Thailand’s Expanding B2C E-Commerce: Who Will Benefit Amidst Intense Competition from Social Commerce

　Thailand’s B2C e-commerce market was the largest in ASEAN in 2016, valued at around THB 703 billion (USD 19.6 billion), 12.0% higher than the second-largest, Malaysia’s. During 2012–16, the market grew at an impressive CAGR of 55.3%, driven by the country’s high internet penetration (65.0% in 2016, up from 34.6% in 2012). Despite this, online retail accounted for only around 1% of the total retail spend in Thailand in 2016, much lower than the global average of around 8.6%. As a result, the government believes there is significant room for further growth, and expects the figure to reach 8.2% by 2022E, driving Thailand’s B2C e-commerce industry at a CAGR of 20.0% during 2016–22E to THB 2.1 trillion.

　Given its attractive growth prospects, Thailand’s B2C e-commerce market has drawn several foreign players in recent years, including Lazada (SGP; 2011), Zalora (SGP; 2012), and 11Street (KOR; 2016). Moreover, Alibaba’s 2016 acquisition of Lazada, an e-marketplace and the leader in Thailand’s B2C e-commerce market by page views, has attracted special attention to the country’s e-marketplace. It has triggered other acquisitions and partnerships by local conglomerates wanting to capitalise on market growth through the e-marketplace channel.

　However, Thailand’s e-marketplace might be threatened by the emergence of social commerce (shopping through social media platforms). As per Siam Commercial Bank’s Economic Intelligence Centre (SCB EIC) in 2017, over half (about 51%) of Thai online shoppers shop via social commerce, the second most common channel, behind Lazada (65%). Nevertheless, social commerce has already overtaken Lazada in the two most important product categories, fashion & accessories and health & beauty. Moreover, social commerce in Thailand is likely to grow in the coming years on the back of an expected increase in social network penetration (70.9% in 2019E versus 69.7% in 2017) alongside higher smartphone penetration (73.5% in 2019E versus 62.5% in 2016). This is likely to drive higher competition in the fashion & accessories and health & beauty categories between social commerce and e-marketplace players, as well as other players focusing on these categories.

　That said, higher-value products such as those in the electronics category remain less popular among social commerce shoppers. Therefore, B2C e-commerce players focusing on electronics stand a better chance of sustaining sales amidst the growing threat from social commerce and are likely to emerge as key beneficiaries of the growing B2C e-commerce market. Consequently, while thus far most investments in Thailand’s B2C e-commerce market have been focused on the e-marketplace, electronics e-tailers and verticals should receive increased attention in the coming years, with key players in the market being Advice Holding Group, JIB Computer Group, and Munkong Gadget.

　Thailand’s Rapidly Growing B2C E-Commerce Market Attracts Foreign Attention

　Thailand’s B2C e-commerce market is categorised into cross-border platforms (e.g. eBay and Amazon), e-marketplaces (e.g. Lazada and 11Street), e-tailers (e.g. Central and Tesco Lotus), and vertical platforms that focus on niche markets (e.g. JIB and Advice). According to the Electronic Transactions Development Agency (ETDA), Thailand’s B2C e-commerce market was valued at around THB 703 billion (USD 19.6 billion) in 2016, the highest valued B2C e-commerce market in ASEAN, 12.0% higher than the second-largest, Malaysia’s (USD 17.5 billion). During 2012–16, Thailand’s B2C e-commerce market grew at an impressive CAGR of 55.3% from about THB 121 billion in 2012, driven mainly by the country’s high internet penetration (65.0% in 2016 versus 34.6% in 2012). Moreover, the share of B2C e-commerce in Thailand’s e-commerce industry (comprising B2B, B2C, and B2G) grew to 27.5% in 2016 from 20.2% in 2014, and is expected to reach 28.9% in 2017E; the shares of B2B and B2G e-commerce are both expected to decrease (to 59.6% and 11.5% in 2017E from 60.7% and 19.1% in 2014 respectively). This indicates the growing importance of Thailand’s B2C e-commerce market within the larger e-commerce industry.

