Offline Expansion: The Next Step in the Growth of Southeast Asian Online-Only Retailers

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As several leading online-only retailers established offline presences globally, this article discusses the criticality of this move in Southeast Asia, the challenges associated in establishing the physical stores and how the right mix of strategies from choosing the right store format, creating an engaging in-store experience to having the correct organization structure is imperative for success.

Digitalization and e-commerce have transformed retailing globally, with online-only players rising in prominence across the world while offline retailers eagerly extend their presence to online. As competition stiffens and retailers seek for new avenues of growth, more online-only retailers are realising the benefits of having a physical store with some eventually stepping foot into establishing one. Leading global players led the pack in doing so and accelerated this strategy with a series of acquisitions, for instance, Amazon’s US$13.7 billion acquisition of grocery chain, Whole Foods and Alibaba’s US$2.88 billion acquisition of 36% stake in China’s leading hypermarket operator, Sun Art during 2017.

Across Southeast Asia, several prominent online-only retailers have joined Amazon and Alibaba into the brick-and-mortar scene, Zalora (Singapore) opened pop-up stores in Malaysia, Singapore, and the Philippines over 2015 – 16; Naiise (Singapore) – an e-commerce website for lifestyle products also established a permanent store in Singapore after a series of pop-up stores and vending machines and has since expanded its offline presence to Malaysia in 2017; whilst Berrybenka (Indonesia) opened a permanent brick-and-mortar store at Jakarta in early 2017 after holding several successful pop-up store events during 2016.

Offline Expansion: The Next Step in the Growth of Southeast Asian Online-Only Retailers - Brand Spur

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While this trend continues to unfold, the question remains whether online-only retailers will eventually need to have an offline presence to establish long-term success, particularly in Southeast Asia. After the much-discussed challenges faced by retailers in catering to the increasingly digitalized Southeast Asian consumers, physical stores are unlikely to lose their luster in the region, marking the importance of them in the sustained growth path for online-only retailers over the mid to long-term period.

With the increasingly integrated and complex customer journey in Southeast Asia, brick-and-mortar stores remain the answer to consumers’ innate needs to see, feel, touch or try a product before purchasing. This is especially critical for the rapidly urbanising and aspirational consumers in the region, where findings from our recent study, “A new delivery in Southeast Asia – Satisfying consumers’ appetite through digital” confirmed the hypothesis of consumers’ eagerness to learn about new brands online, yet wanting to reaffirm their choices at a physical store. Additionally, the region’s consumers treat visiting malls and even hypermarkets as an essential weekly leisure activity, marking the opportunity for online retailers to showcase their brand and establish a wider reach should there be a physical store presence.  Physical stores also answer the needs of the significant unbanked population in the region, whose proportion remain as high as 78% in countries like Indonesia. Not to mention, last-mile delivery remains a challenge in the traffic-clogged cities like Jakarta and in poorly connected and geographically challenging terrain in the region.

In this context, a strategic offline presence thus appears a necessity for online-only retailers to successfully scale in this region, particularly with the ability to maximize reach amongst consumers. However, the fact that online-only retailers in this region are largely small to mid-cap companies brings well-founded considerations regarding the scalability of offline stores, effects on capital outlay, the return-on-investment and the integration of the organization. Nevertheless, the most pertinent issue for these online-only players when venturing into the offline space should rather be on how they can create an exceptional in-store experience, which will then help to engage consumers effectively, bringing about consistent traffic, loyalty and eventually, revenues.

A successful offline strategy for online-only retailers ought to, therefore, consider these challenges and maximize the benefits through:

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Strategic choice among diverse offline stores formats like permanent flagship stores, pop-up stores and even small kiosks based on consumers’ needs and feasibility. Following the examples of most small to mid-cap online-only brands in Southeast Asia such as Love, Bonito, Naiise and Berrybenka, the starting point would usually be a pop-up store to stimulate novelty and test receptiveness among consumers before moving on to establish a permanent flagship store. A combination of different store formats is also likely to be useful in a large and complex geography such as Indonesia and Malaysia whereby a flagship store can be built in the densely-populated urban cities like Jakarta and Kuala Lumpur while pop-up stores or kiosks in the suburban or rural areas of the country to drive brand awareness as well as facilitating cash payment given the high unbanked population.

