Question

Southeast Asia’s online shopping boom is here to stay, even after the pandemic Southeast Asian shoppers will likely continue buying groceries and other essential items online — even after the coronavirus pandemic ends, according to research from consultancy Bain & Company and Facebook. A new report from the two firms said e-commerce and other digital trends across the region were accelerated by the Covid-19 outbreak — the disease that has infected more than 7 million people worldwide. “Some of these trends are here to stay,” Praneeth Yendamuri, a partner with Bain & Company based in Singapore.“One of the trends we identified was essential online shopping, and that’s here to stay,” he told CNBC’s “Street Signs” on Tuesday. He explained that online groceries are a massive category that is relatively underpenetrated due to logistics and other reasons. But the sector grew nearly three times during the outbreak in Southeast Asia, and one in three users who were surveyed said they planned to continue buying their groceries over the internet in future, according to the report. Total grocery spend in Southeast Asia is roughly around $350 billion, and online grocery accounts for a fraction of that overall value, but it is gaining traction, according to industry experts.  Alibaba-backed Lazada, which operates across the region, recently told CNBC its online grocery sales in Singapore jumped four times from early April — since the city-state introduced movement restrictions as the number of coronavirus cases intensified. Even after economies are fully reopened, people in Southeast Asia are 1.5 times less likely to go out in the future compared to their American counterparts, which would mark a massive culture shift in the region, according to the report.

Assuming that at present you are working at a retail outlet which has no online presence yet. Based on the article above, convince your employer on why he should consider e-commerce, as an alternative channel for their customers.

1. Holding other variables constant (ceteris paribus) - illustrate using relevant (and completely labelled) diagram(s) the effect of this trend on the demand curve for online and offline retail stores.
2. In light of the above issue, briefly explain other two (2) factors that may shift the demand curve in favour of the online stores.
3. If at the same time, more retailers participate in e-commerce, illustrate (using relevant and completely labelled diagrams) the possible implication(s) on the market equilibrium of online retailing industry.

Answer 1

Reasons that convince my employer to get into the e-commerce channel

* Cost-efficient - Minimal labour effort is required and time saving in taking orders and solving customer queries.

* Increased Sales - As online store offers customers the convenience to shop from home, this ease of shopping allows that purchase more and diverse range of items.

* Less Expensive - As there is reduced use of electricity and other immovable infrastructure, it reduces the expenditure of the firm.

* Infinite stocks and sales - Stocks hereby means diverse range of products available on the shopping window and there is no limit for sales as it is accessible 24/7.

a.   As the pandemic hits the world a huge spike in online groceries sales as ot constitutes the essentials of a human i.e. it caters to his needs for survival.

As per the question by keeping other factors constant and considering the rise in online grocery sales it is very much evident that the pandemic guidelines and its dangers have kept people indoors and shop over the internet to avoid the dangers of becoming prone to the Covid-19 virus.

The demand for retail store-fronts shifted towards online grocery sellers i.e. retail e-commerce for groceries and other essentials.

It is illustrated below using the diagram in the image:

In case of Online stores the sales rose becasue of the pandemic as well as the lockdown and the demand curve shifts from DD1 to DD2.

However, for physical stores or store-fronts the sales dippped due to the pandemic as wells as the lockdown and the demand curve for them moved from DD4 to DD3.

Thus, post pandemic lockdown situtation as well provoke customers to go online as they would follow the thumb rule of "stay home stay safe"

b. Other two factors

* Less costlier than retail store fronts and easy to find the availability of the products.

* TIme-saving as people neednot stand in long ques and enjoy home delivered products at the convenience of online shopping.

c.  As more firms enter the online retail industry, there will be a situation where the profits get equitably distributed among the market players and everyone esrn normal profits.

The diagram depicts the cost incurred by an dindividual firm and as more firms enter the industry there is an equilibrium established at point E on the Online retail industry diagram where equilibrium price is P and equilibrium quantity is Qi.

Implications on the online retail industry

* More players thereby reduced cost of products.

* A wider market for the customers

* Perfect Competition in the market - Hence, firm is the price taker and the demand supply forces of industry is the price maker.