Byravee Iyer
Mar 13, 2014

Asia’s retailer expansions fall behind both online and offline: CBRE

ASIA-PACIFIC - Research from CBRE shows Asia’s retailers are more cautious with both online and offline expansion than counterparts in the US and Europe. Most of Asia’s retailers focus heavily on their own region, with 20 out of 25 planned store openings slated to stay within home markets.

Asian retailers still see significant potential in their own region
Asian retailers still see significant potential in their own region

Compared to the United States and Europe, APAC retailers have modest expansion plans. About 29 per cent intend to open fewer than five stores and only 26 per cent say they will open 5 to 10 stores in 2014. Conversely, almost half of American retailers are looking to open more than 40 stores and another 11 per cent said they would open between 31 and 40 stores.

Local retailers lack the scale and supply network of international players, and as such, centre their operations within a few countries; and store locations are limited to top-tier cities. High rental levels, rising labour costs, decelerating economic growth and slowing retail sales in most markets have dampened retailers’ ambition for expansion in the near future

According to Dave McCaughan, MD, McCann Worldgroup Hong Kong and Asia Pacific director, the new wave of Asian-based brands tend to move “across” borders looking for similar markets and migrating in a way so as to fit into a culture. “We have seen many Western and Asian retailers fail in the past as they tried to take their model to very different markets. Not surprising then that lessons have been learnt and they are now cautious about moving internationally without adapting.”

In an indication that multichannel retailing is the way forward, almost all retailers now operate a transactional website. For many retailers, online operations account for just 1 to 2 per cent of sales, but for some this could be as high as 25 per cent. CBRE’s survey shows that almost half of retailers (42 per cent) want to significantly expand the geographical coverage of their transactional capability compared to just 27 per cent in 2012.

However, a third (32 per cent) of retailers have no plans to change their transactional capability, of which most (89 per cent) do not operate a transactional platform at all. Not surprisingly, a large majority of these are from Asia Pacific, where retailers tend to be more cost-conscious and many lack the resources or the experience to internally develop an e-commerce platform. Low internet penetration and regional logistics systems also pose a challenge.

Stefan Hirsch, VP & MD, SapientNitro Singapore agrees with the assessment. He attributes it to a combination of factors. Chief among them is each Asian country requires specific investment to address preferences and requirements for search and media, content, languages, digital experience, payments, tax, regulation, warehousing and shipping.

With comparatively low online sales volumes, retailers do not choose to make these investments, which in turn continues to drive consumers away from buying online,” Hirsch said.  Over time, he predicts consumer preference will reward retailers that invest in a connected omni-channel experience. In addition, global e–commerce players spreading into Asia may also lead to accelerate this trend.

Simon Hathaway, Cheil’s president and global head, retail experience dismisses CBRE’s findings. Last year 62.6 per cent of smartphone users in Korea were shopping on mobile and he believes mobile technology is transforming the shopping experience in and out of store, across promotion, loyalty and payment. “I believe more retailers across Asia will follow their lead as smartphone penetration increases in their markets and people become confident with on-line payments. They will have to if they want to stay relevant.”

The rise of third party online retail platforms in the APAC region is also likely to change the landscape. For example, the most popular online marketplace in China, Taobao, recorded US$5.71 billion sales during the site’s Singles Day promotion on November 11. The development of these online marketplaces gives retailers access to e-commerce at a lower cost and with an established user base, especially for testing new markets. This is already starting to play out. Recently, Walmart’s Yihaodian said it plans to double offerings by the end of next year to capture a larger share of the online shopping space. For the purpose of the study, CBRE interviewed over 130 retailers across Europe, the Americas and Asia-Pacific about their expansion plans in 2014. The study also looked at the potential of online transactions.

McCaughan said retailers are having to come to terms with a world where on-line and especially mobile shopping will be an everyday and often more convenient means for people to both “shop” (that is browse, make comparisons, select ) and “Purchase” ( make the actual order and payment ).Smart retailers are realising that these two activities overlap and are happening at the same time.

However, consumers in Asia report missing the “live or real” shopping experience. This is particularly true in densely populated cities, which see retailers as venues for doing interesting things and exploring ideas. “They tell us that there is nothing online that matches actually seeing, touching and smelling merchandise and the merchandising experience of real stores,” McCaughan added.  

China is the most sought after market for APAC retailers, followed by Vietnam, Malaysia, Indonesia and Singapore.

In Vietnam, the aspirational middle-class consumers with rising incomes continue to draw interest from global and regional retailers. Ho Chi Minh City and Hanoi both ranked in the top 10 cities for most new retailer entrants on CBRE’s Retail Hotspots in Asia-Pacific report. Liberation of foreign direct investment into the sector, starting in 2015,i s likely to boost this trend.

Malaysia and Singapore show strong consumer sentiment and CBRE predicts an influx of new supply in Malaysia. Stability in Singapore’seconomy and employment market is also a boon for retailers. Spending has increased thanks to thecity’stourism growth. Retailer appetite for an Indonesian footprint also swelled after the recent arrival of international brands such as Uniqlo and H&M. The Indonesia Shopping Centres Association expects retail sales to grow 15 per cent in 2014.

Ultimately, people expect to see interactive services from retailers. “Consumers go to the store and are encouraged by the retailer to look at merchandise both in store and on mobile, to be offered something special for ordering there and then either while in the store, or on a phone,” said McCaughan. “Or we expect retailers to offer great mobile shopping experiences that reward us when we then visit the bricks and mortar shops.”

 

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