Source: ETDA and Office of National Broadcasting and Telecommunications

　Despite the dominant position of Thailand’s B2C e-commerce market in ASEAN, the government believes there is significant room for growth, as Thailand’s B2C e-commerce spend per capita was still the third-highest in ASEAN in 2016 at around USD 285, lower than Singapore’s (USD 737) and Malaysia’s (USD 561). Moreover, according to the ETDA, Thailand’s online retail market accounted for only around 1% of total retail spend in 2016, much lower than the global average of around 8.6%. The government expects the level to reach about 2% by 2020E and 8.2% by 2022E. It therefore expects Thailand’s B2C e-commerce industry to grow further at a CAGR of 20.0% during 2016–22E to THB 2.1 trillion. As a result, the industry has gradually attracted established foreign players, including Lazada (SGP;2011), Zalora (SGP; 2012), Shopee (SGP; 2015), and 11Street (KOR; 2016).

Source: ETDA

　Local Conglomerates Eye E-Marketplace Following Alibaba’s Acquisition of Lazada

　In 2016, the world’s largest e-commerce company, Alibaba, caused a major shift in Southeast Asia’s e-commerce landscape when it acquired a controlling stake (51%) in Lazada Group, one of the largest e-commerce B2C platforms in ASEAN, in a deal valued at around USD 1 billion. The deal allowed Alibaba direct entry into many ASEAN countries that Lazada already had a presence in, including Thailand. To further secure its dominance, Alibaba injected another USD 1 billion to increase its stake in Lazada Group to approximately 83% in 2017.

Source: iPrice Insights

Note: Abbreviations following company names indicate origin

　In Thailand, the e-marketplace Lazada is the clear industry leader in the B2C e-commerce market in terms of page views, with average monthly page views of 75.6 million in 4Q2017, over nine times that of the second most popular website during the same period, 11Street (8.1 million views). Therefore, in a bid to compete with Lazada and gain a foothold in the e-commerce business, in 2017, Central Group (a Thai conglomerate and the operator of the country’s largest retail department store chain) formed a USD 500 million joint venture with JD.com (China’s second-largest e-commerce platform) to launch JDCentral, a new B2C e‑commerce e-marketplace in Thailand. Central Group expects the partnership to boost its online retail business revenue to about 15% of total revenue by 2022E from around 1% in 2017 (Central Department Store sales in 2017: THB 35.5 billion).

　The stiff competition in the market has led Tarad.com, Thailand’s first e-marketplace, to partner with TCC Group, a Thai conglomerate and one of ASEAN’s largest beverage companies. TCC Group acquired a 51% stake in Tarad.com in March 2018 in order to diversify its portfolio into digital business. Tarad.com should benefit from TCC Group’s retail and logistics network in the country and in the region.

　The market consolidation has driven The Mall Group, the second-largest retailer in Thailand, to seek for an e-commerce partner of its own, as reported by Nikkei Asia Review. This signals potential future collaboration between The Mall Group with a partner of similar size, either with an existing local player (e.g. WeLoveShopping), an existing foreign player (e.g. Shopee and 11Street), or a company such as Amazon that has yet to fully enter the region.

　Social Media Platforms Emerging as Key Rivals of E-Marketplace

　Although large players have been paying increasingly more attention to the e-marketplace as a means to capitalise on Thailand’s growing B2C e-commerce market, recent research suggests that social media platforms are emerging as key rivals of dominant players such as Lazada. According to research published by SCB EIC in 2017, the percentage of online shoppers via social media platforms (social commerce shoppers) in Thailand was the highest in the region (about 51%) in 2016, ahead of countries such as India (32%), Malaysia (31%), and China (27%), and three times the global average (16%). This means that over half of Thailand’s online shoppers are social commerce shoppers, the second most common channel behind Lazada (65%).

