Tucked away in Singapore’s Little India is a 24-hour retail centre that is never devoid of foot traffic. There is little doubt Singaporeans don’t know what and where Mustafa Shopping Centre is. The company was on the annual Enterprise 50 list for five consecutive years from 1995 – 2000, and has outlived plenty of other retail centres.

What makes it so enticing?

Shoppers say the enormous product selection and bargain prices. The 200,000 sq ft space is composed of seven floors selling over 300,000 items ranging from Indian spices, wheelchairs and vitamins to gold and DVDs.

Everything is available at any hour of the day – money exchange, flight tickets, postal service, and restaurants. The store has even become one of Singapore’s tourist attractions, but a quick search of online reviews suggests that the retail experience has drastically changed since the megastore’s heyday:

 

And to think it might get even more crowded. The 46 year old company recently announced the closure of its 65,000 sq ft flagship branch in Serangoon Plaza earlier this year due to construction. This essentially cuts Mustafa’s retail space by a quarter and all products will be stored in its remaining branch in Little India.

With all this in mind, and a growing selection of cheap goods more readily available online, how many more trips will Singaporeans undergo to save a few dollars?

Without an influx of returning shoppers and smaller customer reach with the closure of its second branch, how can Mustafa ensure the continued growth of its business? We take a look at some factors:

1. Singapore’s Average Shopper

Euromonitor International data shows that average annual disposable income per capita in Singapore is now US$27,664 and predicted to reach US$30,143 in 2020. This is quite high in comparison to consumers in the rest of Southeast Asia who make less than US$500 a month.

Even so, modest retail growth was witnessed in 2016 due to Singapore’s slowing economic rates of 3.3% to 2.2% YoY. More price-sensitive shoppers means good things for low-cost sellers like Mustafa but consumers are more likely to go online to compare prices, especially for more expensive products such as electronics.

And this is where they will find a plethora of pure-play sites such as ShopBack, Ebates SG, and Lazada SG to save on well-known brands and everyday items with cash back and daily offers.

[Singaporean] Consumers cited convenience, cheaper prices and direct delivery as key reasons to turn to internet retailers — VISA report

Purchasing from overseas websites is also highly attractive because of the absence of Goods and Services Tax on imported goods of S$400 or less, which puts more strain on traditional retailers.

Mustafa ecommerce

It’s important to note that Singapore’s population is aging and less willing to endure a cramped, unorganized and adverse customer experience to buy discounted mouthwash. Although shopping is still seen as a social activity, a consistent terrible customer experience is enough to outweigh small savings.

As one online commenter suggested,

“If you’d like to avoid crowds, try not to come here during peak shopping months, which runs from October to the following October.” — Indu Balachandran, FirstPost

2. Expansion Opportunities

The company could look for another venue to open a second branch but a quick overview of Singapore’s expensive rental costs and competition for prime locations against players like Apple also opening up shop makes that option look dim.

The high cost of renting retail space has slightly declined since 2015 but the massive space that Mustafa needs to operate would set the company back a hefty amount if average rent was still S$24.35 – S$36.25 per sq ft like it was two years ago.

There are also many additional challenges to opening a department store. The company was denied its request to convert a warehouse into a wholesale retailer and given a SGD$10,000 fine for unauthorized commercial use in that same location. They were also slapped with a court order to suspend business for 40 hours after overcrowdedness and fire-safety concerns became too serious.

But even if Mustafa was able to secure a perfectly suitable location to house its next brick and mortar branch, now they need employees to run the business. How much would that cost?

Let’s say at least 50 employees to start where a customer service rep in Singapore makes approximately S$32,267 a year. Each employee would need to generate value to make up for employment and training costs.

JP Morgan shared this neat chart below. The average employee of an offline retailer generated US$279,000 in gross sales compared to the average electronic shopping and mail-order house employee who generated an average US$1,267,000.

Offline expansion may not be in the cards right now but the promise of ecommerce is that Mustafa can sell its products and services to anyone in the region.

3. Future of Retail

Weak tourism, a notable decline in retail sales last year and even a small drop in retail space rent paints a pessimistic future for Singapore in the coming years. Online retail sales in Singapore, however, are expected to reach US$5.4B GMV for 2025.

mustafa-online

Mustafa makes a relatively small profit margin of 10-15% on most products to keep prices lower than competitors. The company imports large quantities of goods directly from cheap sources such as Thailand, Malaysia, the US, etc. and saves additional costs by cutting out the distributor.

