Online retail boom gets reality check

Singapore

LAST YEAR'S Covid-19 circuit breaker looked like boom time for e-commerce, as shuttered stores forced shoppers online.

But cheerleaders of the digital economy might be disappointed one year on: The share of online sales in Singapore, which peaked at 24.9 per cent of all domestic retail in May last year, has since tapered off to 10.1 per cent as at this February.

The figure is higher than the pre-pandemic proportion of 6.7 per cent in December 2019. But it still pales against the global forecast from retail consultancy NielsenIQ, which estimated that e-commerce will make up 19.5 per cent of global retail in 2021.

There is still room for online sales to slide further, suggested Cassey Lee, a senior fellow at the Iseas-Yusof Ishak Institute.

"Given that more people are returning to work since early April, I would expect online sales to decrease further slightly," said Dr Lee, who studies various themes in economics, including structural change.

Many retailers in Singapore started selling their wares online last year after the global outbreak of Covid-19 forced people to stay home.

Government schemes, such as the circuit-breaker-era E-Commerce Booster Package from Enterprise Singapore, may have also fuelled that boost.

More than 2,400 retailers signed up as merchants with Amazon, Qoo10, Lazada and Shopee when the scheme - which offered grants of up to S$9,000 to make the leap online - closed in end-2020.

All the same, some retailers continue to struggle with the costs and difficulties of maintaining a successful e-commerce strategy.

Zhou Junjie, chief commercial officer at Shopee, noted that "operational readiness" is still the biggest challenge for retailers. And it is hardest for those shifting online from a long-standing brick-and-mortar business model.

"The management of online product listings, inventory, and order fulfilment all require manpower and upfront technological investment, which many merchants are unfamiliar with in the early stages of their digitalisation journey," Mr Zhou said.

Retailers trying to juggle both offline and online sales channels may also find their resources stretched.

Rose Tong, executive director at the Singapore Retailers Association, pointed out that physical retailers expanding into online retail would see operating costs extend beyond rent and labour - two of their biggest costs - to platform and transaction fees, as well as spending on social media marketing and search engine optimisation to "catch eyeballs".

"The online marketplace is very crowded, and digital marketing can be very expensive to ensure market presence just so to be able to stand out from the crowd," she added.

These costs, combined with that of shipping, warehousing and customer returns, could even result in e-commerce being less profitable than brick-and-mortar retail, according to a McKinsey report on the US consumer goods industry last month.

Iseas-Yusof Ishak Institute's Dr Lee added that Covid-19 could also drive up labour costs even as logistics costs fall. This comes even though the "long-lasting shocks" of the pandemic may drive businesses to invest in new technology - for example, online capabilities, more automation, logistics - that will "alter the trade-offs".

As a result of these challenges, merchants who do not master skills such as marketing will drop off eventually, according to Jeff Lim, general manager at omnichannel retail service provider Shopline. He puts the attrition rate now at less than 10 per cent.

"Most understand the importance of e-commerce, but don't really know how to excel at it," said Mr Lim, formerly the Singapore country manager at Zilingo, and head of vendor incubation and management at Lazada.

Another reason for the stagnating growth could be the focus on essential spending as opposed to discretionary spending as a result of "weakening economies and consumptions driven by the pandemic," said Hazel Tanedo, a consumer securities research analyst at Credit Suisse.

This situation is not unique to Singapore, with online retail sales in the Asean-5 markets of Indonesia, Malaysia, the Philippines, Singapore and Thailand having grown at 5.4 per cent in the last decade but likely slowed to just 1.5 per cent in 2020, according to Ms Tanedo.

Indeed, online sales here have been uneven across product segments, with groceries taking the lead.

Monthly retail sales data from the Department of Statistics (SingStat) show that supermarkets and hypermarkets, computer and telecom gear, and furniture and household goods have had a higher-than-average share of online sales in Singapore.

This comes even as retailers face cannibalisation from cross-border e-commerce, with Mr Lim noting stiff competition from Chinese vendors in the home and living segment.

To be sure, Shopee's Mr Zhou observed that demand for food, home and living, and health products in Singapore has continued to grow beyond the "circuit-breaker" period last year.

All that said, a complete return to how retail was before the pandemic is unlikely. E-commerce is here to stay, and to augment offline retail.

Credit Suisse noted that the Asia-Pacific has a higher level of "omni-channel shoppers", at 78 per cent, compared with the global average of 66 per cent.

Some retailers are also reporting better online sales than in pre-pandemic days, even if the share from online channels has been diluted by shoppers' return to malls.

"We have seen proportional shifts in online sales versus in-store sales in accordance with the easing of restrictions and more people going out and about. Nevertheless, our online sales channels are faring much better compared to pre-Covid," said James Quan, founder of leather stationery business Bynd Artisan, noting that sales via the online store nearly tripled year on year in 2020.

The company will continue to invest in building its e-commerce presence, even as it works on opening its latest physical store, which will also be its biggest.

"We see the large potential that e-commerce can bring to our brand on the whole," Mr Quan said.

"Be it for sales conversion or simply to get our brand out there, we are constantly on the lookout for new methods and mediums which will help accelerate that growth."

Similarly, CYC Made to Measure will continue to invest in online marketing to boost its e-commerce presence, now that it has developed "a good understanding of what drives online purchases" and "honed (its) knowledge of operating a robust e-commerce site", said Fong Loo Fern, the third-generation owner.

CYC's online sales have tapered as customers still prefer to make purchases at the store, even for the brand's line of masks, Mrs Fong said. But overseas orders for tailored shirts have held up with an added function on the website that allows customers to customise and view a mock-up of the shirt; a new, ready-to-wear range has also proved popular online.

For now, it is "likely" that there will be continued disruption in buying behaviour for some time to come, as consumers adapt to the "new normal", said Credit Suisse's Ms Tanedo.

In the longer term, the structural cap on the online share of sales is also expected to "evolve upwards over time", said Dr Lee. For instance, Singapore's greying population might be a barrier for now, but as younger buyers age, their familiarity with digital enablers such as e-payments will be less of a hurdle.