Resilience of Retail Players Amid E-commerce Boom in Asia

Opportunities in the World of E-commerce

Retail: Retail players resilient amid e-commerce boomAsia’s  e-commerce  landscape  has  been  booming  in  recent   years.  The  swift  adoption  of smartphones and greater access to the internet have allowed consumers in the region to be a major force in the global digital economy. The expansion looks set to continue at a rapid pace. According to  a  November  2018  report  by  Fitch  Solutions,  e-commerce  sales  in  the  region  are  forecast  to increase by 14.2% this year, with an estimated average annual increase of 14% over the medium term (2018 to 2022).Malaysia posted the strongest growth in the region at 20%, a trajectory that will see e-commerce sales in the country rise to a projected US$12.9 billion in 2022. Industry players have started to capitalise  on  the  opportunities  this  offers.  Lazada,  an  investee  company  of  Rocket  Internet  that was founded in 2012, is one of the biggest players in the country. The online marketplace is backed by Chinese e-commerce titan Alibaba Group. Lazada is currently present in six countries, with a total of 400,000 sellers, thousands of brand partners and more than 100 logistics partners. During last year’s “Singles’ Day” (Nov 11), Lazada Malaysia broke  its  2017  sales  record  of  RM111 million within the first nine hours of the sale.Andrew Gnananantham, chief marketing officerof Lazada Malaysia, says the company makes the most out of its data, technology and global resources [from Alibaba] to continuously enhance the consumer experience, in line with their purchasing behaviour. “The opportunities in the world of e-commerce  are  endless.  Being  unencumbered  by  physical  and  geographical  barriers  allows  for creativity and variation in finding ways to reach, engage and sell to consumers,” he says.There is also a number of new players such as Kumoten, a business-to-business platform that helps sellers start and manage their online business at the lowest risk possible. Its target users are those who  want  to sell  online,  but  do  not  have  the  necessary  resources  for  the  back-end,  such  as  the
Principles of Marketing                     MKT60104Dr. Song Bee Lian                           202003FEpackaging  and  delivery  of  the  products.  Users  can  select  products  from  Kumoten’s  online catalogue and put the items up for sale on other marketplaces. When a product is sold, users pay Kumoten the wholesale price while buyers pay the full retail price. The company will then pack and deliver the product directly to the buyer. Users can select and list as many items as they like without  paying  anything  up  front.  So,  their  risk,not  to  mention  overhead  costs,  is  significantly reduced. “For many years, people thought that selling online would be easy. But it is not. In fact, it  is  actually  risky.  There  have  been  many  cases  of  failure.  There  have  been  many  who  bought products from overseas suppliers only to end up being cheated. Those who did not know how to manage their businesses ultimately had to give away their goods as gifts,” says Kumoten CEO Isaac Leong. “We are enabling ordinary citizens to trade online. With Kumoten, more Malaysians can leverage the rapid e-commerce growth instead of just the privileged few with cash to invest.”The smaller players are not the only ones tapping the huge business opportunity. Astro Malaysia Holdings  Bhd  saw  the  potential  of  the  space  few  years  ago  and  launched  its  online  shopping platform Go Shop in 2016. The platform is operated by Astro GS Shop Sdn Bhd, a joint venture between Astro Malaysia and South Korea’s GS Home Shopping Inc.“Back when we were still considering this joint venture, ourhousehold penetration was about 60%. So, we did have access to a large number of consumer homes. When we spoke to some of the TV shopping  business  operators  overseas,  we  found  that  we  had  all  the  resources  needed  to  start  a platform  that  offered  somethingother than pure TV content to our consumers,” says Astro GS Shop CEO Dr Grace Lee. Go Shop is broadcast on three 24-hour Malay and Mandarin channels and  is  available  on  web  and  mobile  platforms.  It  is  also  present  in  Singapore  through  its collaboration with  a local home shopping player.  The platform —which  has a user base of 1.3 million —is home to 500 brands, with 8,000 products from various merchants and brand owners.Go  Shop  did  very  well  last  year.  For  its  financial  quarter  ended  Oct  31  last  year,  the  platform recorded  revenue  of  RM275.2  million,  up  34.2%  from  the  previous  corresponding  period.  This was due to more products sold, which was mainly driven by the tactical campaigns carried out to capitalise on the three-month tax holiday and the company’s anniversary celebrations.Last year, Go Shop launched celebrity-anchored live shows, which proved to be a hit. Recently, the platform recorded its highest product sale in a span of just two hours when it featured local celebrity and entrepreneur Datuk Seri Siti Nurhaliza on a live show selling a collection of cooking utensils.  