Regardless of its popularity, there are already a slew of online and offline businesses, especially specialty shops, that Singaporeans frequent for bargain deals and special sales without the uncomfortable crowds, i.e. AnchorPoint Shopping Center. But offering budget prices cannot save the slow death of traditional retailers.

Ecommerce shouldn’t be seen as a separate channel but instead as another store branch.

What happens when one branch is closed and the other is too far away? You either do a quick Google search for the company’s online webstore or you go into a competitor’s store.

Bargain hunters have no brand loyalty but brands online are able to build and maintain relationships with customers via email marketing and ad-retargeting touting upcoming promotions and discounts. Mustafa has only word of mouth to rely on, curious foot traffic and its social channels, which are currently not being put to the best use.

Source: Mustafa Facebook page

More pure-play brands are moving into the offline territory by adopting omni-channel strategies after realizing the importance of a positive customer experience. Electronics brands like Samsung, Huawei, Parisilk and Lenovo are adding online channels through partnerships with e-marketplaces Qoo10 and Lazada in addition to letting Singaporeans test products in their flagships.

Multi-channel retailers are benefiting from having an online presence growing at 11% CAGR, which mitigates any worry that ecommerce will cannibalize traffic to offline stores.

Mustafa is one of the best-primed offline retailers in Southeast Asia to dominate commerce with an omni-channel strategy.

Would Mustafa Do Well Online?

Probably, but there are many other factors to consider. The business already meets the standard requirements to successfully launch an ecommerce business: large number of SKUs, strong branding and awareness, existing customer base and an experienced entrepreneur running the entire company.

The purpose of going online is to give your customers access to your products or services at anytime – the exact same concept of Mustafa’s 24/7 offline store.

In 1999, Mustafa did try its hand at an online website aimed to do B2B ecommerce but shut down after experiencing losses due to credit card fraud.

Although that problem still persists in today’s retail world, most notably in the US, credit card and tech companies are introducing their own ways to combat hackers: 3-D Secure, two-step verification and tokenization (Apple Pay, Android Pay, etc.).

These are four paths the company could use to test the online waters:

  1. Ecommerce ‘popshop’ where customers can submit online remittance forms or check a list of products offered in store. This bare-bones landing page would be able to capture visitor data and activate them in the future with bargains on social channels such as Instagram or Facebook.
  1. Add a shopping functionality to the current Mustafa website that already experiences on average 260,000 visitors per month, most likely to view the latest foreign exchange rates.
  1. A mobile application where shoppers can sign up to order and pay for products and services such as remittance, flight booking or restaurant takeaway.
  1. A chatbot on the Mustafa Facebook page that facilitates transactions through Messenger and answers FAQs.

Other Hurdles to Mustafa Going Online

Opening an webstore means choosing the right product offering, presenting it attractively online and safely delivering it to the end customer. A key piece Mustafa lacks is online infrastructure but given the strong selection of service providers in the region, it’s not hard to find a suitable partner to handle content management and last mile.

Chief Logistics Officer from aCommerce, Mitch Bittermann, who also lived in Singapore for six years, advises Mustafa to evaluate if the company’s margins would cover the cost of operating ecommerce. He also suggests a few ways Mustafa could leverage its existing resources.

“Using the shopping centre as a fulfillment center would allow next-day or even same-day delivery. Given Mustafa’s reputation for faulty products, it would be simple to hire an employee to QC items before delivery right at the store and lower chances of returns,” comments Bittermann.

“They also wouldn’t want to offer its entire offline product selection online, for example food wouldn’t sell since HappyFresh and Redmart already exist.”

Where Do We Go From Here?

Sometimes ecommerce works, sometimes it doesn’t. But as consumers on this side of the world only further develop a ‘digital habit’ thanks to new online services, it’s only a matter of time before retailers clamber to where everyone else is.

The move online will not be a painless process but each retailer will reach a point and ask themselves, “should I be online?”. A quick look at Macy’s, Best Buy, Sears or any of these other offline retailers paints a pretty clear picture of ‘adapt or die’.

Speculations broke over the weekend that Lazada, Southeast Asia’s leading online marketplace, was set to acquire Singaporean grocery start up Redmart for $30-40 millionnow confirmed. Lazada, fresh off its $1 billion injection from Alibaba, is not known for adopting an asset heavy model; the company has been actively transitioning towards a full marketplace model, especially post-Alibaba acquisition. So why would the company want to purchase an online grocery retailer? ecommerceIQ shares some possible reasons why:

1. Joining a thriving new playing field

Electronics, beauty, apparel, home & living, Lazada offers it all, except perishable goods.

