A stress test for MSMEs

At around this time every year, as the back-to-school season begins in the Philippines, market vendors would normally brace for the familiar surge of parents with their school-age children in tow, looking for notebooks and pens, school uniforms and shoes, getting ready for the opening of classes. In Divisoria, the country’s biggest mass-market commercial district, this is practically a ritual. Here, it is an annual sprint, where small traders convert foot traffic into cash before classes begin. While Divisoria is the biggest by far, this rush is replicated many times over in community markets all over the Philippines.

But according to some recent reports, this year’s school opening sales felt different. Several vendors reported lower-than-usual demand and slower-moving inventory compared with the years before the pandemic. It wasn’t necessarily because supplies were more expensive or the need for school essentials disappeared, but because consumer behavior is changing; some even observed that it was shifting, increasingly, online.

Children still need their school bags and notebooks and parents still shop for school necessities, but more of them are spreading purchases across physical stores and digital channels. In other words, Divisoria’s competition isn’t just another stall across the street – it’s the “Add to cart” button.

One can hardly blame today’s shoppers; online commerce makes shopping more deliberate and easier. Gone are the trust issues that used to hinder online shopping; today, platforms and tools help shoppers compare options and shop with confidence, making online purchasing more attractive even for everyday necessities. Put simply, the market didn’t stop buying; some buyers just changed where they buy.

Bear in mind also that the parents of today aren’t the same ones as during the heyday of Divisoria. They’re already shopping online, traffic is still bad and patience isn’t like what it was before. If they wanted a pleasant, window-shopping experience with the children, they would go to more comfortable venues, like a shopping mall. Today, having hardly any time or patience, they whip out their phone and shop online. For the Divisoria vendor, unless you’re a bulk seller hoping to get the micro-retailers to buy from your stock, this change should be concerning.

Divisoria is famous for its scale, which is built from many small players. That’s what makes it an MSME powerhouse – and what makes it fragile. Traditional street commerce assumes that foot traffic equals conversion. That its inventory is seasonal in nature gives it a short window. Its marketing is face-to-face.

Online, shoppers can check prices instantly, compare products across sellers, use vouchers and promos and place orders without the hassles of the commute.

In an online future, the store that reaches the buyer first (and with enough trust, convenience and price transparency) wins the sale. If there’s a lesson that this back-to-school sales slowdown teaches, it is that MSMEs may be facing a changing future sooner than later. Digital habits are replacing – gradually, not overnight – some of the reliance on physical shopping.

If we want small businesses to survive and grow, we need to treat this as a capability gap that must be funded, trained and supported through infrastructure development, mentorship and policy. Having digital-savvy MSMEs will be key to unlocking what is estimated to be a $2-trillion digital economy in the near future. If we start now, we will have an army of digital-ready MSMEs who could easily scale and drive our economy, not just locally, but regionally as part of a digital ASEAN economy.

Many of our mentees at our free public entrepreneurship roadshows at Go Negosyo have already built their own digital storefront through platforms like Shopee, Lazada, FB and TikTok Shop. Here, they sell everything from hair ties to car tires; they capitalize on visuals, create bundles and even do the sales pitches themselves through creative content.

Customers love online shopping because it’s always on. They can shop in the middle of the night and hunt for bargains without the hassle of going physically from store to store. Here, some savvy online sellers offer promos online as they would on the ground. These sellers have learned demand planning, where they plan promos around product availability and margins. They list items and use promo bundles around known shopping periods (the monthly sale days, celebratory holidays, even the weather) rather than by item-by-item discounts. They can adjust quickly, especially if the platform provides them with the data analytics tools. These can happen even before the peak foot-traffic window starts.

Online sellers also know the importance of reputation and trust-building. Word gets around very fast in the online shopping community, and that’s a good thing. The competition to win consumers’ trust is an all-important driver of sales, and loyal customers, thanks to the quick, easy navigation of online storefronts, always come back.

Street vendors often stock heavily for one rush. Digital selling enables more continuous turnover.

An advantage of online sellers is that they can restock in smaller batches based on sales data, which is made available to them via the shopping platform. Using this, they can preorder bundles, avoid overcommitting to items that do not move quickly online and seek collaborations to group-buy fast-selling items and negotiate better stock procurement. Long-time partners can also collaborate on content creation and achieve efficiency in promotions and other things that would cost more if done alone.

What this does is protect cash flow – a core MSME constraint.

Will traditional retail become extinct? Probably not. There is still something to be said about in-person shopping, especially with Filipinos. The online storefront can be an extension of the MSME’s physical store, where they can have search traffic in addition to foot traffic. This can let them go from peak-season dependence to year-round resilience, and possibly prepare them for a digital future.