“Consumers are increasingly turning away from bricks-and-mortars for the convenience and competitive prices of online marketplaces.”

The Hardest Categories Are Thriving Online (And Why Asian Retailers Can’t Wait Anymore)

Reading Time: 6:15 minutes

By Mock Seng Chong — Retail Industry Leader, Southeast Asia

Challenging categories booming online

Traditionally, retailers were of the view that categories such as beauty and apparel are hard to move online. The thinking was that consumers wanted to touch and feel these goods. They needed to try it on. And for good reason! For one, size definitions are not consistent. A size 42 men’s shoe from Brand A will fit differently compared to a similarly sized shoe from Brand B. The inexplicable inability to unify UK and EU shoe sizes didn’t help. This experiential factor suggested online sales would be slow. Along with high incidences of product returns due to mismatched expectations.

But we were proven wrong.

The figures show it.

In 2014, L’Oréal appointed Lubomira Rochet as its Chief Digital Officer to transform the relationship the brand has with consumers. Today, the company has 11% of its sales from eCommerce – the second highest contributor to its revenue by ‘country’. The figures speak for themselves. Only a few years ago, we considered anything above 5% online phenomenal.

Fashion too showed its mettle online. Inditex’s (Zara’s parent) online business now accounts for 12% of its total net sales. The record sales growth it achieved in Q1 this year is a testament to omnichannel in the category. By 2022, Forrester expects 36% of clothing, accessories and footwear spending to occur online.

Negating the risk of online shopping.

An anecdotal observation lends weight to these figures. These few years, I have noticed the friendly seamstresses in my local neighborhood getting busier. Some of them even put up notices for helping hands! My curiosity led me to a new realization: This increase in demand for clothes alteration is the result of a rise in the seamstresses’ customers shopping online. So, there you have it! A low-tech / no-tech and cost-efficient way of negating the uncertainties of online apparel shopping.

Rapid innovation further lowers the gamble.

We are also witnessing rapid innovation in these categories. An example is iFashion Cloud, a Chinese apparel retailer that has figured out a way to offer made-to-measure clothing at off-the-rack prices. After a customer’s measurements are taken, they are uploaded to an app which recommends styles to the customer based on a diagnostic process. It also accepts unique designs from customers. The data is then transferred to the factory where intelligent manufacturing technologies help to create custom-made outfits for delivery to customers or stores. The result: Lowered operating costs and delighted customers.

Asians lead in online shopping, demand excellent omnichannel experience

In a bid to better understand the shopping habits of today’s Asian consumer, a study covering 6,000 consumers across 12 markets in Asia revealed that 59% favored shopping online. Chinese consumers lead in this preference – with an overwhelming 88% choosing online over in-store. Not surprising, perhaps, given the convenience of Taobao, Tmall and digital payments in China.

But even among countries known for a lower preference for online shopping, a few things are clear:

  1. Prolific multichannel shoppers. Consumers in Asia Pacific are some of the most multichannel shoppers. As much as 82% combine channels when shopping. A staggering 96% of Malaysians do so.
  2. High expectations for omnichannel. They have high expectations for their omnichannel shopping experience. High shipping costs, stock-outs and slow fulfilments are factors that drive customers away.
  3. Accessible payment options. Limited payment options are serious impediments to eCommerce growth in Southeast Asia. For example, a vast majority of customers in Indonesia and the Philippines don’t even own a bank account, much less a credit card. Etailers need to provide alternatives that are within reach – such as cash on delivery, prepaid cards or partner with the likes of Grab and Go-Jek for their ubiquitous eWallet solutions.
  4. You seldom get a second chance. In a landscape where there are just so many retailers to choose from, second chances are rare. Nearly two-thirds of shoppers will no longer shop with a retailer after just one negative customer experience.
  5. Online marketplaces win with convenience and value. Consumers are increasingly turning away from bricks-and-mortars for the convenience and competitive prices of online marketplaces. 88% of Asian consumers use them, not only to purchase goods but also for product discovery and price comparison.

Workarounds to touching consumers where they are – online and offline

There’s not a doubt the playing field is changing faster than we know it. And trust me, retailers know a thing or two about the rapid rate of evolution in the industry.

The fact is, the trends we talk about here have been apparent for a number of years. But the speed and the amalgamation of these forces is decreeing a new reality: Your customers are online and offline; you need to be there too.

Having said that, it’s often intimidating and mindboggling to build up an order management and distribution capability to meet these expectations – while remaining cost-competitive. This is especially so in many less developed countries where the quality of transport infrastructure is less than ideal. From an ROI viewpoint – considering the investments needed vis-à-vis the proportion of revenue attributable to online commerce – many retailers simply shy away because the returns are simply not attractive enough.

Not many retailers have the financial muscles of Loreal and Inditex to go the full nine yards. But are there workarounds? Absolutely!

Partnering with online marketplaces like Zalora and Lazada as well as specialist fulfillment partners like Ninja Van is one possible workaround. So is starting small with self-collection options. The latter is, in fact, a popular alternative for retailers whose strategy is “online to offline” – using online as a means to drive more traffic to the physical stores. We need to be cognizant of the fact that physical retail is not going away; it’s just undergoing major transformations as we speak. Omnichannel commerce means being able to manage all sales channels as one unified “phygital” channel. And offering self-collection in stores is but a first step in that direction.

Great urgency to transform, but wins may come sooner than you think

Today, L’Oréal harnesses digital technologies across its business – from product design to training through to the beauty experience enjoyed by consumers. The company applies machine learning to its anonymous database which automates and perfects formulas to suit the needs of consumers. It also uses technology to personalize products for customers at the point of sale. L’Oréal’s ModiFace’s applications ride on augmented reality which lets consumers virtually try out beauty products. It can even conduct skin diagnostics, allowing the beauty consultant in-store to make personalized recommendations.

The irony is that Loreal is not a retailer, but a consumer products (CP) company that has decided to also sell direct to consumers. These days, more and more CP companies sell direct to consumers to reduce reliance on the traditional distributor and retailer networks. It gives them valuable sales intelligence and better margins too.

As CP companies continue to compete with retailers in the latter’s backyard, lines between the two will continue blurring even further – causing more stress to pure-play retailers. As such, it is more urgent than ever for retailers to retain and grow the pie. Because there is no choice but to coexist and collaborate with their newfound frenemies in an ever-complex ecosystem fraught with danger and yet dotted with tantalizing pots of unclaimed gold.

But take heart, because the light is not at the end of the tunnel.

Experienced partners can help retailers identify and pick low hanging fruit. Resolve the right pain points. So that digital investments show results even in the near-term. Indeed, the journey can be enjoyable as you witness quick wins. They may come sooner than you think.

.   .   .   .

P.S.: Those who’ve read my previous blog may remember me asking whether have we – in retail – been so swept up by the whirlwinds of digital technologies we’ve been innovating for the sake of innovation?

What I am talking about here is far from that. This is about survival amid a rising tide that’s not going away. And in such scenarios, action is the only absolute that doesn’t lead to the end.

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