Groceries online has been around in North America since the Dot-com craze but only recently popularized through the on demand model, first introduced by Instacart and since then been flourishing with the likes of Google and Postmates saturating the space.

The offline groceries sector in Singapore was worth an estimated $5.5 billion SGD in 2014, while online grocery retailing is worth approximately $120 million SGD and makes up only 1-2% of the entire grocery market in Singapore. It shows that more and more busy working professionals and families are willing to pay for the convenience of having their groceries delivered to their front door.

And out of all the Southeast Asian countries, Singapore has the highest internet penetration and greatest spending power, making it the most mature market for this business model. ECOMScape: Singapore shows the many players, both traditional offline grocery stores and pure play ones, who have recently joined the e-groceries sector in hopes of grabbing more online market share.

singapore ecommerce landscape

singapore ecommerce landscape

“The strategy of coming in, looking for a local player who has shown traction and buying them in order to get a foothold is a very good one, and we will see more of that,” said Vinnie Lauria, Founding Partner of Golden Gate Ventures, which has invested in marketplace Carousell and online grocer Redmart.

By acquiring Redmart, Lazada would be joining an already fierce online grocery feud but with their already established reputation and Alibaba in their corner, they have the capabilities of mitigating Redmart’s large operating losses and becoming a strong new comer. Lazada’s acquisition of Redmart essentially saved the startup from becoming the next Webvan, the online grocery pioneer who burned through money too fast.

“As part of our growth strategy, we are always looking for ways to serve our customers better by adding new product categories and improving our service offering,” comments Maximilian Bittner, Lazada Group CEO, in regards to the acquisition.

With a multi-category approach, Lazada’s acquisition of Redmart will enable the group to maximize revenues per Redmart user as customers go beyond just buying groceries often characterized by thin margins.

2. Lelong, lelong!

Southeast Asian’s love a good deal and it’s not surprising five-year old Redmart quietly put themselves on the market after reports of huge operating losses of $21 million for 2015 and liabilities valued at $126 million surfaced earlier this year. It was also rumored that earlier this year Redmart was going to raise new funds of $100 million but nothing was confirmed. $30-$40 million isn’t a bad price tag for a startup that has raised over $59 million in funds from SoftBank, Garena and has the backing of tech celebrities such as Facebook co-founder Eduardo Saverin.

Lazada is making the acquisition confidently with the knowledge that it can optimize costs by leveraging its own fleet for deliveries through LEX. In comparison to its competitors, honestbee and HappyFresh, Redmart’s business model fares quite well:

tia-redmart

Source: Tech in Asia

3. Further distribution of Alipay 

Redmart’s current payment options include PayPal and credit card. It won’t be long before Lazada implements Alipay on their sites and allow shoppers to pay for their groceries through Alipay. Groceries are the perfect gateway drug to get users hooked to online shopping — everyone needs it and average price points are low. Just like Alibaba leveraged Didi in China to get users signed up for Alipay Wallet through subsidized taxi bookings, it will use Redmart’s groceries to get people in Southeast Asia hooked to Alipay.

Ant Financial, the company behind China’s digital payment giant Alipay, is already making moves for global expansion and ensuring that the payment method will be widespread throughout Southeast Asia. The company already has partnerships with companies including Concardis, Ingenico, Wirecard and Zapper in Europe, First Data and Verifone in North America, and Paysbuy and Counter Services in Southeast Asia.

Alipay is China’s largest online payments and money transfer system with more than 450 million active users. It won’t be long nor too difficult for Jack Ma to roll out his Trojan Horse.

4.  Acquiring ecommerce manpower

The talent challenge is not a new concept to companies in Southeast Asia. By acquiring Redmart, Lazada gains an instant 200 in-house employees who are already trained in ecommerce specific fields. Acquiring knowledgeable and skilled talent will allow the company to quickly expand the (perishable) groceries ecommerce category beyond Singapore to other thriving Southeast Asian markets where Lazada is present. Indonesia, Thailand, Philippines, and Malaysia have consumer expenditure on food and non-alcoholic beverages at $130.2 billion, $63.6 billion, $51.3 billion and $25 billion, respectively (Agriculture Canada). With that being said…

5. Amazon is coming (already here)

The US ecommerce behemoth has finally announced its plans to enter Southeast Asia via Singapore in Q1 2017 and Lazada will need to maintain a competitive edge. Amazon has already begun offering a tailored version of Amazon Prime in China to better compete with the likes of Alibaba and will more than likely introduce the same exclusive services in Southeast Asia that keep customers in the US so loyal to the marketplace – namely Amazon Fresh and Amazon Prime.

