Asia's retail industry beating the rest of the world's, thanks to e-commerce

IF YOU want to see the future of retail, look to Asia. The region is responsible for about three-quarters of worldwide retail growth and over 30 per cent of online growth, and several markets are leapfrogging the development stages that US and European retailers took years to go through, research by Bain & Company has revealed.

Between 2014 and 2019, the region's compound annual growth for retail sales was more than 4 times higher than, and online sales growth was almost twice as large as, the rest of the world's. And while e-commerce was always going to disrupt the industry, the pandemic dramatically accelerated this transformation and changed consumer habits for good, prompting NielsenIQ to declare in early 2021 that "the end of the beginning of e-commerce" in Asia is upon us.

Each country's level of digital maturity will determine its respective retail sectors' health, but it is clear that "almost all the growth in retail fast-moving consumer goods will come from e-commerce". Despite the industry's massive potential, barriers to growth remain.

e-commerce in Asia comes of age

The pandemic may have accelerated South-east Asia's digital economy boom, but e-commerce was already on a promising trajectory long before then.

As with most things new and uncharted, people were initially sceptical of e-commerce in the early 2000s. One study found that factors such as low personal computer ownership, even lower Internet penetration rates, a lack of trust in online transactions, and low credit card adoption hampered e-commerce growth in South-east Asia in the early days.

But the region took a different on-ramp to e-commerce, by turning into "the only true mobile-first region". With the addition of e-commerce platforms offering cash-on-delivery payments, South-east Asia's consumers gained better access to online retail, eventually warming up to the idea of buying things online. And with the growing popularity of "buy now, pay later" schemes, even more shoppers, particularly Gen Z and millennials, are now able to jump on the e-commerce bandwagon.

Given the pandemic-accelerated rise of e-commerce in the past year, it is no longer a question of whether or not people will buy online - it is about how much and how often they shop.

The NielsenIQ report found that, in 2020, more Asian households shopped online, and they purchased more frequently and spent more money than in 2019.

Most importantly, these behaviours may yet endure long after the present situation subsides. The majority of the region's new digital consumers - those who tried digital channels for the first time in 2020 - say they plan to sustain these newfound habits post-pandemic, research by Bain & Company, Temasek and Google has found.

Among retailers, live selling through platforms like Lazada, Shopee and even Facebook also became popular. Sellers and platforms now hold mega-sale events almost every month, a trend that Chinese e-commerce giant Alibaba started with "11.11".

Omnichannel is also fast becoming the preferred method of engaging with customers. In the future, omnichannel experiences will likely be the norm, with physical stores evolving to support e-commerce operations by serving as pickup points or showrooms, for example.

The digital imperative for retail

Invisible to most, this dramatic growth is made possible by the convergence of various technologies that make the entire retail experience happen digitally and seamlessly. Straightforward and convenient as it may all seem to consumers, the process involves volumes of data exchanges - happening in real time, for multiple buyers at any given time and across borders.

Specifically, in a digitalised retail world, there are several items that need to be orchestrated in real time:

• Payments processing
• Inventory matching and updating
• Logistics tracking
• Uploading of static and dynamic visual content for online catalogues
• Video streaming for flash sales and live selling

Delays in these functions may have serious consequences: Late payments will hurt brands' bottom lines. Any lag during live selling streams and mega-sale events will create a poor customer experience, and so will incomplete and inaccurate information in online catalogues.

Inconsistencies between actual stock availability and what is reflected online could strain retailers' relationships with their customers and lead to lost sales. The lack of a clear view of logistics opens up sellers to various operational inefficiencies.

A seamless omnichannel operation, which has become a goal for many e-commerce players, will also require real-time updating and synchronisation between offline and online operations.

Retailers also need to step up their digital engagement, particularly through mobile, as Asia-Pacific consumers do most of their shopping on their phones. Research by Forrester shows that mobile accounted for 72 per cent of online retail sales in the region in 2019.

Data analytics is another key technology that retailers could use to interpret the mountains of data generated by digitalising their operations. Any insights gleaned from the data may be used to improve customer experience and boost company performance.

Other key technologies that may yield significant benefits to retail operations include the Internet of Things (IoT), artificial intelligence (AI), autonomous robots, virtual reality (VR) and augmented reality (AR), as well as cybersecurity, suggests Bain & Company.

In particular, the use of AR and VR has already taken off in Asia's retail scene. E-commerce giant Alibaba introduced AR/VR to boost shoppers' experiences as early as 2016, and we can expect increasing adoption in the coming years. IDC forecasts AR/VR spending in the Asia-Pacific to grow at a compounded annual growth rate (CAGR) of 47.7 per cent through 2024 - with retail identified as one of the top industries for AR/VR implementation. To boot, the rollout of 5G will propel mainstream adoption of these emerging technologies and catalyse the reinvention of shoppers' experiences.

However, all of these will require reliable connectivity to run smoothly. Any kind of downtime will affect consumers and retailers alike, and it may hurt the industry as a whole. And, as Asia's retail ecosystem becomes busier, more competitive, and increasingly hyper-connected, the need for fast and reliable networks will only be more critical.

Asia's fast-growing retail industry needs reliable connectivity

Always-on connectivity offers retailers a significant competitive advantage and helps them maximise opportunities opened up by e-commerce. Through tools such as virtualised networks, for instance, retailers with thousands of locations scattered across the region might even reduce costs and improve their IT systems' efficiency.

As e-commerce in Asia matures and its retailers continue to digitalise, they will impose ever-increasing demands on the region's networks. Reliable connectivity is the bedrock of retail digitalisation: without it, progress may be derailed and Asia stands to lose its position as the engine of global retail growth.

The writer is senior advisor of international market development at Ciena