Malaysia's eCommerce Landscape
Actionable Insights
Malaysia’s eCommerce space is enjoying robust growth.
Trends playing out include growing D2C eCommerce, social commerce, and cross-border eCommerce.
Notable players include Shopee, Lazada, and Sephora.
Industry Background
eCommerce in Malaysia Is Booming And Prospects Are Bright With The Country's Relatively High Per Capita Incomes And Favorable Regulatory Environment, But Weakening Logistics Competitiveness May Dampen Growth Potential
According to data from Malaysia's Department of Statistics, the total income from eCommerce transactions in Malaysia reached MYR 1.09 trillion in 2021, a 21.8% YoY increase from MYR 896 million in 2020, and marked the first time the country's eCommerce transaction exceeded the MYR 1 trillion mark.
There are reasons to be optimistic about the sector's prospects.
Per capita incomes in the country are on the rise. The World Bank expects Malaysia to transition to a high income economy between 2024 and 2028 which suggests greater consumer spending power.
Malaysia's eCommerce sector enjoys a favorable regulatory environment with the Malaysian government aiming to develop the country's eCommerce sector into a MYR 1.65 trillion industry by 2025, an ambition spearheaded by several government initiatives. Notable among them is the Malaysia Digital initiative launched in 2022 which aims to develop the country's digital economy including eCommerce, and the National E-Commerce Strategic Roadmap (NESR) which outlines government support in five areas:
Accelerate seller adoption of eCommerce
Increase adoption of eProcurement by businesses
Lift non-tariff barriers (e-Fulfillment, cross-border, e-Payment, consumer protection)
Make strategic investments in select eCommerce player(s)
Promote national brand to boost cross-border eCommerce
Promotional campaigns organized by the Malaysian government include 'Go eCommerce' (an online training platform to assist businesses with eCommerce adoption) and 'Shop Malaysia Online' (a campaign driven by the Malaysia Digital Economy Corporation (MDEC) in partnership with eCommerce players to encourage online shopping among Malaysians). Both campaigns delivered well beyond their targets according to MDEC and in 2022, an additional MYR 250 million was allocated under Budget 2022 to further expand these programs. Meanwhile Budget 2023 is expected to emphasize development of the rural digital economy.
Malaysia's logistics infrastructure is among the upper ranks in Southeast Asia however competitiveness has been on a downtrend. The country dropped 15 places to 41 in The World Bank's Logistics Performance Index 2018 (and dropped to fourth from second in 2016 among Southeast Asian nations).
Strong logistics is crucial for eCommerce development, and the Malaysian government appears to be actively working to regain its competitiveness in this area; notable government initiatives launched recently include the Logistics Sustainability Performance Framework (LSPF), as well as steps taken as part of the government's aim to build Malaysia into a regional logistics hub. More initiatives are expected to be rolled out in the years to come.
Trends
D2C eCommerce On The Rise
Following a trend seen around the world, D2C eCommerce is on the rise in Malaysia, as merchants, keen to reduce distribution costs and own a greater part of the customer experience as well as customer data, bypass retail intermediaries to peddle their wares directly to their customers through technology. Homegrown online fashion retailer FashionValet in fact appears to have pivoted towards D2C eCommerce with the company shutting down its fashion eCommerce platform - FashionValet - to focus on its in-house D2C brands dUCk and Lilit.
Social Commerce Unlocking Consumer Spending
Social media is booming around the world, and Malaysia is no exception. About 28 million of Malaysia's approximately 32 million population use social media and such a high penetration rate makes for fertile ground for social commerce growth. Unlike in countries such as China or India however where homegrown social commerce platforms command considerable attention (such as WeChat in China and Meesho in India for instance), Malaysia's social commerce space is largely dominated by foreign social media platforms as they have the advantage of being among the most popular social media platforms in the country; notable players include short video app TikTok owned by Chinese tech giant ByteDance, Chinese superapp WeChat owned by Chinese tech giant Tencent, and social media platforms Facebook, Instagram, and Whatsapp owned by American tech giant Meta Platforms.
