roadmap which also includes plans to create and improve a network of ICT services and promote cashless payments. Secretary Roman M. Lopez of the Department of Trade and Industry Philippines shared the following during his keynote address at Digital Pilipinas 2021.²²

“That’s why we launched early this year the updated e-Commerce Philippines 2022 Roadmap, which the public and private sectors had collaborated in crafting together. Through this roadmap, we aim to increase the contribution of e-commerce to the Philippines’ GDP. To this end, the roadmap’s goals are: increase the number of e-commerce enterprises from 500,000 in 2020 to a million by 2022; develop a digitally skilled workforce to support the growing e-commerce sector; and empower online consumers and build trust between merchants and buyers.” – Secretary Ramon M. Lopez.

Overall, this means the Philippines is in the process of building clear rules and support systems for you and other online merchants. There are some kinks, as with any other country adopting digital transformation, but the government understands the importance of opening its doors to both domestic and foreign players in the eCommerce industry.

Interest in goods found abroad

Filipinos are prolific shoppers, hungry for goods and services not found in the Philippines—a fact you can leverage when figuring out which goods consumers in this market would be interested in.

Prior to the pandemic, a typical Filipino holiday itinerary to nearby cities like Hong Kong and Singapore isn’t complete without a day or two set aside for shopping alone.²³ In fact, going abroad used to be the only way Filipinos could shop at stores like H&M²⁴ and Uniqlo,²⁵ which only opened stores in the country in 2014 and 2012, respectively.

The desire for products not found locally was also cited by a Nielsen report as one of the primary reasons driving eCommerce consumers in the Philippines to shop online.²⁶ The opportunity here for online sellers is obvious: you can stand out in this market by offering products Filipino consumers don’t have access to locally.

The convenience of a digitalised shopping experience

The Philippine population of 110.3 million people skews towards a young, tech-savvy group of Millennial and Gen Z consumers (the country’s average age is 25.7 years).²⁷ Unsurprisingly, these consumers are prolific users of the Internet, spending an average of 10 hours and 56 minutes² browsing the Internet each day. Nearly half of that time—4 hours and 15 minutes—is spent on social media.

Like other countries in Southeast Asia, the advent of powerful and affordable mobile devices is at the heart of this surge of Internet usage among Filipinos. The Philippines has been a mobile-first nation since 2014²⁹, and this can be seen in Hootsuite and We Are Social²’s findings that 98.5 per cent of adult Filipinos use mobile phones of any type. In contrast, only 77.3 per cent have access to a laptop or desktop computer.³⁰

As such, it’s important for you to provide an online shopping experience that’s optimised for the smartphone screens of mobile-first shoppers. That means simpler navigation requiring fewer clicks, clear call-to-action buttons, vivid but lean images that load quickly, an intuitive browsing experience, and even eCommerce ads optimised for mobile screens.

Looking for more trends and facts on eCommerce in the Philippines? Find out more in our eCommerce Guide to the Philippines!

Challenges of eCommerce in the Philippines

Cash-based payment methods dominate, for now

One of the reasons behind the relatively slow uptake of eCommerce in the country in the past few years is the continued dominance of cash-based transactions. According to the Philippines’ central bank, cash accounted for 99 per cent of all local transactions as of January 2018.³¹

Rapyd states that cash transactions are still widely used as the Philippines still has more than 50 million people unbanked.³² As a result, many retailers including many smaller retailers or social commerce merchants still rely on cash on delivery transactions.³³

Originally, the Philippines has been slow to adopt eWallets, with only 1.3 per cent of Filipinos owning electronic money accounts based on Bangko Sentral ng Philippines’ 2017 Financial Inclusion Survey.³⁴ Meanwhile, merely 1.9 per cent of Filipinos over the age of 15¹⁵ have a credit card.³⁵ 68 per cent of Filipinos with savings keep them at home instead of at a bank in 2019.³⁶

Local e-wallets have been aggressively marketing their services in the country. Popular ones include GCash, Paymaya, Alipay, and Grab,³⁷ which are offered by two of the country’s largest providers of mobile accounts and Internet connections. Social commerce, especially through Facebook and Facebook Messenger, has also been found to drive the adoption of e-wallet payments¹⁹ in the Philippines, according to a report by PayPal.³⁸

The government of the Philippines has also been ramping up efforts to help its unbanked and underbanked population. Through its National Strategy for Financial Inclusion, it plans on doubling the number of Filipinos with bank accounts from 2019’s 35 per cent to 70 per cent by 2023 – which should lead to more Filipinos using debit and credit cards in the future.³⁹

What’s clear is that online merchants should be willing to accept cash-on-delivery, while also educating consumers about e-wallet payment options.