It  sold  seven  times  its  target  amount.  This  year,  Astro  GS  Shop  intends  to  grow  its commerce segment within the Astro ecosystem by combining its growing online presence via web and over-the-top platforms, its access to data, analytics and artificial intelligence (AI), as well as its strengths in on-screen talent and content production, says Lee. “While we still collect valuable insights via traditional focus groups, we also make use of the huge amount of data collected at the beginning  when  we  started  the  TV  business.  With  that  data,  for  example,  we  know  the  kind  of content that households in certain areas would consume and how we can curate and tailor the Go Shop  content  accordingly.  We  also  use  data  analytics to  recommend  purchases  to  our  web  and mobile users.”The  e-commerce sector’s contribution to GDP is going up. Last December, International Trade and  Industry  Minister  Darell  Leiking  said  e-commerce  contributed  RM85.8  billion  in  2017 compared with just RM37.7 billion in2010, with an average annual growth rate of 12.5%. The
Principles of Marketing                     MKT60104Dr. Song Bee Lian                           202003FEgovernment is targeting an annual growth rate of 20%. The Malaysian government has introduced various initiatives over the years, the most prominent being the establishment of the Digital Free Trade Zone (DFTZ) in 2017. The DFTZ is an electronic trade hub located near the Kuala Lumpur International Airport.What about the traditional players?While  the  online  boom  has  impacted  traditional  bricks-and-mortar  retail  players  in  Malaysia  in certain sub-segments, players in other segments have succeeded in using e-commerce to redefine their businesses and thrive in the digital economy. Emmanuel Coucke, partner at Bain & Co, says that thus far, online sales have made up a small portion ofthe total retail sales globally. In most cases, the stories of bricks-and-mortar retail players filing for bankruptcies have little to do with the competition for online sales. Instead, they are more connected to other complex issues, such as high leverage and mismanagement, he adds. “While it is true that part of the [consumer] spending pie has gone to the e-commerce players, offline retail is still experiencing growth. Over the past five  years,  pretty  much  all  of  the  emerging  markets  experienced  positiveoffline  retail  growth, albeit at a lower rate of 1% to 2% compared with the historical range of 3% to 5%,” says Coucke.“Obviously, there are some specific verticals that have been heavily disrupted such as electronics and fashion. But in general, offlineretailers are still doing relatively well.”The same can be said for Malaysian retailers. While retail sales growth may have slowed over the years,  e-commerce  is  not  the  main  culprit,  say  retail  associations.  On  Jan  14,  Retail  Group Malaysia  (RGM)  announced  that  the  association  had  projected  a  growth  rate  of  4.5%  for  the country’s retail sector this year, slightly lower than the forecast of 4.7% for last year. According to  the  association,  consumer  and  business  sentiment  in  the  local  retail  sector  is  expected  to moderate this year as the economy will be mostly driven by private consumption and investments amid curtailed government expenditure.Last July, RGM managing director Tai Hai Hsin was quoted as saying that online retail sales only accounted for about 2% of the total retail sales the previous year. He said he firmly believed that e-commerce  would  not  replace  physical  stores  anytime  soon.  Instead,  they  would  complement each other. Meanwhile, a recent survey done by the Malaysia Retail Chain Association (MRCA) revealed that online sales made up only 3.9% of its respondents’ retail revenue. The respondents represented  59  brands  and  2,266  stores  across  a  variety  of  trade  categories.  However,  the association  pointed  out  that  the  digital  economy  is  here  tostay.  So,  retailers  should  not  be threatened by e-commerce. Instead, they should embrace technology to drive their businesses by using the omnichannel or online-to-offline (O2O) approach.Omnichannel  refers  to  the  multichannel  sales  approach  that  provides  the  customer  with  an integrated shopping experience. The customer can seamlessly shop online from a desktop, mobile device or at a physical store. For example, fashion retail brand Uniqlo allows customers to buy its products online —either via its website or mobile app —and collect them at their preferred outlet.“Customer experience, value and productivity can be increased through initiatives such as AI, the Internet of Things urs. He says the adoption of the omnichannel approach will not only complement their offline businesses but also present them with new opportunities. “Not many people realise this, but even online-only retailers are slowly taking their businesses offline to address the limitations of their purely digital business model.