Indonesia’s E-commerce Market Larger Than Estimated; Consumer Habits Changing: Study

Jakarta. E-commerce accounted for 8 percent of total retail sales in Indonesia last year, on course to reach 18 percent by 2023, fueled by changing behavior among tech-savvy customers who are willing to spend more for convenience, according to a recent study by American multinational investment bank Morgan Stanley.

The study estimates the size of Indonesia’s e-commerce market at $13 billion in 2018, having grown by 50 percent annually over the past two years. It suggests that the e-commerce market in Southeast Asia’s biggest economy may follow a similar growth trajectory to that of China and expand by at least 32 percent annually over the next five years to $52 billion in 2023.

“This is notably above our previous estimate of $7.3 billion, or 4.4 percent of sales, partially due to better data availability but also due to the rapid growth in the user base… Indonesia is now only five years behind China in terms of penetration,” Morgan Stanley wrote.

A separate study by global tech giant Google and Singapore’s Temasek, published last December, put the size of Indonesia’s e-commerce market at $12.2 billion in 2018 and $53 billion in 2025.

The Morgan Stanley study, based on interviews with 1,582 respondents in eight Indonesian cities, suggests that the growth trend is still in an early stage, with many indicating that they only started shopping online in the past year.

“Interestingly, 65 percent of the respondents in our survey had only started shopping online within the past year, and the majority believed e-commerce would become their main method of shopping over time,” the investment bank wrote in the report published on Tuesday.

“There are 195 million smartphone users in Indonesia and only about 30 million online shoppers. The growth potential of the user base is still clearly huge,” it wrote.

Apart from smartphone penetration, low data costs and the growing number of people with bank accounts serve as crucial enablers for continuing e-commerce growth, Morgan Stanley said. Data costs about 50 US cents per gigabyte in Indonesia, compared with $2.1 per gigabyte in China. About 49 percent of the adult population in Indonesia now has a bank account, compared with 20 percent in 2011.


Clothing and footwear fuel the sales growth, with 93 percent of respondents indicating that they bought items in this category online in the past 12 months. Half of them buy apparel at least once a month, Morgan Stanley said. In comparison, only 16 percent and 25 percent, reported that they purchased consumer electronics and mobile devices, respectively, which is the most common category in early state e-commerce.

The study also noted changing customer behavior, which would likely affect their interaction with traditional brick-and-mortar stores. Three in every four customers said they would check for promotions or prices online before buying anything offline, Morgan Stanley reported.

Seven in every 10 said they would continue shopping online, even if it meant they would have to pay for delivery. Morgan Stanley said this reflects consumers’ “willingness to pay for convenience.”

“Fast shipping was the primary reason for preferring one website over another,” the bank said.


The trend presents challenges to traditional retailers to remain profitable and provides a powerful platform for small brands to challenge established manufacturers.

“Our analysis reaffirms our medium-term concern for apparel-focused retailers like [Matahari Department Store]. The average transaction size for apparel online, per our survey, is similar to Matahari’s basket size,” Morgan Stanley said.

“For beauty and personal care companies like Unilever, the combination of e-commerce and digital media is making it easier or cheaper for smaller companies to build brands and offer nationwide distribution,” it wrote.

Everybody’s Game

Investment in Indonesian internet companies has steadily risen over the past two years, which saw them attract at least $7.4 billion in the capital in 730 deals.

With all this potential growth, Morgan Stanley has yet to see clear winners in the country’s e-commerce market.

Four players control most of the formal e-commerce sales: Lazada, Shopee, Tokopedia and Bukalapak, with the top three each controlling between 20 percent and 30 percent of the market. Bukalapak was in the low teens, according to Morgan Stanley’s estimation.

Lazada, a pioneer of e-commerce in Southeast Asia, is still the most preferred platform, according to the bank’s survey

“Lazada had high usage rates across categories and genders. The cash-on-delivery option was one of the key drivers of the preference,” it said.

Shopee was second overall in terms of usage and preference, being more popular in smaller cities and among people buying baby products, toys, and beauty and personal care products.

“Tokopedia’s preference and usage were lower beyond Jakarta in our survey. Its usage rate was only 38 percent in second-tier cities like Surabaya, Medan, and Bandung, compared to 62 percent in Jakarta,” Morgan Stanley said.

A surprising find in the survey is that Tokopedia and Bukalapak both enjoy more than 80 percent customer recognition, but less than 50 percent had made purchases on their platforms within the past 12 months.

“For Southeast Asia, we remain convinced that its e-commerce platform is being undervalued. Our survey not only confirms the popularity of Shopee but also that its users are willing to pay for delivery, which solidifies its path to profitability,” Morgan Stanley said.



Share this post