The Future of Retail

The retail ecommerce has reached USD$3.5 trillion in 2019 and is projected to grow to USD$6.54 trillion in 2022. On the contrary, the total retail only grew by 6.3%.

How is the retail landscape changing?

The prevalence of ecommerce

About 88% of consumers conducts their intial product research online, which gives ecommerce retailers an edge over physical retailers if they can utilise search engine tools effectively to capture these group of consumers. With that, online sales are also projected to grow from 11.9% of total retail in 2017 to 17.5% in 2020.

Lowered barriers to entry for smaller players

Ecommerce have helped smaller players to penetrate the market more easily where such retailers can provide customers with a wider variety of products.

In the past, manufactureres and producers have to go through a whole of intermediaries such as the distributor, wholesaler, before their goods reach the final consumers. Now, they can reach the consumers directly with the help of new businesses, e.g. Shopify which provide end-to-end digital solutions.

What does this entail?

Producers have the opportunity to become sellers and thereby, benefitting from higher margins that increase their profitability and competitiveness to reach consumers directly.

The ecommerce industry will provide more allowance for a larger variety of exports in terms of products and markets. For instance, a digital seller can reach an average of 25 countries, whereas a traditional one only reaches 3 countries.

Emerging markets are the next frontier for ecommerce retailing

The middle class is set to boost consumption as they become increasingly more affluent. The population is expected to grow much faster than developed markets at 160 million people per year and to spend more than 25 times in the next 15 years.

The population in the emerging economies makes up for 86% of the world's millennials. They are generally better educated thus, enjoying better careers and commanding higher wages which contributes to higher consumption. With a younger demographic, there is also a higher proportion of tech-savvy millennials which drives online spending.

The mobile's share of e-commerce sales is set to increase over 70% in 2020.

Asia Pacific contributes largely to these sales, with 72% of online purchase from mobile.

Although the emerging markets have immense growth potential, they also face many challenges due to their business infrastructure and environment in their countries.

The 5 main challenges of the emerging markets

1. Fragmented distribution channels - making it difficult for retailers to penetrate the market

The distribution cost would be very high to serve a fragmented market due to inefficiencies. As retailers have low visibility to demand signals and distributors experience difficulties in collaborating which will cause a lack of track and trace capabilities. Hence, it might result in shipment delays and unsatisfied customers.

With disjointed distribution channels, business are also unable to gain access to critical market insights for their decision making.

2. Need to "touch-and-feel" underlies Asian consumer behavior

Most emerging economies median GDP per capita (PPP) still lag behind more advanced economies by a factor of more than 10 times even after accounting for the difference in price of goods and services. For e.g. the cost of buying a good, relative to income, is around 20 times more to an Indian consumer than it is for an American consumer.

Studies have also suggested that Asian consumers are among the top savers in the world and would hold off buying a big-ticket item such as consumer appliances until they are certain. Therefore, this deters consumers from purchasing online as they want to physically touch and feel the products.

3. Low financial inclusion dampened online sales growth

Across the globe, 1.7 billion people are still unbanked, with a majority of them coming from low to middle income emerging countries. As a result, there is a loss of online sales since they have no access to bank accounts, lending facilities or savings option.

However, capitalising on this factor, many businesses came up with innovative solutions to include the underbanked in ecommerce.

Digital financing and e-wallets

This makes setting up a transaction account more affordable to the poor and isolated since digital accounts cost significantly lesser to set up than traditional accounts. In addition, ecommerce transactions become more convenient and accessible as digital wallets can be accessed through mobile devices to facilitate payments.

Cash payment solutions

Convenience stores can serve as pick-up points for deliveries where cash payments can be made, since cash-on-delivery is a hugely popular option in emerging countries like Southeast Asia and Latin America.

4. Undeveloped logistic infrastructure - makes it difficult to reach all customers.

There is a lack of proper, cohesive e-commerce logistics infrastructure which impacts the entire supply chain from the payments to warehousing and fulfilment, through to delivery. Physical logistical connectivity also becomes a problem in countries with multiple spread-out rural communities. There needs to be an efficient last-mile solution embedded in e-commerce strategies to reach the less urban regions.

5. Cybersecurity Issues - prevents people from making online purchases

A case study on cybersecurity concerns in the ASEAN6:

As of 2013, only 2% to 11% of digital buyers use online payments in the ASEAN region. Due to concerns related to data security and cybercrime, many consumers do not believe that their online transactions are safe. Currently, no regional-level entity exists to fight cybercrime or address cross-border jurisdiction. Of the 10 riskiest countries in terms of cyber threat exposure, Indonesia tops the list and Thailand, Philippines and Malaysia are within the top five.

Establishing e-payment specific regulations and harmonising them across regions will help to address cybersecurity issues in ASEAN. Currently, improvements of the regulatory framework are being implemented locally, but there is still a need to address these regionally, i.e. through increased information sharing and bilateral assistance, a harmonised legislative framework or creating a regional online resolution facility.

"In the middle of difficulty lies opportunity." - Albert Einstein

As ASEAN experience a retail ecommerce growth, with a total market size of US$7 billion, retailers will have to identify the right strategy to capture this potential market.

There are many common challenges faced by these countries.

Consquently, each of these ASEAN countries also have unique characteristics that retailers can capitalize on.

Focusing on The New Retail - puts consumers' experience at the core of the business

Trust and convenience are the most important factors that people consider when they shop.