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E-COMMERCE SHAKEUP

Supermarket stocks battered as orders flood Amazon Prime Now

Market watchers say existing e-commerce platforms will take a hit, but impact on malls unclear in the near term

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lGIANT e-commerce player Amazon's launch of Prime Now is shaking up the local e-commerce landscape, even as many orders on Thursday failed to meet the promised two-hour delivery window due to overwhelming response.

Singapore

GIANT e-commerce player Amazon's launch of Prime Now is shaking up the local e-commerce landscape, even as many orders on Thursday failed to meet the promised two-hour delivery window due to overwhelming response.

For a start, Prime Now is expected to cannibalise demand on existing e-commerce platforms, market watchers say.

But whether it will deal a bitter blow to the earnings of brick-and-mortar retail shops remains to be seen; its eventual impact on retail malls is also less discernible for now.

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Jochen Krauss, pricing specialist at consultancy Simon-Kucher & Partners, said: "(Amazon's) strategy is clear. It's not making a price move, it's making a quality move. In many markets, the bottleneck of e-commerce is fulfillment."

He reckons that online grocers such as RedMart and honestbee would be hit by Amazon's entry, and so could one-stop consumer electronics chains such as Harvey Norman and Courts.

Savills Singapore executive director for retail and lifestyle Sulian Tan-Wijaya said it is hard to quantify the impact of Amazon's Prime Now on physical retail malls, which have been confronted by the threat of e-commerce for a while now.

"E-commerce will only get more saturated going forward. If it is not Amazon, someone else is going to do it. The threat is not going away," she said.

Operating from its fulfilment centre at the Mapletree Logistics Hub on Toh Guan Road East, Amazon is offering a selection of 20,000 products ranging from groceries and beauty products to consumer electronics, with the promise of delivering them within two hours.

But on its Thursday debut, the delivery slots on Thursday and Friday were all filled up after 3pm. When approached by The Business Times, Amazon maintained that it continues to meet its delivery promise on orders within the designated two-hour delivery window.

Its spokeswoman said: "Customers can choose from delivery windows based on availability. Due to great customer response today, delivery is currently limited."

In the short-term, however, existing e-commerce players still have an edge, said Mr Krauss; the average supermarket has about 50,000 items, he noted, while Amazon Prime Now is starting with 20,000.

The challenge will come if Amazon scales up its offerings and proves itself able to deliver reliably and on time, he added. "Then, you'll have a powerful competitor. Amazon would get the dominant market position it has in many other markets."

While the incumbents might be tempted to compete on costs down the road, he suggested that players try to create an edge by positioning themselves in a niche segment, be this in organic food, or by value-adding with recommendations or offering centralised pick-up points.

Supermarket chain operator Sheng Siong Group, when asked if it expects Amazon's Prime Now to disrupt offline supermarket sales, said that this will happen in the long-run.

Stock punters seemingly held the same view: shares of Sheng Siong slid 4.5 per cent on Thursday to S$0.95, after 16.9 million shares changed hands. Shares of Dairy Farm International, which operates Cold Storage, Giant, 7-Eleven and Guardian stores here, fell 0.4 per cent to US$8.14.

But Sheng Siong is not standing still. The group said it will have to bring in better-quality products and continue to be cost effective. Its online sales account for under one per cent of its total sales.

NTUC FairPrice, noting that the e-commerce landscape is highly competitive, said it continually works to improve its customers' e-commerce experience. "We look forward to announcing fresh enhancements to FairPrice Online later this year, which will leverage our omni-channel capabilities to meet customers' needs," its spokeswoman said.

But observers believe that the presence of Amazon's Prime Now on the scene is in its early days, and that more trades could be hit when the e-commerce giant rolls out more product offerings on its platform. This may translate to a more discernible impact on retail space demand.

Knight Frank's head of retail Wendy Low said that what is clear is that landlords have to constantly think of how to reposition their shopping malls with more experiential and lifestyle concepts. Many landlords are already embracing the changes in the retail scene, helping their retailers adopt omni-channelling - which combines online and offline shopping experiences.

A CapitaLand spokeswoman said: "In this day and age, neither an offline-only nor online-only business model will work." Rather, it is in a combination of offline and online (O&O) where long-term success can be found, she added.

CapitaLand is using the redevelopment of Funan to introduce new concepts with retailers and to introduce co-working spaces and co-living apartments; it also leverages on digital tools such as its CapitaStar rewards programme to provide a seamless O&O experience and to harness data to enhance customers' shopping experience in its malls.

"We will continue to work with our business partners and forge new strategic alliances to future-enable our malls and support our retailers in embracing an omni-channel business model that meets the needs of consumers."

New retail space islandwide is expected to peak next year at 258,000 gross sq m, mostly coming from the suburban or the Outside Central Region.

In the first quarter, the island-wide vacancy rate for Singapore retail space stood at 7.7 per cent - despite a 2.9 per cent quarter-on-quarter decline in rents.

Credit Suisse on Thursday flagged the nascent signs of a turnaround in retail sales, although it noted that segments such as supermarkets, minmarts and clothing and footwear were still weak. Its analysts believe that the recovery could broaden in the coming quarters.

They said: "We believe retail Reits are well leveraged to the recovery, as the location and strong management of their malls have led to an outperformance of tenant sales. The average sales per square foot for retail Reits was about S$1,000 per annum, close to twice the national average of S$589."

DBS senior vice-president for group equity research Derek Tan said he does not expect Amazon's Prime Now to make an immediate impact on retail malls, but that malls' rental reversions and earnings will remain under pressure.

With Amazon's Prime Now expected to cut into necessity shopping at the malls, he warned that not every suburban mall will be successful going forward: "The terminology of a successful suburban retail mall has to be redefined."

Malls with access to transport nodes will be more resilient than, say, just convenience malls in a suburban area, he added.

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