(Aug 14): The July 27 launch of Amazon.com’s Prime Now service here has been welcomed enthusiastically.
According to mobile app analytics firm App Annie, the Prime Now app has been downloaded more than 88,000 times in Singapore on iOS and Google Play combined as at July 31.
Welcome aside, Amazon’s launch weekend was full of hiccups. Besides a lack of delivery windows, there were complaints about inventory issues and withdrawn promotions. Amazon’s use of private-hire cars and taxis to make deliveries also drew the attention of the authorities. On Aug 1, the Land Transport Authority clarified that cabbies and private-hire drivers are not allowed to make deliveries of goods unaccompanied by a passenger.
Clothing retailer Samuel Ng is watching Amazon’s steps — and missteps — with interest. Ng, a lawyer who turned his tailoring hobby into a business, owns In Personam Custom Clothiers. He started out with a single shop at Ming’s Arcade in 2013 and recently made the decision to move to Downtown Gallery.
While Ng should be dreading Amazon’s expansion here, he says he is in fact excited to see how the giant retailer will change the local industry.
“I wouldn’t be surprised if it ventured into something more — services instead of just products,” says Ng.
He is among a growing number of retailers who see a bright future for the physical retail market and a beneficial co-existence between physical and digital stores. The two, Ng says, play different roles. And the expansion of the likes of Amazon may even help enhance the physical retail experience.
“I think these days if I was a consumer I would be more interested in the physical experience of walking into a store. I’m not really there to look for a product that already exists. I can find that online. I’m there for the whole suite of experiences, starting when you walk in the door: how you’re greeted, what you see, what you hear and what you smell. Your senses are engaged, it’s more experiential,” he says. “Ours is a business that some have tried to take online with varying degrees of success. It is, after all, custom clothing. Like buying shoes, if you really want something that fits, you’d rather be there physically to try the shoes; or if you’re making clothes, to be measured and fitted. That’s something the online experience cannot replicate.”
Growing number of physical retailers
URA data shows the retail vacancy rate for the Orchard area has increased from 4.5% in 4Q2013 to 5.6% in 4Q2014 and 7.6% in 4Q2015. Similar vacancy rates are seen outside the city area. In the rest of the city area, vacancy rates have declined much more rapidly: from 5.3% in 4Q2013 to 7% in 4Q2014 and 9.5% in 4Q2015.
But those figures belie the growing retail industry. Data from the Department of Statistics shows that the number of retail establishments has risen: from 21,530 in 2013 to 22,234 in 2014 and 23,451 in 2015. Numbers for 2016 are not available.
These retailers are not necessarily doing a roaring trade. Overall operating receipts for the retail trade have increased: from $43.3 billion in 2013 to $45.7 billion in 2015. But in some segments — such as computers, audio and video equipment, and clothing — retail receipts have fallen. Costs, meanwhile, have increased more rapidly than receipts.
Between 2013 and 2015, retail operating expenditure rose from $41.3 billion to $43.9 billion.
But many retailers say they see unmet needs, and they are hoping to tap those needs and make some money.
Touch and feel
Loo Pei Fen, chief marketing officer of IT goods retailer Challenger Technologies, has spent some time thinking about her company’s future. In May, Loo presided over the opening of Challenger’s new flagship store in Bugis Junction.
It is a great deal smaller than Challenger’s previous flagship store — 14,000 sq ft versus the 52,000 sq ft that the company occupied at the Funan DigitaLife Mall. “It was actually not the size we were looking for,” says Loo. “We had to disrupt our thinking of the size and what a flagship should look like.”
At Funan, Challenger had built a massive “one-stop shop for everyone who wants to buy general IT products”, Loo says. At Bugis, however, Challenger has designed 15 concept zones to give customers a different retail experience. The Intelligent Living zone, for instance, features smart devices such as routers and security cameras. The Fitness Station showcases smartwatches and activity trackers. “The flagship store then became our answer to if you really want to touch and feel something and experience the products.”
Declan Ee, co-founder of online furniture retailer Castlery, thinks younger people in particular are interested in better retail experiences. “Online will never 100% replace offline, especially with this new generation. What’s the big word associated with all millennials? Experience,” he says. Castlery started out online in 2013, but opened a physical studio in December 2015.
Another online storefront that has expanded offline is Naiise, which sells a wide range of products curated for their exceptional designs. Founder Dennis Tay says the company’s five stores help the brand engage with its customers.
“When we started to move offline, we started to recognise that people who could feel our products could understand the products we carry. And that was part of our education process.”
Having a physical store also makes it easier for customers to pick up a purchase, exchange it or return it.
“We are thinking about how these physical spaces enhance these convenience levels,” says Tay. “Instead of waiting for my package, I can pass by a physical outlet to collect a physical product.”
Loo of Challenger adds: “What we’ve seen from a lot of pure e-commerce players is that you will have to go to the post office or call a delivery agent, and deal with the hassle of coordinating all that. We have the physical space for customers to deal with all these issues on the spot. You don’t have to wait 10 to 14 days for processing.”
No price war predicted
But can physical retailers, encumbered with high rental and wage costs, compete with online players that have a lower cost structure or a greater capacity for losses? Companies such as Amazon and Lazada famously run attractive promotions and charge little to nothing for deliveries. On the day Amazon launched, many electronics were available at substantial discounts.
Jochen Krauss, partner at marketing consultant Simon-Kucher, says Amazon has not really cut prices for the launch of Prime Now. “We took a couple of individual SKUs (stock keeping units) and did a price comparison with other online websites like RedMart and NTUC FairPrice, to see how [Amazon] is positioned. Interestingly enough, they are more or less positioned at the same price.”
Krauss says Amazon seems to be concentrating on providing value with last mile fulfilment instead. The company currently offers free deliveries for purchases of $40 or more, and promises to get them to you in two hours.
Tay of Naiise is not threatened by Amazon’s attractive terms. At Naiise, standard delivery takes one to two weeks while express shipping takes one to three days. Local shipping is free for purchases of $60 or more.
But Tay is hopeful of improving his terms over time, thanks to Amazon’s entry. “[If] Amazon can fulfil in two hours, it means that a lot of logistics companies need to step up their game. This will change the logistics industry, because shipping in Singapore is not cheap; you’re talking about $6 per parcel,” he says. “That is something Amazon isn’t willing to swallow. They will figure out how to get from $6 to $4 to $3.”
Amazon has been known to favour market share over profitability.
But new-generation retailers may have other concerns on their mind. In Personam’s Ng wants his shop to be seen as an extension of its founder, with the customer feeling as if he entered someone’s home rather than another retail store.
“We try to know people on a first-name basis and be interested in them as human beings rather than just customers.
It’s more about connecting with people on a personal level and not [so much about] closing the sale,” says Ng. “I’ll say one of our biggest successes is that I count some of my clients among my very good friends. I think that’s a measure of success. It’s not just about numbers, at the end of the day. Of course, all businesses need to break even. No one wants a loss-making business. But beyond that, is there something else you want to achieve? Is it just about chasing numbers? Because there’s no end to that. If that’s the goal, you’ll lose sight of your purpose, lose sight of what you’re trying to achieve.”
In a small city such as Singapore, Ng thinks retailing has the potential to be a great deal more than a transaction. “It is easy to go somewhere and look at things. The only thing holding people back from making a purchase is the price comparison they do online. You have to offer something more than that,” he says. “And once you do, I don’t think e-commerce can come close.”
