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.


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.


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.


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. 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.

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 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’.