Digital focus key in retail's recovery, adjustment to 'new normal'

Singapore

SINGAPORE'S physical retail landscape is coming back to life as the shutters go up and consumers return to shopping malls in the second stage of the city state's phased reopening.

But while retailers are relieved at finally being able to resume "business as usual", experts warn that it will take a long while for things to return to normal, suggesting instead that retailers revamp their online, backend and offline operations to meet customers' new expectations.

Jan Reinmueller, partner at KPMG in Singapore, said it would be unwise for retailers to focus entirely on engaging customers at physical stores in Phase 2.

"The Covid-19 situation has shown the vulnerabilities of the retail sector and remains an ongoing and developing threat to economies and retailers especially," Mr Reinmueller said, adding that retailers should take the opportunity to invest in digitalisation to future-proof the business.

Key challenges in the new normal include controlling crowd levels, complying with safe management measures and keeping customers happy and safe.

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More importantly, consumer behaviour has changed - permanently. Having discovered the convenience and variety that online shopping affords, many will not only continue shopping online but also expect a better experience from retailers' digital platforms.

Simon Dale, managing director for Southeast Asia at Adobe, said: "When (consumers) interact with a retailer online today, their digital experience is not just going to be benchmarked against that of another retailer; they are going to expect the same engagement and seamless experience as they would get from hailing a rideshare or ordering food online."

It is encouraging that more local retailers have recognised the need to set up digital storefronts. During the circuit breaker period, registration rates for local businesses increased by 41 per cent on Amazon Singapore and doubled on Qoo10. The number of Singaporean retailers on ezbuy increased 30 per cent during the same period.

Lazada Singapore has seen more than 4,500 local sellers sign up since April, translating to a rate four times the monthly average. In South-east Asia, the number of new sellers on Lazada from January to May was eight times that of the same time period last year.

Retailers seem to realise that they cannot return to full reliance on in-store sales even as shops reopen, and have continued to sign up with e-commerce platforms. Qoo10, ezbuy and Amazon all reported that the rate of local merchants joining their platforms remained strong in the first two weeks of Phase 2.

Consultants agreed that a full recovery for physical retail is not on the horizon. Referring to China as an example, McKinsey & Company partner Suyin Soon said: "While consumers are optimistic and eager to return to offline retail, caution still lingers. Even after about two months of retail outlets opening, sales remain around 15 per cent below the pre-Covid peak."

Bain & Company's studies have found that consumers need to use an online platform and have a satisfactory experience only three times before committing to it, noted Bain partner Gwendolyn Lim. The circuit breaker has given consumers plenty of time to explore online platforms and get comfortable with buying groceries and other necessities online.

"Many have been talking about how Covid-19 has pushed forward all of our online purchasing patterns by at least five years... We believe that some of that traffic will go back to physical retailers as they open, but not all of it," Ms Lim said.

While the pandemic has accelerated digitalisation efforts overall, some experts are concerned that retailers may have invested in digital platforms purely as a stop-gap measure for the circuit breaker period, without a long-term plan in mind.

"(This crisis) was an opportunity for small retailers to get something up that has not existed before," said

Simon-Kucher & Partners Singapore managing director Jochen Krauss. "The downside is that because they haven't made massive investments into digital before, what they've done may not be good enough to sustain."

KPMG's Mr Reinmueller added that a fancy digital storefront is insufficient if offline and backend operations are not updated . "There should not be inconsistencies such as an effective and aesthetically pleasing digital website, but the business still uses standard traditional forms of payment such as cash rather than digital payments. Similarly, when retailers are digitising, it is not just about ensuring the customer facing part of the business is digital; it must apply to the backend operations such as the stock-taking efforts."

Pua Wee Meng, consumer industry leader at Deloitte Southeast Asia, said businesses will need to manage costs and review investment priorities, but digitalisation must remain a key imperative to thrive in the new normal.

"Many businesses have lost their core offline customer pool, and digitalisation has become the new revenue lifeline for them going forward," Mr Pua noted. "Leveraging digital to understand how, where and why their consumers' preferences have changed, is the only way to drive growth."

Retailers will need to rethink their tendency to divide their businesses into offline and online segments, said Michael McGauran, partner at PwC Singapore's strategy consulting arm Strategy&. "Successful strategies will break down customer journeys to blend physical and digital experiences into one," he said.

One company that is trying to do this is Metro Singapore, which signed up with Lazada in November 2019 to augment its own online platform that was set up three years ago. It allocated more resources to its Lazada store during the circuit breaker, as part of efforts to expand its reach.

According to its marketing head Erwin Oei, the retailer plans to continue its efforts to create a seamless omnichannel experience, using online touchpoints to manage the limitations on visitors and inventory in its physical stores.

The impact of these digitalisation efforts will eventually be seen on the physical retail landscape too, though the experts do not see this as the death of retail but rather a reconfiguration of the current setup.

Knight Frank Singapore's retail head Ethan Hsu pointed out that digitalisation will allow retailers to collect valuable data, which can be leveraged to gain insights into their customer base. A retailer will then be able to adapt its operations, tailor-make experiences and drive traffic to its stores; in some cases, geo-location data could help them decide where best to place their outlets.

Savills Singapore's retail and lifestyle executive director Sulian Tan-Wijaya said: "Brands that successfully migrated their business online during the circuit breaker and had over-extended their physical presence before Covid-19 may review their store portfolio and consolidate. Others who see stronger sales in their stores after the circuit breaker may even enhance their physical presence."

To adapt to the new normal, Bain partner Praneeth Yendamuri said retailers will need to accelerate e-commerce efforts to meet consumers where they are, while creating a safe and aspirational in-store experience to draw customers there.

Ali Potia, partner at McKinsey & Company, added that online efforts will need to be focused on targeting the right audiences, ensuring the content resonates with consumers, and growing their presence on e-commerce marketplaces.

Given how crowded the e-commerce platforms are getting, retailers will need to get creative in differentiating themselves, such as by employing live streaming as a marketing and sales platform.

Knight Frank's Mr Hsu noted: "Through this process, companies can create brand loyalty because they are perceived to be more authentic and attuned to followers, as compared to those which use digital platforms purely for commercial transactions."

Additional reporting by Sharon See

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