Digital Economy: Malaysia’s Transformation in Retail and e-Commerce

In recent years, the Association of Southeast Asian Nations (ASEAN) have been experiencing accelerated economic growth in recent years, and is expected to be the fourth largest economy in the world by 2030. Going forward, the region is forecasted to exhibit robust economic growth at an annual average of 5.2% between 2018 to 2022.  The ASEAN Middle class is expected to double to an estimated 400 million, by 2020, making up 55% of the total population, making it one of the fastest growing consumer markets in the world. More than half of ASEAN’s forecasted 630 million population is less than 30 years old, comfortable with technology driving change in consumer buying habits as their preferences are affected by the high internet penetration, ubiquitous availability of information and rapidly growing social media networks.

Moving towards Digital Economy maturity with eCommerce

Malaysia’s retail industry is a bright spot, coming in first on  AT Kearney’s Global Retail Development Index 2017, amongst its ASEAN counterparts.  Malaysia’s wholesale and retail trade accounts for 16% of its GDP, just behind manufacturing which accounts for 22.3% of GDP.  According to the Malaysia Retail Chain Association, Malaysia will have close to 700 shopping malls with a total net lettable area of 170 million sq ft by the end of 2019, representing a 25% increase from 2018 figures.

ECommerce is expected to outpace brick and mortar growth by 10 times. Indonesia, Malaysia, Philippines, Thailand, and Vietnam are expected to see retail eCommerce sales grow by more than 15% per year during the period 2016–2021, with Malaysia leading the pack at nearly 24% per year, this is off the back of  increased smartphone penetration, improved connectivity and changing consumer behaviour. In 2019, the eCommerce market in Malaysia is forecasted to be made up of 20.3million users contributing to eCommerce revenue of US$3,904 million.

According to the Ministry of Industry and Trade, Malaysia eCommerce is predicted to grow at 11% compound annual growth rate (CAGR) between 2014 and 2020, with the potential to double that growth. With that in mind, the Malaysian government rolled out the National eCommerce Roadmap and Digital Free Trade Zone (DFTZ) to realize the potential. The National eCommerce Roadmap, identified focused interventions on 6 areas to boost eCommerce together with 11 programs to prioritize the development of the eCommerce ecosystem. These programs would help Malaysia to transform into a regional e-fulfilment hub and also for customers to realise the benefits of eCommerce.

The DFTZ was the world’s first when established in 2016, with the objective to drive exports of Malaysian local SMEs by leveraging on digital technology and opportunities in eCommerce, at the same time attracting regional eCommerce transshipment investment into Malaysia. Malaysia’s port aims to be an ASEAN logistics hub and by having the DFTZ, more retailers will be attracted to use Malaysia’s port for transshipment and this will boost Malaysia’s economy. As part of the agreement, Alibaba setup a regional fulfilment hub in KL, allowing Malaysian SMEs to sell online. At the same time, Lazada, South East Asia’s largest eCommerce platform, saw 100% sales growth in Malaysia in 2016, the highest growth in the region.

Malaysia also signed the ASEAN Agreement on Electronic Commerce on 12 Nov 2018, which is a concerted effort between 10 countries to smoothen cross border eCommerce transaction by reducing barriers and lowering entry costs.

Retailers embracing technology in the Digital Economy

With changing consumer behavior and increasing competition from pure play eCommerce platforms and e-tailers, traditional retailers are starting to leverage on technology and incorporate online services into their business models and tailor their strategies in accordance to shifts, making online to offline integration a key tenet of retailers strategies. In 2018, AEON Co. Bhd, one of Malaysia largest chain supermarkets, signed a memorandum of understanding (MOU) with Honestbee, an online concierge and delivery service, forming a business alliance to develop new services as part of an effort to digitalise the customer’s shopping experience. 7-Eleven Malaysia partnered with local parcel locker service provider, Boxit to launch a parcel locker service aimed at facilitating online shopping in malaysia where online shoppers can pick up their purchases at a 7-Eleven outlet most convenient to them. This was to adapt to consumers increasingly complex shopping journey across physical and digital channels.

With mobile commerce getting more popular among, the move towards a cashless society is gaining steam. Retailers have partnered with payment service providers to offer electronic payment services and mobile wallets with an aim to provide online customers a frictionless payment experience. The Malaysian Central Bank, Bank Negara announced the Retail  Payment Platform (RPP) in 2018 which allows Malaysians to make and receive payments conveniently by using their identification card, mobile and business registration numbers, or by scanning a common quick response (QR) code.

Although eCommerce is gaining substantial momentum, brick-and mortar stores still capture the majority of shopping time. Digital technologies such as location-based services, interactive mirrors, Internet of Things (IoT), virtual reality (VR) and augmented reality (AR) can increase shoppers’ convenience, gamify the retail environment, drive customer engagement and enhance customer satisfaction.

Sunway group is one of the retailers starting to adopt digital technologies. In late 2018, a shopper tracking systems, that identifies a unique ID of each mobile phone carried by shoppers were being incorporated into their malls. According to Sunway Velocity Mall general manager centre management, Danny Lee, Sunway Velocity have installed more than 50 sensors throughout the whole mall. In the initial phase, these sensors are used to track the number of people in different locations of the mall at different times and provide an accurate count of the visitors.  In the subsequent phases, analytics will be done on the data collected, such as the shoppers’ travel history, traffic pattern and visit frequency and dwell time so as to provide insights and the creation of personalised engagement via mobile applications for their shoppers. The mall will also be generated into reports for to learn the shopping patterns of customers and be used for marketing purposes to attract new customers.

How can industry players adjust their IT spending strategies to capture growth in the sector? As the Malaysian retail industry develops, the adoption of technology is essential for the rapidly changing digital economy. We have invited key implementers of digital economy to discuss their approaches to IoT, big data and analytics and how these technologies will drive Omni-Channel marketing, e-Commerce, mobile payment, real-time retail engagement to enhance consumer shopping experience.

You can be part of the discussions by sharing your thoughts with key stakeholders and gain further insights on the digital transformation strategy and initiatives at the Asia IoT Business Platform 2019. Drop us a note at [email protected]

or learn more at to be part of the enterprise digital transformation conversation in ASEAN.

Asia IoT Business Platform

19 February 2019

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