Cross-Border eCommerce Booming
Cross-border eCommerce is highly popular in Malaysia with more than half of Malaysians spending on cross border purchases according to J.P. Morgan. China is among the leading overseas shopping markets due to product variety, social commerce options and highly sophisticated eCommerce experiences.
Notable Competitors
Shopee
Brief Overview
Owned by Singapore-headquartered superapp SEA Ltd, Shopee is one of the most popular eCommerce platforms in Malaysia with Shopee enjoying a massive lead against its closest rival Lazada in several social metrics including considerably higher search interest based on data from Google Trends, and bigger audiences on most social media platforms such as Instagram (1 million followers for Shopee Malaysia versus for 737,000 for Lazada Malaysia), Youtube (234,000 subscribers for Shopee Malaysia versus for 179,000 Lazada Malaysia) and Twitter (84,500 followers for Shopee Malaysia versus 46,100 followers for Lazada Malaysia) as of September 2022.
Growing Superapp Ecosystem A Strength But Logistically And Financially Superior Rival Lazada May Capture Market Share
Unlike Lazada which has so far remained largely an eCommerce platform, Shopee parent SEA has morphed into a superapp, with consumer services such as food delivery, mobile payments, Buy Now Pay Later (BNPL), and online groceries, offered along with online shopping within a single app. This superapp ecosystem is a competitive advantage as not only does it increase user retention but it also opens cross-selling opportunities. Lazada however appears to be ramping up operations as parent company Alibaba turns to international markets for growth. Lazada may have far greater financial resources (parent company Alibaba's revenues of USD 134 billion during the year ended March 2022 is about 100 times bigger than Shopee parent SEA's revenues of USD 10 billion for the year ended December 2021) and may outspend Shopee on marketing campaigns to drive growth. In addition, Lazada is likely to enjoy logistical advantages from integrations with Alibaba's massive logistics business - Cainiao Network - which could give Lazada an edge for instance in cross-border sales.
Lazada is also increasingly integrating a number of services perhaps in a bid to catch up to Shopee. Lazada already has its own mobile payment facility - Lazada Wallet - and the company will soon offer a Buy Now Pay Later service.
Lazada
Brief Overview
Lazada, backed by Chinese tech giant Alibaba has seen its popularity drop over the years (in contrast to rival Shopee who saw its popularity soar). Nevertheless, Lazada still remains as one of the most popular online marketplace platforms in Malaysia.
Lazada Is On Fire Again, And The Company Enjoys Financial And Operational Competitive Advantages Thanks To Parent Company Alibaba
Lazada, which at one time was Southeast Asia's leading eCommerce marketplace, gradually saw its market share erode to SEA-owned Shopee who continues to be ahead. However, with Lazada's parent company - Alibaba - seeing slowing growth in its home market, Alibaba is doubling down on overseas markets for growth, and Lazada appears to be one part of that strategy. Alibaba poured USD 912 million into Lazada in September 2022, on top of a USD 378.25 injection in May 2022, money which is being used to fund aggressive marketing initiatives to accelerate the platform's userbase and GMV. In Malaysia specifically, Lazada's marketing drive includes free shipping, cashback rewards, deals, and localized sales campaigns featuring local celebrities and influencers. Lazada is also looking at jumping into the Buy Now Pay Later (BNPL) trend, with plans to introduce the service, following rival Shopee who already offers the service through its 'SPayLater' BNPL facility.
Although Lazada has some way to go to overtake Shopee who has long been Malaysia's most visited eCommerce platform, Lazada does have a major advantage in having Alibaba as a backer; from deep pockets to unrivaled eCommerce experience and logistics infrastructure through its logistics affiliate Cainiao Network, Lazada has ample resources at its disposal thanks to parent company Alibaba, an advantage Shopee does not enjoy. Moreover, Cainiao Network's massive global logistics infrastructure which took years to build and includes an international eHub in Kuala Lumpur, could be another major competitive advantage for Lazada Logistics (Lazada's in-house logistics arm) in Malaysia's booming cross border eCommerce trade.