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Offline Expansion: The Next Step in the Growth of Southeast Asian Online-Only Retailers - Brand Spur

Ensuring seamless a consumer experience with the integration of multiple channels, for instance, redirecting customers from one channel to another regarding the product or stock availability. As many online-only retailers are likely to take a cautionary start with a small store format or undertake the showrooming approach (a physical store to showcase products for consumers to browse and try but purchase to be completed online subsequently), it will thus be essential for consumers to be able to quickly order online at the store immediately for products and enjoying the choice of home delivery or physical collection at the store subsequently in order to prevent any leakage of sales to competitors due to consumers having the opportunity to compare prices or being frustrated with product unavailability in the store. Essentially, this ensures that customers are having a seamless experience despite the channel that they are shopping at.

Creation of an “experience center” with the provision of unique in-store experience for consumers to engage with the brand and its products, for instance, the organization of thematic talks for a home décor brand or monthly styling workshops for a fashion label, in addition to varied product offerings and high-quality customer service. This allows the online-only retailer to move away from being a typical transact-and-go style of retail stores to create repeated footfalls meaningfully while allowing the consumers a distinctive experience with the retailer.

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Close collaboration between the shopping mall and the online-only retailer.This is based on capitalizing upon the latter’s “experience center” to rejuvenate the mall’s offerings and offer a holistic physical engaging experience for the consumers once they step into the shopping mall, particularly in countries like Singapore, Malaysia, and Philippines, which have reportedly been affected by the growing prominence of e-commerce. The shopping mall could also move out of their comfort zone of a rental collection mindset, to undertake strategic moves, such as the facilitation of partnerships amongst its tenants to capitalise on each other’s retail concepts, centring on the idea of providing an enhanced holistic consumer experience. This type of collaboration will help to create a win-win situation whereby malls attract an increased footfall, while the innovative online-only retailers can seize the chance to negotiate for better commercial terms including rental.

Empowerment of staff as the retailer’s  “Experience ambassadors”,  where they live and breathe the brand to provide an engaging touch to the consumer, be it whether they are purchasing in the store or being redirected to online. This is to minimize the physical shop’s staff from feeling demotivated by the online-to-offline expansion where they may not see the direct benefit on their commission, should a need arise for them to redirect the consumer to online. KPIs can look to weight the provision of a good consumer experience as equal to the conversion of the sale itself. Consequently, companies ought also ensure uniform KPIs that are not split across channels and instead allow for the integration of the two channels with staff enjoying rewards based on the company’s achievements holistically.

Capitalizing on the data capabilities of existing online platform like transactions and views to provide an edge in product innovation, logistics, inventory management and for reaching new consumers for the offline stores. With the vast amount of data already collected at the online store, it is thus imperative for online-only retailers to be able to capitalize on the knowledge across platforms to achieve quicker success with their offline foray. For instance, the online-only retailer can cull insights from the data collected on its online website to educate its in-store experience ambassadors about the profile of shoppers including types of products they preferred so that these ambassadors can creatively engage each shopper as an individual.

In conclusion, offline stores offer important advantages for online-only retailers in Southeast Asia, which will be an important step for these retailers in furthering their growth given consumers’ needs for cross-channel touchpoints. However, a well-planned synergy between online and offline channels is critical in success, especially with the ability to engage consumers effectively and innovatively while they enjoy a seamless experience across both channels.

 

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Offline Expansion: The Next Step in the Growth of Southeast Asian Online-Only Retailers - Brand SpurOffline Expansion: The Next Step in the Growth of Southeast Asian Online-Only Retailers - Brand Spur

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Offline Expansion: The Next Step in the Growth of Southeast Asian Online-Only Retailers - Brand SpurOffline Expansion: The Next Step in the Growth of Southeast Asian Online-Only Retailers - Brand Spur

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