Enterprise
Retailers turn to e-Commerce
Behonce Beh 
Offline retailers see a need to incorporate a strong online presence for long-term survival
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ONLINE shopping, e-commerce and digital economy are fancy terms thrown around by the know-it-all to describe the future of business.

The underlying theme behind such catchphrases not only highlight how brick-and-mortar businesses are building a presence in the online space, but that they are transacting and trading in the sphere.

Though it is fairly straightforward for traders to buy and sell items online, services-based retailers or even food and beverage (F&B) operators may find it daunting, though not impossible.

Malaysians are fairly familiar with buying services online. From purchasing vouchers for car waxing services and massages to manicures, many of us would have bought such vouchers from group-buying websites such as Groupon Malaysia, now known as Fave.

Group-buying sites were all the rage in the early 2010s and that introduced us to purchasing services from online retailers.

11street Malaysia CEO Hoseok Kim believes shoppers are familiar with purchasing e-vouchers and foresees a rise in this trend.

“A study of our data found a significant increase in the purchase of e-vouchers last year, attributed to the availability of more options on this front.

“Leading to that, the search for F&B e-vouchers surged to more than 1.2 million during the Ramadan period that year.”

Kim says the e-commerce platform saw a threefold increase in both searches and online sales for car maintenance packages last year, during the Ramadan and Hari Raya periods.

“Listing on e-marketplaces is the way to go. They involve a minimum investment and provide maximum exposure.

“In fact, the option is already available on 11street, where we offer vouchers for services, such as mobile top-ups, spa vouchers, and even air ticket and car services packages,” says Kim, who urges offline services retailers to be part of the digital economy.

However, group-buying websites may not be as popular today compared to its heydey.

Services-based retail brands are seen to be setting up websites and social media accounts to engage with their target markets.

Promotions or flash deals offered exclusively via those channels may pop up once in a while to encourage users to purchase vouchers for specific discounted services.

Such moves benefit brands as they encourage sales and gather a user database as those who purchase online vouchers often disclose personal information, such as contact details.

Chua observes that while some retailers are quick to embrace technology, there are those who adopt a wait-and-see approach.

Malaysia Retail Chain Association (MRCA) president Datuk Garry Chua observes that while some retailers are quick to embrace technology, there are those who adopt a wait-and-see approach.

“We have to be quick as there are many disruptive technologies emerging, such as those from the fintech scene that can change the game overnight.

“From our observation, services-based retailers are still slow in moving their business online,” he says.

A common example of how online businesses have encroached into the territory of offline retailers is in food delivery apps, which are supported by a centralised kitchen or a network of food providers, thus making it easier for families to dine at home.

There are limits to the kinds of transactions that services-based retailers can conduct online, but Chua reckons it is important to establish an online presence to keep the brand relevant to modern consumers.

An example of how a MRCA member connects both offline and online trade is the likes of convenience store 7-Eleven which, through a collaboration with payment gateway provider MOLPay, accepts payments for purchases made on the e-commerce platform, Lazada.

The growing acceptance of China-based mobile wallets such as Alipay and WeChat Pay among local retailers, Chua says, will boost sales and earnings to a certain extent.


Retail business challenges

Chua, who is also the managing director of Rotol Group, which operates restaurants such as Chakri Palace and Chakri Xpress, says restaurants under his group are collaborating with a mobile table-booking application service provider to allow bookings and orders to be taken via an app.

“The uptake of the app being used by our customers is still fairly slow as this is a new feature that we introduced to the market,” he comments.

He foresees that some retailers will close their outlets, partly due to poor performance and to trim excesses and streamline offerings.

“It is a balancing act at this point. There won’t be a day where all brick-and-mortar shops close down, but retailers see the need to be online.”

Figures provided by the Malaysia Retailers Association and Retail Group Malaysia show that the pharmacy and personal care sub-sector reported an encouraging growth rate of 3.7% in Q1 (see sidebar).

