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Singapore Business Review : Retailers begin their fightback
Months into the COVID-19 pandemic, the retail landscape of Singapore has seen huge changes.
According to Singapore’s Ministry of Trade and Industry, the wholesale and retail trade sector shrank by 8.2% YoY in Q2, worsening from the 5.6% decline in the first quarter. Retail sales were also down by 8.5% YoY in July, which was the first full month of physical operations after the circuit breaker.
Due to strong e-commerce and e-commerce sales, experiential retail shopping, as well as the easing of circuit breaker restrictions, the industry has slowly recovered along with the economy. In a latest report, Euromonitor forecasts a $28.82m overall retail sales for Singapore in year 2020.
However, as Singaporean retailers navigate the industry’s headwinds, they will also need to look out for regional trends that are expected to shape the landscape in the future, according to EY Asean Consumer Products & Retail Leader, Olivier Gergele in an interview with Singapore Business Review.
“There will be an increasing shift to online platforms as consumers are spending more time at home even after restrictions have lifted— online penetration rates in the region are expected to be around 15-20% in some countries by 2025.”
Another change will be the shift in product mix, as consumers are purchasing more essentials online, delaying splurge-spending and favoring value for money and trusted brands, and the emergence of new business models— called “dark kitchens” or “cloud kitchens”—where retailers capitalise on the demand for food delivery services, whilst saving costs that are otherwise incurred from having dine-in restaurants.
Challenges to retailers
Since retail revenues have dipped due to the lack of tourists and reduced consumer spending amidst the economic downturn, retailers have been reducing their overhead costs and back-office costs, implementing in-store cost reduction and store portfolio rationalisation, according to an EY poll of Singapore and SEA retailers conducted in May.
“Many shared that they have also been looking for short-term cash relief by turning to working capital optimisation, rental negotiations and profit-sharing readjustments,” said Gergele.
To survive, retailers do not just need to optimise their cost management strategies, they will also have to boost revenues by riding on the wave of online retail growth. However, businesses need to expand their focus beyond driving online sales numbers, and to look at developing an omnichannel strategy.
“Even as retailers are looking to manage their working capital and revenue, they have had to demonstrate agility in facing disruptions in their supply chain and demand surges. To meet the spike in demand, some players managed to operationalise idle equipment in just two weeks when the overall process would typically take months,” he added.
Additionally, the implementation of temperature controls at store entrances; provision of hydroalcoholic gel in outlets; usage of contactless methods for both payment and delivery approaches; development of remote assistance methods in customer service and maintenance; and adoption of drive-through facilities outside mass retail helped generate overall customer value and good will.
However, 50% of consumers expect their lives to change significantly in the long-term, according to the EY Future Consumer Index. As a result of these changing sentiments, new consumer segments are emerging.
To deliver against these heightened expectations, retailers will need to continue creating transparency to secure consumer trust, as well as reshape their products, services, and experiences to build a portfolio relevant to the future consumer.
“In the medium-term, retailers should prioritise value-based products, where private labels, bulk pack sizes and higher promotional offers, would be attractive to the cost-conscious consumer,” Gergele said. “In the longer-term, retailers will need to successfully build out digital customer journeys."
Retailers will need to assess and invest in new technologies such as AI to enable personalisation, assortment management, pricing, and promotion management, as well as in back-end digital investments that will enable them to deliver on their front-end investments, whilst managing costs, such as demand prediction algorithms, digital order management, automated inventory management, and operations.
Thriving amidst a modest outlook
Driving sustainable growth in an environment where consumers are evolving and new business models are emerging will require retailers to continue addressing challenges, including continuously expanding their offerings, as well as driving an omnichannel strategy to deliver an improved customer experience.
Whilst some retailers have been able to fill in the supply and demand gaps in the past few months, they need to shift from a reactive to proactive approach in optimising their supply chain.
Retailers should plan a mix of local and overseas suppliers to diversify their supplier base and build supply chain resilience. Those who can institute strong demand planning will be able to better manage demand fluctuations.
Another important thing is to promote innovative thinking among employees, Gergele said, noting that since changes take place quickly, having an agile organisation with a less hierarchical culture will enable quick decision-making, thereby improving business operations.
For companies with adequate resources, now is the right time to consider acquiring companies available at distressed valuations.
Furthermore, the consolidation of retail real estate space is expected to continue as consumers get comfortable with shopping online and retailers reevaluate their store performance and adopt a more prudent approach to leasing physical shopfronts.
According to Gergele, consumers still like to visualise, try on, and feel products before purchasing them, so as offline brands move into the digital space, and e-commerce brands buy physical stores, novel takes on retail where stores are laced with digital touchpoints should be seen.
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