Amazon Fresh launched in 2007 and is now in 17 markets. Shoppers pay only $14.99 a month for the service but require Amazon Prime membership – a service that Lazada has not yet replicated for their shoppers.

“The bar in grocery retailing is exceptionally high. The supermarkets and grocers are amongst the very best retailers in the world,” Ajay Kavan, vice-president of Amazon Fresh, told The Daily Telegraph. “We believe that the key to the long term success of Amazon Fresh is to bring together the low prices, vast selection, fast delivery options and customer experience that Amazon customers know and love.”

Let the sharpening of the kitchen knives begin.

By: Cynthia Luo, Product Manager

red-mart-lazada

What do you think about the Lazada-Redmart deal?

Let eIQ know by commenting or find us on social media: Facebook | Twitter | LinkedIn

Hot on the heels of Amazon’s entry into Southeast Asia, Lazada has just confirmed its acquisition of Singapore web startup RedMart, reports Tech Crunch.

Lazada is spending $30-40 million to buy Singapore-based RedMart. Officially the deal is undisclosed and scheduled to be completed before the end of this year.

According to news, RedMart has been facing financial troubles, and has been working with numerous banks to find a buyer since September.

In a press release, RedMart states that it will continue to be run independently of Lazada despite this transaction. This new deal will help the grocery startup expand into new product categories, and possibly new countries. Lazada currently operates in six countries in Southeast Asia.

With Amazon’s grocery delivery service heading the same way, we sense an intense rivalry coming soon to Singapore.

A version of this appeared in Tech Crunch on November 2. Read the rest of the story here

singapore ecommerce landscape

With 83% of its population connected to the internet, Singapore holds the title as the most mature ecommerce market in Southeast Asia. Despite its small population, Singapore accounted for 25% of Southeast Asia’s 2013 online retail value, larger than the region’s largest market, Indonesia that contributed 20%.

Singapore’s ecommerce market is valued to reach $5 billion in 2025, making up 6.7% of retail sales in the country. What else can we see from the Lion City’s ecommerce scene? ECOMScape: Singapore will provide a quick overview.

1. Cross-border ecommerce is (still) preferred by the population

Around 55% of ecommerce in Singapore consists of cross-border transactions. Their developed infrastructure, liberal regulations on customs and tax, and large population of expats in the country opens the gate for foreign companies to flourish without having to establish local ecommerce operations in the country.

Singapore ecommerce landscape

The US and China are the top two destinations for shoppers from Singapore, putting Amazon and Alibaba’s Taobao on the top five most visited ecommerce websites in the country.singapore ecommerce landscape
As a result, there aren’t many home-grown players opting for a marketplace business model. Lazada and Qoo10 are the only mainstream B2C marketplaces in Singapore, unlike in Indonesia and Thailand where the space is a battlefield for deep-pocketed companies.

Its strategic location also attracts global companies to use Singapore as an ecommerce hub for their Brand.com presence to serve online customers in nearby markets such as Indonesia and Malaysia. Adidas used to fulfill regional orders from Singapore before opening an online store in Indonesia this October while Charles & Keith, a brand native to Singapore, offers free shipping to most countries with minimum purchase conditions.

2. Grocery shopping becomes more convenient

As the popularity of online shopping in Singapore increases, more Singaporean are turning online to fulfill their basic needs, including groceries. According to Ipsos and Paypal, online grocery shopping in Singapore is predicted to increase 21% in 2016.

This space seems to be very attractive for investors as seen by funding news of pure-play online grocers like Redmart and honestbee and transition of Singapore’s traditional grocers like Giants and Fairprice jumping on the online bandwagon. In fact, the majority of the etailer in Singapore are traditional grocers.

singapore ecommerce landscape

Food delivery services like Foodpanda and Deliveroo are also thriving in Singapore, the latter boasting 25% week on week growth, while Foodpanda claims Singapore to be one of its key markets in Southeast Asia after closing down operations in Indonesia and Vietnam.

singapore ecommerce landscape

3. Daily deals sites are still popular among Singaporeans

As news of daily deals companies shutting down across Southeast Asia grows, the business model may have overstayed its visit in the region but seems to be stable in Singapore. Groupon, which closed operations in Philippines and Thailand last year and sold its Indonesia operations, remains in Singapore’s top 5 most downloaded shopping apps and top 15 most visited website in Similar Web’s ‘shopping category’. Although Ensogo shut down earlier this year, many more deals sites still continue to operate.

singapore ecommerce landscape

4. Payments opportunity in Singapore attracting global players

Singapore’s established infrastructure and internet maturity makes an appealing testing ground for global players wanting to expand their reach in Asia, especially online payments players. The country’s credit card penetration is 38%, while most of the Southeast Asian countries are still below 5%, and the amount of cards circulating in the country averages 3.9 cards per person.

