Indonesia ecommerce growth opportunity: Reseller market

Indonesia’s e-commerce market is booming. In 2021, it became the ninth-largest e-commerce sector in the world, valued at $43 billion—nearly six times its value in 2018 ($8 billion), when McKinsey published its in-depth report on Indonesian e-commerce and its impact on the national economy.

According to that report, the vast majority—an estimated 85 percent—of merchants in Indonesia’s flourishing digital economy are resellers or distributors; only 15 percent of merchants sell their own products. These micro, small, and medium-size enterprises (MSMEs) occupy a large share of Indonesia’s e-commerce marketplace, representing an estimated 4.5 million active online sellers at the end of 2017. The country’s overall e-commerce adoption spiked during the COVID-19 pandemic and is expected to continue its rapid expansion, with 60 to 90 percent of consumers intending to continue shopping online.

But perhaps the pandemic’s most enduring outcome will prove to be the upsurge in one class of consumers: resellers, commonly overlooked by consumer goods companies, retailers, and e-commerce platforms.

A new McKinsey study of Indonesia’s online resellers revealed that this sizable market segment has several unmet needs that represent substantial untapped opportunities—especially for consumer goods companies and e-commerce platforms. The research for this study included interviews with resellers to assess their individual and collective experiences. In this article, we examine the opportunities available in the reseller segment, explore the four areas in which resellers’ growth potential is impeded, and discuss strategies for consumer goods companies, e-commerce platforms, and others to lower resellers’ barriers to competition (see sidebar, “Strategies to address resellers’ unmet needs”).

Harness reseller potential by addressing unmet needs

Like distributors, resellers purchase goods for the purpose of resale rather than consumption; unlike distributors, they source their inventory from intermediaries rather than directly from manufacturers. In Indonesia, these resellers range from individuals supplementing their income with a few ad hoc sales to multiperson networks for whom buying and reselling goods is a primary basis of financial support. Those who aspire to keep pace with distributors face significant obstacles. Without access to volume discounts, marketing tools, and other perks extended to distributors, resellers find themselves at a considerable disadvantage in an overcrowded marketplace.

This gap in support for the reseller segment represents a potentially sizable opportunity for consumer goods companies and e-commerce platforms: an estimated $115 billion to $125 billion in gross merchandise value (GMV) (exhibit).

Fast-moving-consumer-goods (FMCG) is the largest estimated portion of the online reseller opportunity, at $60 billion, or nearly 50 percent of market share in this category. Online sales of consumer appliances are estimated at $70 billion overall, with $25 billion to $30 billion coming from resellers.

Despite their potential as contributors to the digital economy and as consumers for online retailers, resellers remain underserved as a consumer class in Indonesia, and they face several critical impediments:

  1. Squeezed margins. Distributors, resellers, and consumers have equal access to inventory on mainstream e-commerce platforms, and competition is fierce.
  2. Lack of demand knowledge and pricing influence. Individual resellers can neither access data about demand nor purchase inventory as a community to manage unit costs.
  3. Low visibility. E-commerce platforms are crowded, products are highly commoditized, and resellers do not have access to value-added services on these platforms.
  4. Fluctuating social commerce (s-commerce) performance. S-commerce views, engagement, and sales are inconsistent, and additional tools and resources are needed to inform resellers and help them realize the full potential of social media platforms.

A number of straightforward and mutually beneficial approaches offer online retailers an opportunity to engage resellers, take advantage of the opportunities within this rapidly expanding market, and directly address many of the challenges stalling resellers’ growth.

Tiered pricing and special access enhance resellers’ purchasing capacity

Overcrowded Indonesian e-commerce platforms are highly commoditized: individual consumers and resellers compete and pay the same prices for the same inventory, and wholesalers and resellers compete for the same customers, whose purchasing decisions are driven almost entirely by price rather than by vendor or brand loyalty. Resellers’ margins shrink when distributors, resellers, and consumers have equal opportunity to purchase goods at the same prices.

An Indonesian electronics reseller operates a physical shop at a mall and maintains multiple online stores on popular e-commerce platforms. “If [a] distributor launches [a site on an] e-commerce [platform], we will get the same [price] as the consumer,” he said. “There’s no difference. If you want to move the distributor [to an e-commerce platform], then don’t allow the end user to also purchase there.”

When distributors sell directly to consumers via e-commerce platforms, they can offer pricing to resellers that is equal to or better than what they offer to resellers off-platform. This encourages resellers to act as consumers and buy from online distributors via e-commerce platforms, where they can also apply coupons to offset their purchases further. Microperks such as coupons have tremendous appeal to one reseller we interviewed. These incentives help offset her slim margins and allow her to purchase inventory at slightly lower prices than consumers. She said, “Distributor prices are sometimes higher than platform prices. It’s more beneficial to buy from [a] platform, especially after stacking coupons.”

In some cases, the top 10 percent of customers—typically resellers—drive up to 80–90 percent of GMV on Indonesian e-commerce platforms. Nevertheless, e-commerce platforms have not begun to offer tiered, loyalty-based, or volume-based pricing to their reseller customers. This is a missed opportunity because tiered entry and pricing for resellers could yield substantial increases in sales, especially among their most active B2C and B2B customers.

Access to data insights and community buying empower resellers’ inventory decisions

Microenterprises represent an estimated 99 percent of online resellers in Indonesia, but they often have limited access to working capital and supply-management tools to optimize their operations. Compounding these limitations are resellers’ lack of influence in purchase price negotiations and access to metrics such as inventory demand. This all creates uncertainty in procurement, preventing resellers from stocking merchandise in larger quantities. Consequently, they face a perpetual risk of running out of stock and losing sales as a result.