Source SBC EIC

　The growing popularity of social commerce in Thailand could be attributed to several factors, one of which is the option of having direct communication with the seller. According to a survey conducted by the ETDA on factors deterring online shopping in Thailand, most respondents (51.1%) reported fear of being scammed. Consequently, having direct communication with online sellers helps to establish trust and confidence among buyers. In addition, bargaining opportunities, offline payment options, and growing social network penetration in Thailand (69.7% in 2017, up from 68.5% in 2016) are also factors influencing social commerce. Moreover, eMarketer, a market research company, expects Thailand’s social network penetration to reach 70.9% in 2019E, driven by growth in smartphone penetration in the country (projected to reach 73.5% in 2019E from 62.5% in 2016).

Source: eMarketer

Source SBC EIC

　Although social commerce remains less popular than Lazada, it has overtaken Lazada in the fashion & accessories and health & beauty segments, the two most dominant product categories for Thai online shoppers. As per SCB EIC, around 59% of Thai online shoppers reported buying products in the fashion & accessories category via social media platforms, more than via Lazada (36%). A similar trend was observed in the health & beauty segment, with approximately 55% of shoppers reported buying through social media platforms, compared with 44% through Lazada.

Source: ETDA

Source SBC EIC

　According to SCB EIC, products that consumers tend to buy through social media platforms are usually lower-cost goods that do not require warranties or after-sales services. Therefore, higher-value products such as those in the electronics category (the third most popular product category among Thai online shoppers) are less popular. Moreover, the online purchase value of products in the electronics category tends to be higher than others’, leaving players focusing on this category less exposed to competition from social commerce channels. For instance, according to the ETDA’s survey in 2017, 10.3% of Thai online shoppers reported spending more than THB 10,000 on products in the electronics category. Meanwhile, only 5.2%, 1.1%, and 1.7% of online shoppers reported spending the same amount on products from the home appliances, fashion & accessories, and health & beauty segments respectively.

Source: ETDA

　E-Commerce Players in Electronics to Gain Attention as Social Commerce Grows

　One of the most attractive attributes of social commerce for e-commerce sellers is the low cost of setting up stores compared with other channels. Facebook (FB) and Instagram (IG) are the two largest social commerce platforms in Thailand. According to eMarketer, Thailand had 18.9 million FB users in 2016, equivalent to a penetration rate of 68.5% (the percentage of total internet users), higher than the global penetration rate of 41.0% the same year. The number of FB users is expected to grow at a CAGR of 6.3% during 2016–19E to 22.7 million users, driving the penetration rate to 70.9% in 2019E. More significantly, Thailand’s IG population is expected to grow at a faster CAGR of 12.5% during 2016–21E to 16.4 million users, boosting the penetration rate to 44.2% in 2021E from 32.4% in 2017 (world average in 2017: 24.0%). The positive outlook on Thailand’s social media penetration is likely to lead to higher competition in the fashion & accessories and health & beauty categories in the coming years between social commerce players and e-marketplace players, as well as other players focusing on these categories.

Source: eMarketer

Source: eMarketer

　On the other hand, players focusing on electronic products will have a higher chance of sustaining their sales amidst the forecasted social media trend. They could therefore emerge as the biggest beneficiaries of Thailand’s growing B2C e-commerce market. Hence, while investment has been focused significantly on e-marketplace players in Thailand previously, electronics e-tailers and verticals could become more attractive investment targets in the near future.

　Most B2C e-commerce players focusing on electronic products in Thailand operate under the e-tailer business model, having both physical stores and an online presence. This offers their customers an opportunity to view physical products before making online purchases as well as convenience in seeking after-sales services. Advice Holding Group, the operator of Advice and Notebook Spec, is Thailand’s largest B2C e-commerce player focusing on electronics, with a combined store count of 350 physical stores nationwide. This is followed by JIB Computer Group (operator of JIB; 130 stores nationwide) and Munkong Gadget (5 stores in Bangkok).

Source: Department of Business Development

Source: Department of Business Development

Source: Company filings and iPrice