As a result, the Cards and Payments market in Singapore has become one of the most attractive and competitive markets in Asia Pacific. Adyen, a payment platform unicorn from Europe, recently opened its office in Singapore following the company’s plan to focus in Asia Pacific.

singapore-ecommerce-landscape-mobile-wallet

Singapore’s cashless habit has also made Singapore the perfect place for NFC payments solutions like Apple Pay, Android Pay and Samsung Pay to launch in Asia and the heavy traffic to Alibaba’s ecommerce platforms ensure the adoption of Alipay is well on its way.

5. C2C is driven through mobile apps

singapore ecommerce landscape

According to PwC, 38% of online shoppers in Singapore are making purchases on their smartphone, this number is higher than the global average of 28%. 57% of the shoppers in the republic also turn to social media to read product reviews. As an early adopter of internet culture in the region, Singaporeans are apt at using their mobile to access the internet.

Home-grown C2C platforms like ImSold, Shopee and Duriana have focused on their mobile platforms in order to appeal to customers who want the convenience of buying and selling their things on the go. More mobile-only players are expected to emerge.

Click here to download the full, high resolution version of ECOMScape: Singapore version and join the ecommerceIQ network for the first look at the next ECOMScape in our series.

You can also find ECOMScape: Indonesia and ECOMScape: Thailand.

Fatfish Internet Group, a startup investment company headquartered in Singapore and Australia, has agreed to sell some of its assets to Zurich-based company builder Mountain Partners as part of a strategic partnership to invest in Southeast Asia, reports Tech in Asia.

The assets worth $9.2 million will be housed in a ‘special purpose vehicle’, which will be 100% owned by Mountain. Fatfish will get a combination of shares and cash in the sale.

A joint venture to be branded as ‘Mountain Asia’ will then be formed and majority owned by Mountain, but managed by Fatfish.

Mountain Partners is a global company builder that has been involved in funding over 150 tech businesses, such as members only fashion site, BuyVIP (acquired by Amazon) and food delivery Lieferando (acquired by Takeaway).

Currently, the partners entered into a term sheet, but not a binding contract yet. The whole deal is expected to close in Q4 of 2016.

What is Fatfish?

Fatfish has been compared with Rocket Internet, but without the high profile products.

It acts as a strategic investor in companies by providing them with funding and resources to grow their businesses. The company has backed ventures such as fashion ecommerce website Dressabelle (which has been acquired by iFashion Group) and car insurance service company RajaPremi.

The company did not disclose the amount of assets sold to Mountain Partners, but it did announce that it will continue to hold certain investments on its own. The company has expressed investment interests in gaming studio iCandy Interactive.

The collaboration will focus on building companies in Southeast Asia.

A version of this appeared in Tech in Asia on August 18. Read the full version here

US payments giant PayPal Inc has launched an Innovation Lab in Singapore, its first outside the United States, to collaborate with government agencies, industry associations and SMEs, reports Digital News Asia. The lab aims to foster innovation, research and development (R&D), entrepreneurship, talent and expertise in Singapore.

“Singapore is a perfect melting-pot for ideas and innovation, given the strong support from the government, its massive talent pool backed by a world-class educational system, vibrant startup ecosystem, and diverse merchant profiles,” according to Dr. Rohan Mahadevan, CEO of PayPal Pte Ltd.

Rohan said that PayPal is partnering with all the universities in Singapore, working with their Deans and graduate students.

The first project the Innovation Lab will undertake be around SMEs in the food and beverage (F&B) business. 

“Singapore is a known food capital, and food is something that is very close to the hearts of Singaporeans,” said Rohan. The project will aim to improve productivity at F&B businesses, with Japanese restaurant Enbu having embedded digital payments into its business.

By this time next year, PayPal and its payment solutions partners such as TabSquare and Integral Solutions, will aim to provide more than 200 F&B establishments with in-store digital payment capability.

Other initiatives in the pipeline include the PayPal Business Challenge, which aims to help SMEs with their business challenges, not just payments.

In terms of PayPal’s ‘Innovation Lab’, it will aim to develop and nurture the next generation of fintech startups through an incubation program. The PayPal Incubator program will also offer coaching and mentorship by PayPal executives and various subject matter experts. Currently, there are three startups on board: OnePay, Prosecure.me and InvoiceInterchange.

A version of this appeared in Digital News Asia on August 18. Read the full version here.