Reshaping E-Commerce in Sri Lanka: Prospects Post COVID-19:

The COVID-19 global pandemic is likely the defining event of the decade, if not more and its implications are expected to change the way we work, socialise, and behave. Rapidly evolving consumer buying behavior and the pivot to online shopping is one such outcome of the pandemic and its associated social distancing measures.

SL’s US $ 450-500mn opportunity:

Currently, the global online retail market is valued at US $ 3.5 trillion (2019) and this is expected to reach US $ 5 trillion in 2021. Growth will be led by Asia, with the region already accounting for more than half of global sector revenues.

In Sri Lanka, online retailing penetration is still less than one percent and there is plenty of room for disruption. Asia Securities estimates the Sri Lankan online retail market to be a US $ 450-500 million opportunities over the next five to six years. 

SL’s US $ 450-500mn opportunity:

Currently, the global online retail market is valued at US $ 3.5 trillion (2019) and this is expected to reach US $ 5 trillion in 2021. Growth will be led by Asia, with the region already accounting for more than half of global sector revenues.

In Sri Lanka, online retailing penetration is still less than one percent and there is plenty of room for disruption. Asia Securities estimates the Sri Lankan online retail market to be a US $ 450-500 million opportunities over the next five to six years. 

The sector still largely focused on electronics:

While the local online retail sector has, thus far, focused largely on consumer electronics, new categories like fashion, healthcare, and groceries are emerging. Social platforms are also fast proving to be a powerful distribution channel for small businesses, which are leapfrogging the web and going digital with ‘social-first’ models. 

Sri Lanka’s 6.2 million active social media user base and the rising number of Internet users and mobile broadband connections mean that businesses are increasingly dependent on social media for customer acquisition. 

Closing e-commerce gap:

Payments and last-mile logistics are the greatest challenges to e-commerce growth.

Cash on delivery (COD) makes up nearly 80 percent of online order payments in Sri Lanka, while bank transfers are the go-to option for social commerce. Consumer scepticism, slow adoption of cashless payments, and debit/credit card issues (not all cards are automatically activated for online payments) fuel this reliance on COD. The prevalence of COD is also attributed to newly established merchants, who are unable to opt for expensive payment gateways set-ups. 

While local aggregators are offering plug-and-play platform solutions with secure payment gateway systems, adoption is slow and start-ups in this space are constrained by a lack of investments. Although fintech remains ripe for growth, the traction for mobile wallets has been slow locally.

Logistics remains the other significant bottleneck in Sri Lanka’s e-commerce ecosystems. However, the emergence of last-mile delivery operators has helped solve some of these bottlenecks in recent years. This has helped bring down delivery costs and birthed solutions like islandwide access and same-day/next-day delivery. 

The last-mile delivery space has also been a key beneficiary in the post-COVID-19 e-commerce surge. The sector is expected to benefit greatly from the expected broad e-commerce growth on the island. However, considering a large number of small regional players in the market, some consolidation in the last-mile space over the long-run is expected. 

Investors to fuel the next wave of e-commerce:

The growth of the sector is somewhat constrained by the lack of funding for start-ups in the space. While the sector, which has seen the support of angel investors and venture capital funds, in the past few years, capital raising has been hampered by expectations of long investment periods, limited scalability, and unproven exit strategies. 

New normal?

The current pandemic experience has potentially changed customer behaviour forever. Nearly 53 percent COVID-19 E-commerce Survey respondents claimed that they would still opt for online shopping in the months immediately following the lockdown; gas, non-perishable essentials and home and personal care topped the list of products that consumers hope to purchase online post-lockdown.

Navigating new realities:

The growth of e-commerce in Sri Lanka is not without challenges. Ongoing urbanisation means that large retailers are likely to continue with expansions and store-based operations will remain strong. Online retailers will have to continuously innovate to compete with offline retailers in Sri Lanka’s fairly small market space. 

This disruption in the supply chain means that the brand is now prioritising a shift to near-shoring. The brand is also working on getting rid of inefficiencies in its value chain in anticipation of reduced spending on consumer discretionary goods.

It seems that the current pandemic has provided the online retailing sector and all its adjacent value chain players, the catalyst for growth that most countries around Sri Lanka have already experienced with resounding success.