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Malls try to get a grip on the shifting retail environment

By Michelle Anne P. Soliman

FOR the time being, shopping in malls for leisure is a thing of the past, thanks to the coronavirus disease 2019 (COVID-19) pandemic. If and when we do enter a mall, it is for quick in-and-out transactions for essentials, not pleasure. This does not mean that wants have taken a back seat. Walks in the mall have been replaced in the meantime by long swipes of the finger or clicks of the mouse down e-commerce platforms, each scroll replacing the once-normal ritual of browsing.

SM Prime Holdings, Inc., the country’s biggest mall operator with over 70 locations, said the adjustments the business has had to make have been more or less fundamental.

“What the lockdowns essentially did was to change the rhythm of people’s everyday lives. Spending more time at home changed when and how often people patronize malls and other retail establishments. Curfews conditioned people to go home earlier. Restrictions taught people to adjust their visits to the mall,” according to Steven T. Tan, President of SM Supermalls and John Nai Peng C. Ong, Chief Finance Officer of SM Prime Holdings, Inc., in a joint e-mail to BusinessWorld. “Today, instead of going out together as a family on weekends, one family member has been assigned to go out and shop for other family members’ needs. Or instead of spending an entire afternoon in the mall, customers go on purposeful visits of one hour or less.”

Robinsons Retail Holdings, Inc. (RRHI), the second-largest multi-format retailer in the Philippines, notes that changes in consumer behavior have also reflected changing priorities. “The lockdown resulted in panic buying for essential goods which benefitted our grocery and drug store businesses. The non-essential formats, however, were greatly affected as the stores were not allowed to operate at the height of the lockdown,” said Gina Roa-Dipaling, Vice President of Corporate Planning and Investor Relations Officer for RRHI. She did note that “Sales performance of the non-essential formats, however, started to pick up in the fourth quarter (2020),” owing perhaps to a relative loosening of restrictions in that period.

The same pattern is evident even in the country’s leading luxury retailer, Stores Specialists, Inc., which distributes some of the world’s most coveted brands in the country, but also has a portfolio of food stores that might be deemed “essential.” Anton T. Huang, SSI Group, Inc. President, said in an email: “Sales of our more premium brands, including our home and food brands such as Shake Shack and SaladStop, have outperformed our broader portfolio.”

“These results point towards the resilience of SSI’s core customer base, and also make clear that customers’ shopping needs are of course driven by their current circumstances. For example, with many customers working from home, we’ve seen an increase in purchases of fashion, accessory and home items that would be considered investment or luxury pieces, while also seeing lower sales for categories such as footwear and cosmetics.”

Messrs. Ong and Tan of SM Prime note that the items that have continued to be strong sellers during the pandemic were comfort food, health and wellness products, athleisure and streetwear, pet care items, home improvement items and decor, and electronic games. “Gaming was one of the most popular ways to stay entertained and relieve stress amidst the pandemic and increased time at home,” they noted.

Roberto S. Claudio, Vice Chairman of the Philippine Retailers Association (PRA), summed up the pandemic shopping mindset: “Consumer priorities definitely focus on essential needs (food, medicines & some health/fitness needs… consumers will remain partly locked down so online purchasing will be the main purchase activity.”

Two of the e-commerce, leaders, Lazada and Shopee, are enjoying a newfound prominence in a mall-obsessed country. Lazada CEO Ray Alimurung said in an email: “As the lockdowns ensued in March of last year, we saw more and more Filipinos pivot online to source their essentials. As a digital platform, we utilized our capabilities to prioritize providing the Filipino community easy and convenient access to their everyday essentials. As a result, we saw a 15x increase in sales of essential goods as people went online to source their food staples, cleaning supplies and household needs.”

Martin Yu, Director of Shopee Philippines, in an e-mail to BusinessWorld, noted a similar shift: “At the onset of the pandemic, we saw a surge in demand for daily essentials.” The company had some adjusting to do to accommodate demand: “We introduced the 5.5 Shopee Mart Sale, to provide our shoppers with convenient access to personal and household items as well as great cost savings.”

Other sales by Shopee (usually on selected day-month promotional periods) also experienced such an uptick: “During 9.9., over 12 million items were sold in the first hour across the region and 700,000 items sold in a single minute at the peak. Another milestone for Shopee is during 11.11, we saw 200 million items sold in 24 hours regionally,” Mr. Yu said.

He added: “People went from casually shopping for leisure items to buying their groceries, clothing, and home products from online platforms like Shopee. During the last month of 2020, Shopee broke records on 12.12, selling 12 million items in the first 24 minutes.”

Both parties also discern a shift to an increasingly cashless future. Mr. Alimurung says, “We saw two-times increase in cashless payments made on the platform, as well as five times increase in digital bills payments. We ramped up our partnerships with financial institutions to enable Filipino consumers to have access to more safe and secure payment options fit for their needs and lifestyles.” These included the launch of credit and debit cards branded Lazada x UnionBank (which enabled consumers to earn rewards with every purchase in the form of Lazada Wallet credits), an expansion of a partnership with online banking service GCash, and deals and discounts with customers under partner banks.

“Shopee saw a four-times uplift in the total number of orders completed by mobile wallets across the region,” said Mr. Yu. “Shopee also saw an 18-times increase in orders paid for via ShopeePay, Shopee’s mobile e-wallet, during the 12.12 Big Christmas Sale last year.”

The rise of online shopping for both necessities and luxuries prompted leading retailers to adopt their own e-commerce platforms. While this is of course driven by consumer demand, the closure of some physical stores also necessitated the change.

