How prepared are e-tailers for Amazon's entry into Singapore?

With more than 70% of consumers shopping online, they battle it out to win customers.

Amazon, the world’s biggest online retailer, will soon enter Singapore’s e-commerce scene. But with a number of established players already successful in their niche, how are each of them adapting and upping their game?

It was five years ago when one of Singapore’s first fashion retailer Zalora hung out its shingle with just 20 people crammed into a small office space and a dream to sell clothes online. Since then, the Kinnevik backed-company has raised over $365m and now has 350 employees in Singapore and over 1,500 staff spread across its regional offices in Southeast Asia. 

From Left to Right: Jaime Ng, Bruno Tay, and Haran S. Pranatharthi

Zalora chief marketing officer Tito Costa tells Singapore Business Review that a typical ZALORA user spends 50 minutes a month on the app, which has been downloaded over 10 million times so far. “Strategically, ZALORA is preparing for a ‘mobile-only’ market,” Costa says, noting how consumers are now expecting retailers to know what their preferences are.

“By putting customer and behavioural data to work, we are able to recognise individual shoppers when they land on ZALORA, and deliver tailor-made experiences and recommendations in real time, providing them with a more meaningful and relevant online shopping experience,” he adds.

But while more than half of Zalora’s orders come from mobile, the company found it needed to adopt a physical store presence in new cities to drive marketing. “A second trend that we see is that the experimentation of traditional retailers with online shopping and vice-versa online players are testing pop-up stores and digital showroom concepts, may lead to a convergence towards a new omnichannel digital-first retail, putting together the best of the two worlds for an optimal customer experience. In our view, the lack of pre-existing retail infrastructure in many Asian geographies will make this convergence process faster than it was in Europe or the US,” Costa explains.

Tito Costa and Prashant Dadlani

Mastering retail omnipresence

In 2014, Zalora launched its flagship store at ION Orchard. Costa notes that one of the benefits of such set-up is that many consumers are able to try on pieces they saw online. “We saw that a majority of sales at our pop-up stores, up to 60%, were new Zalora customers,” he states.

Costa notes one of the qualms from online customers is that they are unable to physically test out the products before they place their orders, resulting in a different product expectation as well as high return rates.

Online retailing is also a game of scale with Zalora selling off its underperforming units in Thailand and Vietnam. And certainly, even five years into its growth, it's still a business that requires deep pockets and investment, with Zalora’s revenue reportedly rising 78% to US$234m in 2015 but its net loss increasing 36% $105m.

Prashant Dadlani, founder of retail logistics start-up blu, agrees that consumers go through a different journey now compared to when the early hype was seen in the e-commerce landscape. And although more than 70% of consumers shop online at least once a month according to Visa's Consumer Payment Attitudes Survey, it is wrong to say that e-commerce is slowly dominating retail. He points out that pitting e-tailers to traditional brick and mortar stores perpetuates the wrong notion and ignores the reality that there exists seamlessness across retail channels.

Zalora's pop-up store at ION Orchard

"The journey is much more multi-dimensional now, so retailers have to be prepared to be present at every touchpoint," he says. And as the market gets a lot more crowded with Amazon’s plans of setting up its base in Singapore, the challenge is for local e-commerce players to up their game.

George Pepes, vertical solutions and marketing lead retail at Zebra Technologies, says retailers who want to succeed in this era must master the concept of omnipresence. He cites Amazon.com, which despite starting out a digital store has now ventured to offer real-world experience.

"Besides the opening of physical stores to sell its books, Amazon also has plans to open grocery stores that provide a range of services within the confines of brick-and-mortar. Singapore has recently also experienced a spate of flagship store openings – from the likes of American lingerie brand Victoria’s Secret to Japanese casual wear brand Uniqlo," he says, "This is why today’s consumers are gravitating to stores using the latest technology and offering conveniences ranging from buying online, pickup in-store options to mobile checkout.”

Online-grocer RedMart utilises the strategy quite differently to Zalora. RedMart head of marketing Jaime Ng explained how they use traditional marketing to attract more buyers. “Apart from doing everything that is digital, we also believe there is a need to connect with offline shoppers. So we do a lot of flyering where we actually distribute flyers to the neighbourhood and we've seen a good traction around that,” Ng notes.

The retailing market is also starting to consolidate ahead of Amazon’s move into Singapore. In November 2016 Lazada was reportedly in talks in acquiring RedMart for about $30m to $40m, after the latter run into financing problems. In a statement, RedMart stressed that the transaction is set to help it expand into new product categories faster while it continues to be independent of Lazada. Lazada itself was acquired by Alibaba, which is of a scale large enough to fend off Amazon.

Leveraging on big data tech

But for all e-tailers, SAP Hybris head of business Haran Pranatharthi says there is no stopping the e-commerce boom in Singapore. Citing a report by Temasek and Google, he mentions that the e-commerce market in the region is expected to be worth US$5.4b by 2025, with online transactions making up 6.7% of all retail sales.

RedMart's delivery workers

This figure compares with just US$1b in sales and a 2.1% market share in 2015. The online retail space is projected to have a 10-year compound annual growth rate of 18%.

"That is a staggering 6.5x increase over 10 years. It isn’t hard to see why, though, barriers to entry are relatively low. Online marketplaces such as eBay and Amazon allow anyone to set up a simple online shop and sell products within minutes. At the same time, an online store allows retailers to expand their customer pool, potentially reaching customers miles – or even continents – away," he says.

The true gem in this, he points out, comes from the sheer amount of data retailers can potentially collect. Online stores can now take note of their customers' buying habits.

For loyalty marketing company ICLP Singapore, country manager Bruno Tay reckons this could turn out as a great tool, considering that retailers can now leverage on Big Data strategically to gain insights that allow brands to serve their customers better.

"Indeed, as we move into 2017, there will likely be much closer interaction between traditional retail initiatives like discounts and promotions with technological innovations. This convergence is the next frontier in the retail market," he says.

RedMart’s Ng reveals that big data helps RedMart improve its logistics supply chain. More than allowing them to study consumer buying patterns, the big data technology also helped them to predict when products will be sold out to how many days before they run out of a particular item. “This reduces wastage of time and orders, and it actually controls the efficiency of operations. We are able to cater to more of their needs, opening up new range which therefore we are able to understand each consumer pattern,” she adds.

Tay also suggests that retailers can shape up their offerings as they cultivate loyalty within its customer base. He notes how rewards are crucial in this regard, as 75% of consumers are likely to buy more if they are rewarded.

"This means that increasingly, the experience of accruing points for run-of-the-mill rewards is no longer good enough. There will be an expectation for retailers and brands to explore more creative forms of rewards that truly take into account their customers’ interests and needs," he concludes.