Sephora
Brief Overview
Leading beauty retailer Sephora, a retail arm owned by luxury goods titan LVMH, is one of the most popular prestige beauty retailers in Malaysia and they have very limited competition in this space. Kens Apothecary and to some extent Zalora are Sephora rivals, with both peddling luxury beauty products but Sephora is by and large the biggest player with the widest product range and store network. Moreover, Zalora's product offering is skewed towards fashion with the retailer selling apparel, footwear, and accessories in addition to beauty products.
Sephora Enjoys Advantages From Omnichannel Retail Strategy, In-House Product Line
In line with its omninchannel retail strategy, Sephora has a broad store network in major states across Peninsular Malaysia and East Malaysia, currently numbering about 18 stores in total (for comparison, rival Zalora has no offline stores in Malaysia while Kens Apothecary has about 6 stores, all of which are located in just one state - Malaysia's affluent state of Selangor. Kens Apothecary has no store presence in East Malaysia as yet).
Although an omnichannel strategy is costly, it gives Sephora a marketing advantage as the company is able to track the customer's purchase journey and build better customer profiles by combining both online and offline purchase data, all of which help Sephora better understand their customers to make more personalized product suggestions and thereby build customer loyalty and drive sales.
Sephora Collection - Sephora's private label cosmetics and skincare line which offers quality beauty products at relatively affordable price points - further adds to the retailer's differentiated market positioning; very few beauty brands in Malaysia can boast owning both the product and the sales channel, which not only offers advantages in product development (insights from customer interactions and purchase data allow enable the company to spot unfulfilled market demand) and marketing (which affords have greater control over display), but could also be potentially advantageous to the company's bottom line as well (since private label products generally carry higher margins for retailers).
Carousell
Brief Overview
Singapore-headquartered unicorn recommerce startup Carousell is one of Southeast Asia’s leading second-hand marketplace platforms. Malaysia’s second-hand marketplace sector is crowded with a number of players including Mudah.my, Facebook Marketplace, eBay Malaysia and Lelong.my, but Carousell is one of the more popular players (although in terms of Google Search trends remains far behind Malaysian recommerce stalwart Mudah.my, which Carousell acquired a few years ago).
Aiming For Exit By 2024, Carousell’s Growth Strategy Leans On Acquisitions And A Move Up The Value Chain
With Carousell company aiming for profitability and an exit for their investors by 2024 (Carousell’s backers include South Korean private equity firm STIC Investments and Temasek-backed Heliconia Capital), the company’s growth strategy appears to be focused on acquisitions (in Southeast Asia), and a move up the value chain (from low-value goods towards high value goods such as real estate and auto). In 2021, Carousell formed an auto division - Carousell Auto Group - directly aiming at the secondhand auto sales market.
In November 2019, the company merged with Singapore-based classifieds firm 701Search (a unit owned by Norwegian telecom giant Telenor Group), a deal that brought 701Search’s classifieds sites, namely Mudah.my in Malaysia, Cho Tot in Vietnam, and OneKyat in Myanmar, under the Carousell umbrella. Following the merger, Carousell’s valuation surged to USD 850 million, from USD 560 million previously.
After a brief pause during pandemic-ravaged 2020, Carousell was on the hunt again in 2021, scooping up Singaporean authenticated pre-owned sneaker and streetwear marketplace Ox Street in October 2021.
The momentum continued in 2022, with Carousell acquiring Indonesian pre-owned electronics marketplace Laku6 and pursuing Singaporean proptech platform 99 Group (the deal fell through however).
The acquisitions could help Carousell grow its market share in Southeast Asia, and a potential cross-pollination of technologies between platforms would tie well with the company’s strategic aim of moving up the value chain. For instance Os Street’s proprietary authentication process can be extrapolated to help Carousell offer and enhance value added services for second hand luxury buyers and sellers on its platform (such as its InstantBuy luxury goods seller program in Singapore, which could be extended to Malaysia as well).
Such a move could boost Carousell’s competitiveness in the recommerce space, and thereby help fend off rivals such as American recommerce giant eBay for instance who is making inroads into Southeast Asia, including Malaysia.
eBay currently has several competitive advantages including a global customer base for sellers (a major draw factor for sellers as it could not only drive more sales, but also potentially fetch higher prices), as well as deeper pockets (eBay is profitable while Carousell is loss-making).
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