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Singaporean netizens rank at 4th place globally for sessions per year on Amazon, when judged in proportion to the number of internet users. That puts them just marginally behind Canada.

Source: SimilarWeb/World Bank

It’s probably one of the reasons why the company chose to enter Southeast Asia via Singapore; not only is there is an internet-savvy population with a high credit card penetration, consumers already have a stated preference to transact with the platform.

Amazon wasn’t physically present in Singapore until last year but the company’s white-label electronic products such as the Echo Dot and Kindle have been stocked and fulfilled by Lazada Singapore through grey market sellers as far back as March 2015, according to analytics platform BrandIQ.

Demand for Amazon in Singapore

BrandIQ mapped the number of reviews on Amazon products on Lazada SG over a three-year time period. When compared against Google Web Search data from Google Trends, there was a direct correlation between the volume of reviews on Lazada and Google search interest for Amazon from Singapore – until the marketplace’s official launch in July 2017.

Source: BrandIQ/Google Trends

Amazon products on Lazada witnessed a spike of product reviews towards the end of 2015, coinciding with the September 2015 announcement of the Fire Tablet and Fire TV product lines.

Google Trends data shows a very similar spike to that of product reviews on Lazada in December 2015, which can be attributed to the holiday season and popularity of the new Fire product lines.

A very similar trend was also witnessed in 2016; product reviews rose following the September 2016 announcement of the new Echo Dot product, with corresponding spikes in both Google Web Search and Lazada product reviews in December 2016.

Web search interest in Amazon reached a crescendo in July 2017 following the Prime Now launch in Singapore. This event also marked the first inverse trend between web searches for Amazon and product reviews on Lazada. While the number of product reviews grew approaching the December 2017 holiday season, it never recovered to 2016 or 2015 levels, suggesting decreased interest across Lazada following Amazon’s entry.

There’s a correlation between Amazon product launches and their popularity in Singapore based on reviews by certified users, but what does it mean?

Rival on Lazada’s marketplace

Despite Amazon’s belated entry into Southeast Asia, its products are still ranking high on Lazada.

The interesting part is that the products in question; Amazon Fire TV, Kindle, and Echo are simply unavailable on Prime Now and can’t be shipped to Singapore from AmazonGlobal, it’s international shipping site.

Instead, these products are sold and fulfilled by a multitude of grey sellers on Lazada such as GeekBite, that has been active on the platform for 3+ years.

Despite its Amazon Prime Now offerings for free international shipping, some of Amazon’s best selling items can’t be shipped to Singapore

There’s clear demand and interest for Amazon products, which leads us to the question: why is a customer-obsessed Amazon content with grey market sellers fulfilling this need?

Standard industry practices indicate that well-known brands often find a crowded grey market for their products to be a cause for concern. Leaving grey sellers to fulfill local demand for foreign products results in brands losing control of their brand image, as delivery, packaging, and warranties from grey sellers usually don’t correspond to the same brand guidelines adhered to by the company.

The answer here is likely linked to the outdated industry distribution rights for television/movie content on the Fire platform and e-book rights for the Kindle. Content distribution rights are negotiated geographically, and local distributors commonly have long term contracts with content producers. Amazon either hasn’t prioritized, or is still in the process of securing distribution rights for Southeast Asia, and thus can’t make these products available to purchase.

What Amazon is falling short of, grey market sellers are picking up admirably. In the electronics categories including “Tablets” and “Video” on Lazada, Amazon products rank in the Top 10 when sorting by “Popularity”. The Amazon Fire TV Stick and Amazon Kindle stand out within their own respective categories.

The prices of items like the Kindle are also marked up by almost 23% (US$79.99 on Amazon US vs US$103 on Lazada SG) and the Echo Dot is marked up by 15% (US$49.99 on Amazon US vs US$59 on Lazada SG).

Singaporean consumers itching for the new Amazon items are stuck with purchasing through grey sellers on Lazada, like local reseller SGKindleShop, who offers the Kindle for US$155, or like forwarder shipping service like comGateway, which can set you back another US$15 for the US$79 Kindle, only slightly cheaper than the US$103 price tag on Lazada.

Cost of shipping a 1kg package using a forwarder shipping service from the US to Singapore.
Prices in SGD

Amazon is missing out on a large potential revenue source by foregoing some of its best selling products on Prime Now. It’s also unable to cross-sell by offering enhanced product warranties, which are an important addition to overall product revenue streams.

Unless Jeff Bezos makes a conscious decision to include Amazon’s products on Prime Now SG, it’s going to continue to cede the market to grey sellers on its largest regional competitor.

Osman Husain of ecommerceIQ contributed to this report.


HOW IS YOUR BRAND PERFORMING ON SOUTHEAST ASIA’s TOP MARKETPLACE

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’.

New funding, new Jack Ma comment on Indonesia and a few concerns surrounding Single’s Day. Here are the morning ecommerce headlines that you should know:

1. Helpster, startup connecting blue-collar workers with temp jobs, raises $2.1 million in seed funding 

Indonesia’s Convergence Ventures led the round with Wavemaker Partners and other investors participating. Helpster sorts through applicants who fill in data through the app. It then matches them to companies looking for help. Businesses can range from food and beverage to hospitality, events, and logistics.

Read the rest of the story here.

2. Jack Ma not giving up on Indonesia 

“I never say no,” Ma told The Jakarta Post on the sidelines of Alibaba’s Singles Day or the 11.11 Global Shopping Festival, dubbed the world’s biggest ecommerce event, in Shenzhen, China, on Friday evening. Indonesian Information and Communications Minister Rudiantara recently said Indonesia had “lost” to Malaysia in securing Ma as adviser for the country’s ecommerce development plans, adding he had seen pictures of Ma and Malaysian Prime Minister Najib Razak in agreement to become the neighboring country’s digital economy adviser.

“We acquired Lazada so that we can be in Indonesia as well as five other Southeast Asian countries […] obviously Indonesia being the largest market.” – Alibaba Group co-founder and vice chairman Joseph Tsai.

Read the rest of the story here

3. A word of caution for ecommerce brands looking to market around Single’s Day

Alexis Lanternier, CEO, Lazada Singapore, said last year, the brand saw an uplift of six times in revenue on key sale dates through Online Revolution – 11 November and 12 December.

Such occasions serve as an opportunity for ecommerce platforms to not only expand their consumer base by spreading awareness about their presence. This helps us gain trust in the highly cluttered market.

Read the rest of the story here

4. Pos Indonesia eyes role as logistical backbone for ecommerce

With ecommerce booming in the country, the government is pushing state-owned postal service PT Pos Indonesia to benefit from this growing industry by providing logistical support for online businesses. Communications and Information Minister Rudiantara says:

“Ecommerce players don’t need to establish their own logistical unit, as they can share a single logistical platform provided by Pos Indonesia.”

Read the rest of the story here

If you’re interested in ecommerce, you might also find these recent reports about online retail helpful.