On the flipside, speciality sub-sectors including retailers selling photographic equipment with photo processing services, children-related items, shopping via television, and F&B operators shrunk 3.1% in the same quarter compared to growing 1.1% in Q1 last year.

Many retailers agree that the challenges faced in H2 will range from the higher cost of goods to increasing operations costs.

Meanwhile, 11Street’s Kim says online shopping trends may differ slightly from offline.

Based on findings from the website’s month-long “Shop the World” campaign in March, it was revealed that seven out of 10 products bought on the platform were items that are not available at local brick-and-mortar stores.

Products from Korea, Taiwan and the US had the highest number of purchases from the platform.

Dissecting the data further, 95% of Johor consumers’ purchases from 11Street during the campaign consisted of skincare and make-up items.

“While consumers have started to show interest in alternative product categories such as books and media, the demand for fashion and even electronics remains upbeat.

“This means the new categories for online purchase will grow concurrently with others, which are already in high demand online,” he opines.

Industry players predict the total e-commerce market size for the country this year is expected to reach RM24.6 bil, with a year-on-year growth of 20% to 25% in the coming years.

“The e-commerce penetration rate in Malaysia is still low and hovers around 2.5%.

This means there are countless opportunities that still remain untouched. This compares with more advanced e-commerce markets such as South Korea, which has a 15% penetration rate,” says Kim.

A consumer shift to shopping online, he says, has triggered more offline retailers to enter e-commerce.

“Our online-only sellers stand at slightly more than 50%, whereas our sellers with an offline presence are at a little over 40%.

“Hence, we can conclude that both are growing healthily and concurrently side-by-side,” says Kim.

There has been talk of omnichannel selling where online brands are setting up stores offline and vice versa over the past few years.

Online fashion brands Fashion Valet and Twenty3, for example, opened retail stores at major shopping malls to cater to offline shoppers.

MRCA’s Chua believes offline retailers could be impacted as online retailers set up offline stores which allow customers to better experience the brand and product.

Likewise, offline brands such as luxury label Bonia, and fashion label Padini, have set up online stores to keep up with the times.

Offline brands need to understand that setting up an online store does not always mean instant sales.

An online fashion e-commerce platform founder who wishes to remain anonymous tells FocusM that offline brands face difficulties when embracing online shopping as their target shoppers are not excited over the initiative.

Offline brands often have strong sales networks, and their existing shoppers are comfortable with the arrangement.

“It is tougher to convince the online crowd to shop for those brands as they are not familiar with them in an online setting.”

In retrospect, fast fashion retailer H&M which launched an online store in May managed to garner a strong following from its offline customers.

“There has to be a lot of effort to market the brand online through social media marketing.

“It is important for a brand to create a connection between itself and its followers,” says the founder.


Learning from each other

Retailers across various sectors need to be open to change before embarking on any digital exercise.

“A lot of retailers still do not have a good understanding of how to introduce technology to their business,” says MRCA’s Chua.

He suspects that the assumption of high initial investment in technology is one of the many reasons why some retailers are slow to jump on the online shopping bandwagon.

“They may spend more initially to embrace technology, but there will be cost savings in the long run in terms of manpower and productivity,” says Chua, of the need to create awareness among retailers.

Likewise, online retailers know only too well that they need to be attuned to market needs and adapt accordingly.

Kim says some sellers on 11Street are willing to explore new product categories beyond their existing portfolio.

“One of our sellers, iLoveHome, started by selling buckwheat pillows on our platform, and upon receiving a positive response, it has now expanded the business by selling other products such as shower equipment and mandarin oranges during the Chinese New Year period.

“This shows that Malaysian consumers are more open to venturing into new categories online.

“Hence, they create a healthy environment for all sellers to embrace e-commerce as part of their marketing strategy and to expand their geographical demographics,” he says.

This article first appeared in Focus Malaysia Issue 241.