“Given the various forms of lockdown implemented over the last 16 months to control the COVID pandemic, with our brick-and-mortar store network having to close down during ECQ (Enhanced Community Quarantine) periods, and given lower foot traffic in malls, the Group’s total revenue in 2020 was below 2019 levels,” said Mr. Huang. In response to this, the SSI Group “accelerated the ecommerce expansion of the SSI Group, and we saw e-commerce sales increase by 350% in 2020.”

In 2020, SSI opened marksandspencer.ph and trunc.ph, a multi-brand platform which offers items from a diverse collection of brands, from Gap to Gucci. Mr. Huang also noted the launch of an at-home concierge service (The Specialist) which allowed customers to shop SSI brands with the help of a personal shopper.

Messrs. Ong and Tan of SM Prime report the same uptick, saying: “The pandemic accelerated the take-up of online platforms. Our tenants have seen the share of their sales from online platforms increase from 5-10% of their business pre-pandemic to 15-20% of their business today. In some categories, this share is as much as 30-35%.  Our retail affiliates’ own online platforms have seen rapid growth similar to that of our tenants. Our eCommerce platform SM Malls Online has grown quickly in its first six months of operations, with four straight months of double-digit sales growth in 2021 and on track to hit a nine-digit 2021 sales target.”

RRHI’s adjustments included “aggressively pursuing e-commerce to serve more online shoppers, (and strengthening) essentials formats at the height of the lockdowns, where discretionary stores were temporarily closed and faced challenges to their operations,” according to Ms. Roa-Dipaling, noting the launch of the Robinson’s e-commerce platform, GoRobinsons.

“Those that could not jump to online transactions simply closed shop during ECQ & MECQ (Modified ECQ) quarantine,” said Mr. Claudio, noting that shopping traffic levels in physical spaces dropped 50-70%, when compared to pre-pandemic levels. These traffic levels, he said, are aggregate retail industry average figures and not specific to stores or malls.

All parties reported the pivots they have had to make in order to adjust to the new shopping landscape. “We have also expanded the number of third-party logistics providers that we work with in order to ensure faster delivery times, wider delivery coverage, and to enable the delivery of larger items, including larger home items such as couches and tables. We have also focused on ensuring that our e-commerce sites provide a seamless shopping experience, from the merchandise selection we have made available online, to the ease with which customers can return or exchange products,” said Mr. Huang. “We are the first retailer in the country to make luxury products available online and we have put a lot of work into ensuring that our logistics chain can safely and reliably deliver higher-value items to our customers.”

Ms. Roa-Dipaling added, “The business is evolving its merchandise mix to address shifting market preferences, such as introducing more diverse essential options in convenience stores and minimarts that are close to neighborhoods and increasing gourmet selections in premium stores. We are also expanding our order and delivery services by onboarding additional formats in GoRobinsons, our group-wide e-commerce platform. We are also strengthening our customer loyalty programs and partnerships.” She noted: “We are currently adjusting to the new dynamic of online retail and addressing inherent challenges in logistics, merchandise availability, and customer satisfaction. We are strategically strengthening our IT and analytics foundations to inform operational decisions across our formats.”

Messrs. Ong and Tan noted their own difficulties in their efforts to pivot operations. “The biggest logistical challenge for a mall is that a mall has hundreds of different stores to consolidate, unlike most e-commerce retailers that are focused on one store or one warehouse. This difference means that the back-end operations and logistics — from payments to inventory management to packing orders to delivery — are much more complex than your typical eCommerce retailer. Because of this difference, we had to create a unique operating model for our eCommerce platform, SM Malls Online.”

Even the success of Lazada and Shopee necessitated their own adjustments, mainly to serve greater demand. Mr. Yu said, “In 2020, Shopee Xpress, Shopee’s express delivery service, expanded its geographical coverage to reach even more users, including those in rural areas. Shopee also saw more brands tapping its logistics infrastructure with a three-times increase in brand items shipped from its warehouses in 2020.”

Mr. Alimurung said, “We ramped up our seller onboarding and saw three times more sellers onboarded daily (vs. the pre-COVID period). In addition to getting more local MSMEs online, we also ramped up our partnerships with local and international brands, onboarding over 2,000 (brands) on LazMall since the start of the pandemic.”

For all the adjustments, Mr. Claudio’s outlook was somewhat pessimistic: “Given the renewed lockdown in the second quarter, we are not confident of any growth this year.” The organization’s best estimates posit flat revenue compared with 2020.

“While a majority of instore retailers have mobilized to jump onto the online bandwagon, it is not enough to compensate for our lost revenue in our store operations. We see 2022 as the year that the retail industry might again experience growth. By that time, we will be in the new normal… (and ready for a) new retail omnichannel experience. By then, we will be able serve the customer in whatever way (they) prefer. If they want to be served at home, we will expedite delivery. If they want to go to the store, we will give them the best experience.”

Mr. Huang concurs. “E-commerce will continue to be an essential part of retail moving forward. Even more importantly, omni-channel retailing, or the ability to provide a unified digital and brick and mortar customer experience, will be one of the primary drivers of retail moving forward.” He notes, however, that “omni-channel retailing is only possible with both a strong digital and real-world presence. As such, we will continue to focus on maintaining an efficient, compelling and accessible brick and mortar store network; with our brick-and-mortar shops underpinning the Group’s ability to reach its customers, but also providing the basis for an omni-channel, or integrated approach to specialty retailing.”

Most of our respondents remain confident that the mall — and all its accompanying shopping rituals — will still hold a special place in the Filipino psyche when the pandemic ends. “We continue to be bullish about the future of malls. Malls in the Philippines function as a community venue for leisure and socialization, which is a fundamental human need that will endure even in a post-pandemic world. Given this, malls will continue to be a key venue for Filipinos because of their proximity to communities across the country,” said Messrs. Ong and Tan. — with Joseph L. Garcia