Thailand among Asia’s most Attractive Markets but Online Sales Remain Weak

Internet retailing is gaining ground globally and emerging market economies are no stranger to this. That said, in Thailand, broadband penetration remains low and is forecast to increase at a slower pace than the global average due to the country’s geographic structure coupled with low capital investment in telecommunications. These factors strongly affect the development of internet retailing in Thailand and limit the online consumer group to the more affluent population which has access to broadband.

Low Broadband Penetration Hampers Internet Retailing Growth in Thailand

The main factor limiting the development of the internet in Thailand is the geography of the country, with its numerous islands being a constraint in the development of the Thai telecom sector. In addition, while capital investment in telecommunications is already low and declined over the review period, natural disasters, such as the tsunami in 2004 and the severe floods over 2011-2013, have also further delayed telecom infrastructure projects and investments. Thus, Thailand lags behind other emerging regions in terms of internet users, with only 28% of the Thai population using the internet in 2013 (globally, penetration stood at 38%).

As a result, although seeing growth in Thailand, the online channel is stagnating in terms of its share of overall retailing. Looking at emerging market economies, sales through internet retailing represented 3% of total retailing sales within the region in 2013 and they are forecast to increase to account for 5% by 2018, while in Thailand, the share will remain flat, at 1%.

Sales through Internet Retailing as a Percentage of Total Retailing Sales

Graph 1 - Sales through Internet Retailing as a Percentage of Total Retailing Sales.png

Source: Euromonitor International

Mobile Shopping Shows Potential

In markets where broadband penetration is low, mobile broadband usually compensates. In Indonesia for instance, only 17% of the population are internet users, although 27% of mobile subscriptions offer access to the internet. This is not the case in Thailand, where mobile broadband provision is one of the weakest in the world, with only 0.2% of all mobile subscriptions connected to the web in 2013.

Nevertheless, a large number of Thai consumers use their smartphones to shop online for products and services. According to a survey conducted by credit card provider MasterCard during late 2013, Thai consumers were among the top online shoppers via mobile phones in the Asia Pacific region, as 51% of Thai shoppers said they used mobile devices to shop online, thanks to the convenience and ease of use of online shopping apps.

Annual Disposable Income and Population: % in the Capital Compared to Country’s Total in 2013

Graph 2 - Annual Disposable Income and Population.png

Source: Euromonitor International

Discretionary Spending on the Rise Thanks to Higher-Income Consumers

In comparison with other emerging Asian markets, income disparity in Thailand between its capital and the rest of the country is high. While 22% of the Thai population is in Bangkok, their annual disposable income represented 46% of the country’s total in 2013. Bangkok’s emerging middle class therefore represents the main online shoppers in Thailand, in particular the younger and connected generation. These consumers with higher income tend to spend more on discretionary items, shopping both from local and international online retailers for products not available in Thai stores, driving sales through channels such as apparel and consumer electronics internet retailing.

But most Thai consumers prefer to visit stores for shopping as it allows them to see and touch the products before buying. In addition, trust in online payment remains low as well as in the delivery process, which Thais fear to be slow or resulting in a damaged product during delivery. This combined with the country’s lagging broadband development is also preventing sales through internet retailing from growing faster in Thailand, benefiting the store-based channel instead. For instance, Thailand is forecast to rank fifth within Asia Pacific in terms of absolute sales growth through health and beauty specialist retailers over the 2013-2018 period.

Developing Consumer Services will be Essential to Online Sales Growth

The share of internet retailing within overall retailing is expected to continue to stagnate in Thailand. Without more efforts by the Thai government to develop the country’s telecommunications network, internet retailing in Thailand is unlikely to grow faster. As Thai consumers have the alternative to shop at store-based channels, they are likely to continue to almost only shop in stores, leaving connected consumers, ie mainly those with a higher income, to shop online. However, the main consumer target for online retailers should be the Thai emerging middle class, as affluent consumers can already have access to niche and premium brands which are not available in Thailand through trips abroad.

In 2013, internet retailing in Thailand enjoyed double-digit growth and is forecast to post a CAGR of 13% over the 2013-2018 period in constant 2013 value terms. This should create opportunities for both local and international online retailers, with these offering comprehensive and secure online stores, also accessible via smartphones. But for internet retailing to take off, retailers will also need to develop more innovations and services to make it easy for consumers to buy but also to access products, such as quick deliveries or convenient click & collect locations.