eIQ Insights: While the West Shuts Down Retail Space, Southeast Asia Keeps On Building

Written by: Cynthia Luo on July 19, 2017

To build or not to build?

This is the question many retailers around the world are struggling to answer. In the US, the answer is pretty evident.

A 31% increase in 2017 retail bankruptcies from 2016 and an estimate from Credit Suisse claiming that as many as 25% of America’s malls will shut down by 2022 all point to no.

Source: Credit Suisse

It’s the “Amazon Effect”, analysts say, the shift of spending from offline channels to online ones as young people become more accustomed to ‘online-only’ retail. No money in means brick & mortar stores are bleeding out trying to operate labor intensive businesses.

ecommerceIQ
Source: FT

Meanwhile, news overseas is quite disparate.

The country’s largest retailers and department stores like Tesco Lotus, Robinsons, and HomePro are all planning to open new stores in the next five months. Big C SuperCenter has allocated roughly $351.5 million for store expansion locally and abroad this year.

Online or offline: what’s the right way to go?

Although the rise of ecommerce has been a major contributing factor to the demise of traditional retail; the brick and mortar store is not dead as most claim.

Ecommerce only accounts for a single digit percentage in overall retail sales in Southeast Asia and ‘mall culture’ is not seen as a chore but as a weekend excursion, especially with malls adding new exhibitions such as Central Embassy’s recent interactive art display, “The Beach”, in Bangkok.

ecommerceIQ
Credit: adaymagazine

“Considering rapidly changing consumer behaviour, we may create shopping mall concepts that fit such changes. We want our complexes to become a third home for customers,” says Pakorn Parthanapat, COO of Central Pattana (CPN), a development arm of Central Group.

As well, there will always exist a large population that requires to see, feel and touch a product before making any purchase decision – a problem that many pure players retailers can only ‘solve’ by burning up cash.

Retailers understand these concepts, which is why the smarts ones with existing offline and online footprints are using it to their advantage.

The answer isn’t to label brick & mortar as a dying breed but instead businesses must become more deliberate with how many stores, what to offer in each and their locations.

Uniqlo is closing down stores in the US to only build others in premium locations.

In Thailand, HomePro’s new stores are testing its “HomePro S” concept, a shop that occupies only a sixth of its original store and in locations where young people frequent.

ecommerceIQ
Source: Marketeer

As well, Makro is opening one medium and three small sized cash and carry stores.

[cash and carry]: “Cash-and-carry” refers to a business model that virtually excludes all credit transactions, requiring up-front payment for all goods and services. Companies with a cash-and-carry business model eliminate accounts receivable from their books and are able to match all sales with actual cash receipts.

JD.com Inc., China’s second largest ecommerce company is also expanding into both urban and rural China with over 1 million JD convenience stores in the next five years.

Jason Yu, GM of consumer research firm Kantar Worldpanel comments, “it is more challenging to grow purely in ecommerce, so both Alibaba and JD move into offline business.”

Ecommerce is not the ‘end all’ solution to today’s retail evolution, but the trend appears to be that pure play companies – Pomelo, Xiaomi – are the ones that have a say in whether to open more offline locations or not, whereas traditional retailers are scrambling to go online in order to save their businesses.

Multi-channel is the inevitable future.

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