(Oct 30): Koh Teng Kwee, chairman of Koda, is effusive in his praise of his grandsons Joshua and Julian in the company’s latest annual report for their effort in building up Commune, a proprietary brand of furniture. “I am so happy to see this brand growing fast, finding new markets and getting good feedback.”

Koda primarily makes furniture for other companies, but started producing furniture under the Commune brand in 2011. Now, the Commune brand has become a key driver of Koda’s growth.

For FY2017 ended June 30, Koda reported a 2.5 times y-o-y jump in earnings from US$1.6 million to US$4.1 million ($5.6 million), on a 33.3% increase in revenue to US$49.5 million. Commune contributed about 15% of the company’s total revenue for the year, and was the key reason its profit margins expanded.

When the company reported these results in September, it also announced a one-for-one bonus issue. That was its second bonus issue in only three months. The company had announced a two-for-one bonus issue in June.

Joshua, who is CEO of the Commune furniture unit, says his grandfather’s generous praise comes with high expectations of continued fast growth. The furniture brand already has about 50 stores across the region, including four in Singapore.

Within the next three years, Koda wants to double this number. The bulk of the new stores will be in China as well as the Philippines and Taiwan. “We have a lot of pressure,” Joshua adds.

Apart from trying to live up to the high expectations of his grandfather, Joshua is also challenging a growing consensus that physical retail stores are no longer a potent means of engaging customers and selling products.

In developed markets such as the US as well as Singapore, analysts are warning that e-ecommerce platforms are quickly rendering traditional shopfronts obsolete. Yet, Joshua is adopting a host of cutting-edge retail technologies that is making the Commune stores around the region more effective and getting him noticed by researchers and government ministers.

VR simulation
On Oct 10, the Singapore Management University launched the Retail Centre of Excellence, described as the first and only retail insight-sharing hub in Singapore.

RCOE pools research from SMU’s faculty and students and works with retailers on how to adapt to shifting industry dynamics. It is backed by SPRING Singapore and the Singapore Economic Development Board, two government agencies tasked with helping companies grow.

More importantly, the RCOE will be drawing on the experience of established retailers such as Harvey Norman, IKEA, Popular Holdings, Decathlon, Microsoft and Tiffany and Co.

The aim of RCOE is to help retailers overcome the negative industry dynamics and grab their fair share of the global retail pie of about US$28 trillion by 2019. “This is especially true for Asia, with its emerging middle class,” says Sim Ann, senior minister of state for the Ministry of Culture, Community and Youth, as well as the Ministry of Trade and Industry, at the launch.

In her speech, Sim cited Commune as an example of a local physical retailer that has successfully adopted innovative retail technologies to transform the customer experience.

Over the past year, Commune has used virtual reality (VR) simulation in conjunction with a 3D floor planner at its stores. “This has enhanced the customer experience by providing greater assurance to potential buyers that their choice of furniture will fit well in their homes,” says Sim.

The software used by Commune allows potential customers to pick out pieces of furniture from its catalogue and, via VR simulation, see how those chosen items of furniture would look in a room. Among the adjustments that can be made to the VR simulation is the way that sunlight would stream through a window at different times of the day.

While this tool might seem gimmicky to some, Joshua says it can provide the “endless aisle” experience to customers within the confines of a typical 3,000 sq ft Commune store.

Omni-channel ambition
Joshua is now also actively working on a so-called omni-channel sales platform for Commune. Essentially, this is about being able to seamlessly serve customers in the online space as well as at a physical store.

Most customers will first research what they want to buy online, but many will want to look at a product in a physical store before making their purchases.

Already, the technology exists for cameras at a store to recognise a customer who has a registered profile online when that customer walks into a store. Armed with the browsing history of that customer, employees at the store could be in a good position to close a sale. However, with personal data privacy concerns, it is not yet clear to what extent such a seamless experience can be implemented, says Koh.

In the meantime, Commune is trying to use whatever data it collects via its online platform to optimise its online sales. For instance, a picture of an item that draws a long gaze is probably more likely to get sold than one that is quickly dismissed with a click or a swipe.

Winning over landlords
While it has been decades since Singapore was known as a shoppers’ paradise, the retailing sector is still an important element of the local economy, contributing 1.4% of GDP. And, the roughly 23,000 retail establishments here provide 4% of total jobs.

According to official statistics, wholesale and retail trade as a sector grew at an annualised rate of 6.2% in 2Q, versus just 0.8% in the year-earlier period. And, much of the prime retail property in Singapore is held by real estate investment trusts such as CapitaLand Mall Trust and Frasers Centrepoint Trust, which are, in turn, widely owned by investors.

Will e-commerce disrupt the whole sector? Or will a new breed of retailers emerge to breathe life into Singapore’s shopping malls? For now, Commune’s physical stores are still pulling in the vast majority of total sales, according to Joshua. And, he does not expect this to change anytime soon, as furniture, being big ticket items, will not be sold that easily online.

The way he sees it, e-commerce platforms will not affect all physical stores in the same way. A lot also depends on the nature of the product being sold and the kind of service and attention provided by staff at a physical store.

In the case of Commune, its fast-growing sales make it an attractive tenant to many owners of malls.

And, its use of experiential VR technology at its stores is prompting some of those landlords to offer the company more prominent shopfronts because of the stores’ potential to draw shopper traffic, according to Joshua.

“Now, with our experiential element, we are being asked to take up prime frontage, as we are able to help bring up the whole mall,” he says.

This article appeared in Issue 803 (Oct 30) of The Edge Singapore
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