Individual operators need to predict demand for a product months in advance of when it will be offered for sale. “Production waiting time is long—up to two months,” said one reseller. “But because my products have an expiration date, I need to predict the demand when I’m making the order.” Without access to demand data, resellers have limited ability to grow their market share by taking advantage of low prices for soon-to-be-in-demand items; this dearth of insight also leaves them with unsold stock, further eroding their already razor-thin margins.

Some resellers have found ways to address these issues on an ad hoc basis.

A tableware reseller from Tangerang has many friends in his village who sell similar items. He represents a sector of resourceful, community-driven resellers who have banded together organically to take advantage of shared pricing discovery, increased bargaining power to access trade prices, and added stability from sharing and trading excess stock and supplies. “We don’t know what will sell, so it’s trial and error,” he said. “I don’t have the courage to buy in bulk in case I cannot get the demand. Sometimes I run out of stock and have to call my reseller friend to borrow their stock.”

Online retailers could achieve potential stability and growth by activating community buying as part of their broader e-commerce strategy. Retailers could also provide their data insights to resellers, along with visualization, planning, and app integration tools to help resellers understand and use the data to scale their inventory and avoid mismatches between supply and demand. One possible way to signal the desire for this change is for individual resellers to build and facilitate communities to pool and organize demand and resources to access better prices and reap economies of scale.

Curated collections and access to premium services help resellers stand out in overcrowded marketplaces

Mainstream marketplaces are highly commoditized and overcrowded with multiple sellers hawking similar products. Sellers struggle to differentiate themselves from one another and reach the right audience.

A microentrepreneur who produces and sells her own line of skin care products on e-commerce sites began as a drop shipper for Korean beauty products. High import taxes were undercutting her profits, and she was dissatisfied with the ambiguous safety standards of local cosmetic brands. She decided to contract with a local factory that could create products to her specifications and standards using Korean-made ingredients. If she could make her brand stand out in online marketplaces, she would have a considerable edge over her competitors. As she put it, “There are so many brands and sellers of the same thing; it is hard to differentiate ourselves.”

Another reseller games e-commerce platforms to mitigate this problem: “I have multiple stores in a single platform to engineer pricing competition and increase the chances of customers finding my store.”

This homogeneity trickles down to the consumer, making for an uninspired shopping experience. “All the platforms sell the same products,” said one frequent e-commerce shopper. Another said, “I think [sellers] are all the same. Same flash deals, same benefits, same payment methods.”

Online retailers can differentiate themselves by providing a curated and rotating assortment of items to create a novel experience more likely to entice customers consistently. They can also explore options such as carrying exclusive, white-label brands, either identifying a selection of proven traffic drivers or working with suppliers to offer margin advantages. Resellers would benefit greatly from privileged access to value-added services from e-commerce platforms; services such as supplier financing, forward purchasing, quick delivery, customer relationship management (CRM) insights, and marketing-campaign management could help resellers realize operational efficiencies and expand their customer reach considerably.

Marketing and content creation tools and training can boost reseller s-commerce

Blending entertainment, social networking, and instant purchasing, s-commerce is an emerging e-commerce paradigm in Indonesia that sellers find exciting yet daunting. They are intrigued by the promise of content-driven selling but readily acknowledge their deficits in understanding how to produce engaging and effective content. They struggle to maintain engagement while managing order logistics during live streams and lack incentives to overcome buyer preference for the perks and payment options available on e-commerce sites. Consequently, fluctuating views, engagement, and sales on social media are a frequent source of frustration for resellers.

“I only get five to ten viewers on TikTok, and nobody asks me anything during the live stream. They just come in and out. I feel down thinking about my low views and sales,” one reseller related. Another reseller predicts social media will soon replace e-commerce platforms: “TikTok is for this era. E-commerce platforms will soon be in the past as everyone is going live.” This same reseller acknowledged that she had not begun live streaming because she needed “to find someone talkative and funny to make the videos.”

One reseller sold clothing online for three years before she began live streaming, capitalizing on the social network she had built. For her, she said, live streaming is labor- and time-intensive, but the live interaction with customers is enjoyable and gratifying. Indeed, when done well, live commerce can increase conversions by keeping users tuned in for extended periods of time, help resellers distinguish themselves and their brand from competitors, and expand their current and future market share by facilitating engagement with younger audiences.

Online retailers in the United States and other markets often draw on user-generated content to foster community engagement. This approach helps reinforce existing communities’ sense of shared identity and associates that identity with a brand. The model for building what’s known as a “community flywheel”—in which brand advocates generate continued buzz and engagement—relies on specific marketing techniques and operations approaches and can bring high returns on low-risk investments.

In contrast, Indonesian online retailers approach s-commerce as a premium feature for third-party sellers rather than an intentional sales and engagement strategy. To engage more resellers and expand their networks, online retailers should implement mechanisms to build community flywheels by rewarding quality content, giving resellers access to creative talent and services, providing resellers with content creation tools, and facilitating exclusive brand and media partnerships.

Players stand to gain a much greater share of the Indonesian digital marketplace by incorporating e-commerce strategies that capitalize on the top four opportunities we’ve identified in the $115 billion to $125 billion reseller segment. Supporting this critically important segment will not only boost the overall digital marketplace but also empower individuals who otherwise must continue to make do, subject to the vagaries of selling online in an information vacuum. Both results lead to a stronger Indonesian economy and society.

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