Retail Transformation – The Future of Retail in APAC

The acceleration of technology over the past year has created a massive ripple effect, permanently shifting consumer lifestyles, expectations, and behaviors to a future-ready state. In response, UM APAC created the Asia-Pacific Innovation Annual – taking a deep dive into the cutting-edge advancements in entertainment, commerce, digital health, and connectivity, that are catapulting the region and providing new opportunities for brands.

The COVID-19 health crisis has seen retailers accelerate their digital transformation and nowhere is this shift more evident than in APAC. Many companies are investing earlier than planned in new capabilities, seeking new partnerships, reassessing the role of traditional stores, and moving to more data-driven operating models.

According to a report by eMarketer, APAC is by far the largest market in the world for retail ecommerce, with digital sales amounting to nearly $2.992 trillion in 2021, three times greater than in North America and nearly five times greater than in Western Europe. China leads globally, ahead of the U.S. by a large margin, while the digitally advanced markets Japan and Korea rank in the top five in terms of share of sales, and India and Southeast Asia are poised for growth, with significant untapped potential.

Collectively, these markets are offering the rest of the world answers to cutting-edge questions about working with super apps, partnering with ecommerce ecosystems, going direct to consumer, solving the last-mile delivery challenge, and exploring new store formats that would optimize omnichannel reach.

 
 

With online shopping becoming increasingly popular and incredibly competitive, improving digital engagement with shoppers will be vital, especially via mobile. Forrester forecasts that in key APAC markets, more than 80% of ecommerce will be conducted on mobile in 2023 as consumers purchase more often through super apps such as WeChat in China, Paytm in India, and Grab in Southeast Asia.

Thanks to smart technologies, the boundaries between digital and physical locations are starting to blur, giving rise to new concepts like ‘retail-tainment’.

The rise of these super apps has also driven significant growth in social commerce. While purchasing products and services online through social media platforms like WeChat and Little Red Book has been a norm in China for a number of years, the pandemic has accelerated these behaviors into the mainstream, along with the growth of platforms like LINE and Kakao, in the rest of APAC. A 2020 whitepaper by Euromonitor reported that social commerce sales reached $2 trillion in 2019 and are expected to double by 2024.

 
 

A recent Bain & Company’s survey of 4,700 Chinese consumers also found that consumers are now more likely to use livestreams and short-form videos as a research and purchasing tool. This has in turn boosted the popularity and use of influencers, as shown by Chinese influencer Li Jiaqi’s success at selling lipstick on Taobao livestreams and the video app Douyin.

The use of livestreaming to sell products has also ballooned in Southeast Asia since the start of the pandemic. The share of retailers who used live-selling techniques increased in the period from January to June 2020: 60% of businesses in the Philippines tapped the tactic to attract buyers, and close to half of the retailers in Singapore, Thailand, and Vietnam have invested in live-selling.

Across APAC, retailers are finding sufficient growth online and are now unlikely to expand their physical networks. Instead, stores will need to change their role or update their format to support a more seamless omnichannel operation as the sales mix tilts further to ecommerce. More stores will operate as showrooms, hubs for order picking, or click-and-collect services, with increasing levels of automation.

With GDP forecasts through 2022 remaining positive for most APAC markets and high consumer confidence in the region, we would expect consumers in the region to start looking toward the future rather than just grinding through the present.

According to the latest findings from Microsoft Asia and IDC Asia Pacific, retail organizations that have adopted artificial intelligence are already seeing improvements of 16% to 19% in customer engagement, business intelligence, profit margins, competitiveness, and innovation.

Alibaba’s Hema supermarket was one of the first to market with the new retail concept leveraging technology like facial recognition. In South Korea, convenience store franchise operator E-Mart 24 has opened a fully automated smart store in Seoul that integrates technological capabilities such as computer vision, weight sensors, and cloud POS.

Thanks to smart technologies, the boundaries between digital and physical locations are starting to blur, giving rise to new concepts like ‘retail-tainment’. For instance, luxury fashion brand Burberry has opened its first social retail store in China’s technology capital, Shenzhen, designed through an exclusive partnership with Chinese tech giant Tencent Technology. The concept takes interactions from social media and brings them into the Burberry store, which consists of 10 rooms that offer shoppers unique interactive experiences that can be unlocked on WeChat.

In China, the ecommerce marketplaces are so dominant that relying entirely on a D2C model has become virtually impossible.

Nike recently unveiled its Rise Seoul store, a 24,000-square-foot space that features personalized, data-driven features designed to create interactive experiences for customers in the store. This includes high-tech elements like a massive three-story screen that displays real-time running stats from the local community, as well as an interactive RFID-powered table where shoppers can compare shoes before making a purchase.

Interestingly, in some APAC markets, brands are adopting the direct-to-consumer model to regain control over the brand- customer relationship from the ecommerce platforms.

In China, the ecommerce marketplaces are so dominant that relying entirely on a D2C model has become virtually impossible. However, in more nascent markets like Australia, India, and Southeast Asia, many D2C brands are successfully finding their foothold even as ecommerce marketplaces increase their penetration.

The D2C market in India, for instance, is expected to reach $100 billion by 2025, growing at a CAGR of 25% from 2020 to 2025. There are more than 800 D2C brands operating in the country, and many brands like Lenskart, Pepperfry, and Licious have carved their own niches with little or no dependence on marketplaces.

In Southeast Asia, D2C brands such as Oxwhite and Althea have mushroomed with slight variations. Both brands adopt a pre-order model, sometimes taking months to deliver a product and requiring advance cash payments of products. Consumers in this subregion are more price-sensitive, and are willing to wait for affordable quality products.

With GDP forecasts through 2022 remaining positive for most APAC markets and high consumer confidence in the region, we would expect consumers in the region to start looking toward the future rather than just grinding through the present. With that, brands and marketers need to start acting on some of these new online and offline consumption patterns that are emerging and keep pace with the retail transformation.


Featured image by Jezael Melgoza, via Unsplash.

This is the third in a six-part series

    1. Retail Transformation – The Future of Retail in APAC
    2. Digital Health – APAC is Paving the Way for Digital Health Ecosystems
    3. Augmented Reality: Renewed Optimism for AR Across the Asia-Pacific

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