Logistics concerns due to unique geography

With the Philippines being an archipelago of more than 7,600 islands, logistics naturally presents a challenge you will have to prepare for when serving customers in this country. Consumers living in the sprawling capital of Metro Manila enjoy access to huge shopping malls, flagship brick-and-mortar stores, and even same-day online delivery from large marketplaces like Lazada and Shopee.⁴⁰

However, suburban and rural areas with fewer shopping malls are an underserved market where you can cater to customers who can’t find the products they want or need in nearby brick-and-mortar stores. To do this, you will need a reliable cross-border shipping partner and last-mile delivery service provider that can deliver packages nationwide, without drastically increasing your shipping fees.

But even with a logistics partner, it’s important to set realistic expectations on how soon customers can receive their orders. For example, online marketplaces like Lazada make it clear that they can deliver to all serviceable areas, with a few limitations due to geographic restrictions. For orders outside of Metro Manila, the promised turnaround time is 12 days²², even if deliveries don’t necessarily take that long.⁴¹

You should also take note of the Philippines’ most popular eCommerce shopping events to anticipate supply and demand well in advance. In the Philippines, shopping season typically starts during the “ber” months (i.e. September to December).

This is also a good time to research sale wishlists to get an idea of what Filipino consumers are eyeing, especially during the end-of-year holidays. This will help you plan for timely delivery during the festive season.

Growing pains with Internet connectivity

The Philippines has one of the slowest and most expensive Internet connections in Southeast Asia,⁴² which has also been mentioned by the World Bank.⁴³ Coupled with high mobile phone and social media usage, this means online merchants must pay attention to mobile optimisation, particularly when it comes to the sizes of their product images, This ensures that consumers can easily load on a smartphone on a 3G data connection.

Keep in mind that Facebook, the country’s most popular social media network⁴⁴ has a free version for mobile phone users in the Philippines. That means online merchants can leverage the network to advertise and sell their products.

In fact, PayPal’s research shows that 87 per cent of Filipino merchants sell products on social media.⁴⁵ Facebook also drives traffic and engagement on Lazada, Shopee, and Zalora.⁴⁶

Changing eCommerce perceptions

A universal challenge for any online merchant is gaining buyers’ trust. For eCommerce, this means using a combination of strategies, ranging from prompt delivery to accurate product descriptions.

You also need to account for the low trust Filipino consumers have in credit cards. According to a MoneyMax survey, many Filipinos are reluctant to get credit cards because they fear it will lead to overspending and debt.⁴⁷

Considering the challenges in Philippine eCommerce, online merchants can also build trust by offering alternative payment options to credit cards. This may be in the form of cash-on-delivery and local e-wallets.

Given the popularity of branded products, eCommerce merchants can also capitalise on consumers’ trust in major brands. This does not mean that you must sell only branded items. Merchants can sell non-branded or less popular products in bundles with major branded items, or sell similar products that provide the same features and functionalities.

When it comes to eCommerce in the Philippines, there are a few critical factors to remember:

• Pay attention to local economic conditions and plan your supply chain accordingly.
• Filipinos shop online to find products not found locally or in brick-and-mortar stores. Social media listening will go a long way towards understanding the unmet needs of Filipino online shoppers.
• The majority of Filipinos access the Internet on mobile devices, so be sure to optimise your eCommerce shopping experience accordingly.
• Cash is king in this country. Check if your eCommerce logistics specialist has partners or recommendations for last-mile-delivery service providers who have COD as a payment option.
• The Philippines’ geography presents challenges in terms of keeping shipping fast and affordable. Again, find a reliable logistics partner and be sure to set expectations ahead of time to ensure shoppers know how soon they can receive their orders.

The Philippines offers massive potential for eCommerce players who can beat the competition in establishing an online foothold in the country. However, doing so means responding to the challenges mentioned above. With planning, targeted marketing, and the right cross-border shipping partner by your side, you should be able to adapt to the needs and preferences of eCommerce consumers in the Philippines.

Looking to ship throughout Southeast Asia? Contact us using the link below to find out how!

Interested in e-commerce in the Philippines? Find more of our articles below:

• Main Philippines Country Page
• Guide to Ship to Southeast Asia
• Mini Guide on How to Ship to the Philippines
• Who are the Philippines’ Online Shoppers?
• The Philippines’ Top 3 eCommerce Product Categories
• The Philippines’ Hottest Online Sales Periods