“For certain products, customers want to touch and feel what they are buying. They also expect a certain level of customer service, which may not be experienced through online transactions.” For a start, these bricks-and-mortar retailers do not necessarily need to go all out to adopt this approach. In fact, they do not even need to have ane-commerce platform, says Coucke. They could start by establishing an online presence and leveraging basic tools to enhance their business. “For instance, they  could  have  an  online  product  catalogue  to  enable  virtual  fitting  rooms  or  a  digital  tool  in physical stores that allows customers to pre-order products. While these may not sound like a lot, they  are  steps  in  the  right  direction  that  could  make  a  real  difference  to  these  businesses  going forward,” he says.Addressing challenges and future trendsIn Malaysia, many of the local retail brands are  not moving fast enough  to win in e-commerce, says  Kumoten’s  Leong.  He  notes  that  while  some  are  moving  aggressively,  such  as  home improvement store Mr DIY and food and beverage operator Old Town White Coffee, others have yet  to  figure  out  a  suitable  digital  transformation  strategy.  That  said,  the  e-commerce  space  in Malaysia  is  still  maturing.  A  few  key  challenges  have  yet  to  be  addressed,  such  as  inefficient logistics and fulfilment processes. Leong, who hada short stint as store director at Carrefour, says logistics have been a huge challenge.“You need to have a strong team dedicated to developing the e-commerce business. The inventory management system needs to incorporate a good online ordering system. While large hypermarket chains  may  have  the  resources  to  invest,  do  they  have  the  knowledge  to  manage  the  order-to-fulfilment process? “I tried to buy my household groceries via a local hypermarket’s online portal, but later switched to Lazada because of the poor user experience. Perhaps realising that its own online store model was weak, this hypermarket opened its official store on Lazada’s marketplace. This way, it can leverage Lazada’s more efficient fulfilment service to handle the stock keeping and fulfilment service.”Another challenge in the ecosystem is the payment channel, considering that many Malaysians are still  reluctant  to  go  cashless.  A  Jan  3  report  by  Nielsen  revealed  that  while  65%  of  Malaysians have a debit card, cash is still king when it comes to everyday expenses. Meanwhile, only one in three consumers still pay for their utilities in cash. According to Astro GS Shop’s Lee, when Go Shop started in 2016, almost 90% of the transactions were cash-on-demand (COD). This meant that logisticspartners had to carry cash when making deliveries, which was neither efficient nor secure. Thanks to continuous conversations with logistics partners and financial institutions, pure COD transactions have now decreased to 60%. “In urban areas, we have done a lot to encourage cashless  transactions.  But  more  needs  to  be  done  outside  these  areas.  We  want  to  see  a  higher adoption rate of cashless transactions throughout the country,” says Lee.
Principles of Marketing                    What is next for Malaysia’s e-commerce space? Lazada’s Gnananantham foresees a move towards personalisation,  using  AI  to  create  better  product  relevance,  which  will  allow  e-commerce platforms to better predict and fulfil consumer demand. Also, he observes that AI will be deployed at fulfilment centres and logistics warehousing systems to significantly reduce delivery lead time for local and international shipments. A further integration of the O2O shopping experience is also expected, says Gnananantham. “The key is to provide ease and convenience for customers. The introduction  of  multiple  payment  options  with  the  convenience  of  picking  up  and  dropping  off items  at  selected  convenience  stores  will  result  in  an  increase  in  online  businesses  enabling multiple touchpoints for customers to make purchases.” He adds that going forward, key opinion leaders are expected to strongly influence customers’ online purchasing decisions, particularly in the health and beauty, fashion and electronics categories. There will also be an increase in curated video   content   from   brands,   such   as   make-up   tutorials,   product   reviews   and   cooking demonstrations. “Categories such as groceries, daily essentials and household products, and digital goods and services are set to become industry game changers this year. The introduction of loyalty programmes with rewards, promotions and discounts from top partners will also be more widely available,” says Gnananantham.Question 1(MLO 1)Discuss  the  changes  in the FIVE  (5)macroenvironmentfactors  that  have  contributed  to  the business growth for the online retailers. (25marks)Question 2 (MLO 1)Identifythe value delivery network of the online retailersin delivery customer value. (5marks)Question 3(MLO 1)Discuss  any FIVE  (5)benefits  generated  by  the  value  delivery  network  of  the  online  retailers. Provide your clear justification on the benefits.(10marks)Question 4(MLO 1)Discuss FOUR (4)improvements needed onthe value delivery network of the online retailersto further enhance their competitive advantages. Provide examples in your explanation