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A milestone in the disruption of retail - for now

As it expands in Singapore, Amazon has the potential to disrupt on several fronts. Retail is only the beginning

The official launch, after months of secrecy and speculation, of Amazon's premium service Prime Now has the potential to dramatically transform Singapore's retail scene.

TODAY, Singapore's e-commerce witnesses its big bang.

The official launch, after months of secrecy and speculation, of Amazon's premium service Prime Now has the potential to dramatically transform Singapore's retail scene. It could be one more nail in the coffin of brick-and-mortar retail. There will be other casualties too, but the launch also offers opportunities.

Amazon is offering Singapore consumers about 20,000 products (to begin with) including electronics, household items, apparel and even fresh groceries. It will deliver within two hours. Delivery will be free if you order at least S$40 worth of products. This is a compelling proposition.

Amazon will not be the only big player in Singapore. The incumbents include Lazada, Qoo10, Luxasia and some other niche players. Lazada has already been preemptively shoring up its offerings in anticipation of Amazon's arrival. In April, it launched its own version of Amazon Prime called LiveUp. For an annual fee of S$28.80, members get free express deliveries for their purchases. In addition, Lazada has partnered with other digital and e-commerce service providers, including Netflix, Uber (including UberEats), Taobao and RedMart (which it now owns), whose offerings are also available to LiveUp members, sometimes with rebates. It is likely that the other large online retailers will also raise their game to stay in the competition.

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Significant changes

Operating out of warehouses with staff focused mainly on fulfilment rather than sales, these large platforms do not have to bear the staffing and real-estate costs that burden brick-and-mortar retailers. They also buy in bulk which enables them to squeeze supplier margins. Traditional retailers would have a hard time competing with them, except in niche areas such as artisanal and bespoke products. This has been the experience everywhere.

The implications for Singapore's retail scene, as well as commercial real estate, are significant.

Take employment: Amazon's 100,000 sq ft fulfilment centre in Toh Guan Road will employ only about 100 workers, about the same as a mid-sized department store. But together with other big e-commerce players, it will disrupt traditional retailers whose operations are labour-intensive. Total wholesale and retail employment last year was around 364,000.

To be sure, traditional retail will dominate for a long time to come. According to a report on the Internet economy put out by Google and Temasek last year, e-commerce will account for around 6.7 per cent of retail sales by 2025 (though some analysts think this is an underestimate) compared to just 2.1 per cent in 2015. There will also be new opportunities for providers to e-commerce platforms - Amazon Prime will include offerings from thousands of local suppliers. The logistics business will also benefit. But the already struggling traditional retail industry will lose market share, as well as jobs, year after year.

Retail real estate will also be hit. URA figures show that the retail vacancy was at a relatively high 7.7 per cent at the end of the first quarter of this year, despite softening rentals. As in other mature markets battling online retailers, several high-profile brick-and-mortar players have closed shop in recent years, including department stores John Little and Marks & Spencer, lifestyle and furnishing stores IWannagohome and FrancFranc as well as fashion outlets Parco and Raoul. As e-commerce increases its market share, retail vacancies could climb, even as rentals continue falling. Malls will have to reinvent themselves. Already, many have increased the proportion of space allotted to food and beverage outlets, which now take up around one-third of mall space, according to real estate services firm JLL. They will add more "experiential" features and facilities such as movie and drama theatres, live shows, virtual-reality simulation studios (which will be a highlight of the new Funan Mall to be opened in 2019), rock-climbing walls and co-working facilities. Some retail space might also be given over for office and residential use.

Expansion plans

Amazon Prime Now is only the start of Amazon's offerings in Singapore, which according to the company, will expand. It has the scope to offer far more items than the 20,000 it is starting with. In the US, it sells close to 400 million products. Some of its other offerings such as Amazon Home Services, home networking devices and potentially even financial services could also make their way here. Amazon has the potential to disrupt on several fronts. Retail is only the beginning.

READ MORE: For Singapore retail, a new Amazon challenge