Future-proofing retail stores against the threat of online shopping

By Arra B. Francia
Reporter

YOUNG ENTREPRENEUR Walt Steven Young was on one of his trips when he had a peculiar observation. It was Black Friday, when shops in the United States offer huge sales right after the Thanksgiving celebration. The streets, however, were not as packed with shoppers as they usually were.

“There’s not too many people anymore in bricks and mortar stores… but when I looked at the front desk of hotels or condo units they’re filled with boxes,” Mr. Young told BusinessWorld in an interview.

“Right then I noticed that okay, that’s why bricks and mortar are dying because everybody’s into online shopping, and (their items) are being delivered to them.”

This shift to online stores from the traditional bricks and mortar shops has become a major problem in the United States, to the point where analysts have started to predict a “retail apocalypse.

UBS said in an April report that about 75,000 stores will be forced to close by 2026, or about 7% of the 1.04 million retail establishments in the US. The closures will span from clothing stores, sellers of home furnishings, electronics stores, and even groceries.

UBS expects online retail to account for 25% of total retail sales by that time, from its current market share of 16%.

The so-called retail apocalypse is one of the reasons why Mr. Young came to establish AdoboMall, an online marketplace that sells only authentic brands from official distributors.

“It was seeing the online space affecting all the bricks and mortar stores in other countries… and one I knew that this would be more convenient for us because we’re in a country with bad traffic,” Mr. Young said.

Mr. Young’s AdoboMall is only one of several online shops in the country that have been riding on the emerging interest in online shopping. The Singapore government’s investment firm Temasek projects the Internet economy in Southeast Asia to be worth $240 billion by 2025, with the Philippine e-commerce market valued at $10 billion.

Other online marketplaces that have been thriving for the past years include Lazada, Zalora, and Shopee. Lazada alone has about 80 million products on its platform from 50,000 sellers.

From its launch in 2017, AdoboMall now has 1,700 brands on its platform, with about 3.2% of website visitors translating to sales.

“I’ve been wanting to have a very strong local player to really be a shopping destination for our people. Not just to shop, but go into a more experienced kind of shopping. I wanted them to find another alternative and be comfortable with the products they buy so that’s why AdoboMalls was born,” Mr. Young said.

At the same time, the country’s largest retail groups are also catching up with the e-commerce play. SM Investments Corp. (SMIC), which operates 2,385 stores based on latest data presented in June, said it is developing products with partners to take advantage of the emerging Philippine e-commerce opportunity.

“We are building our base of comprehensive assets and capabilities with best-in-class partners to accelerate our omnichannel retail presence and build end-to-end solutions for our customers,” the company said in its 2018 annual report.

The country’s largest conglomerate in terms of market capitalization, said its shops SM Markets, ACE Hardware, SM Appliance, Watsons, and WalterMart now have their own online sites. Its products can also be found in Lazada, Shopee, and MetroMart.

SMIC is also combining the physical and online aspects of shopping to create what it calls a “Click & Collect” strategy.

“(We) introduced other services such as the “Click & Collect” where customers can purchase items not only from the SM online store but also from other online players such as Lazada and Shopee and subsequently pick up their purchases from the most convenient SM Store location,” the company said.

The Click & Collect strategy is also being used in SMIC’s supermarket business, allowing customers to purchase their groceries online and then pick them up at SM Supermarkets. The service is currently available in SM Hypermarket at the Mall of Asia and SM Supermarket in SM Makati.

Aside from Click & Collect, SMIC has also engaged with delivery service providers such as Mober and Transportify to provide same-day delivery to its customers.

SMIC also partnered with digital payment solutions such as GrabPay, GCash, Paymaya, WeChatPay, AliPay, Mastercard, and Visa, which customers can use when making payments in physical stores.

Meanwhile, Robinsons Retail Holdings, Inc. (RRHI) has also found several partners that would help it develop its e-commerce strategy along the way.

“We made investments in BeautyMNL, the only pure Filipino top five online retailer, and Growsari, a local start-up company which provides mobile grocery delivery service to sari-sari store owners,” RRHI Investor Relations Officer Gina Roa-Dipaling said in an email.

Ms. Roa-Dipaling added that almost all of RRHI’s formats are also offering their products to Lazada, Shopee, Zalora, Metromart, and other online shops.

As online shopping gains ground, RRHI expects online retail sales to account for about 2% of total sales. Online purchases are also expected to grow in the high teens since they are coming off a low base.

“Online shopping in the metro cities is gaining traction due to convenience and accessibility as well as frequent promotions offered by the online providers. Online shopping is very popular for the millennials and Gen Z market,” Ms. Roa-Dipaling explained.

While the rise of online shopping may have hit retailers in the US hard, AdoboMall’s Mr. Young believes the retail apocalypse isn’t bound to happen in the Philippines any time soon.

“The Philippines is a unique market where bricks and mortar and online would tend to collaborate more. I do think that online will significantly affect the market share for bricks and mortar,” Mr. Young said.

RRHI’s Ms. Roa-Dipaling concurred, saying that sales from physical stores will remain the core of the group’s business.

“We see increasing share of e-commerce sales to total retail sales but we expect offline to still account for a significant portion of total retail sales,” Ms. Roa-Dipaling said.

“(Online shopping) has not affected our company’s expansion plans just yet for bricks and mortal stores given that we are still not present in 40% of the cities in the country today.”