Omnichannel is the way forward for APAC retailers

As physical stores reopen, online spending may drop to 13.4% by end-2021 but never below pre-COVID levels.

New business models had to rise to meet customer demands and keep businesses alive and going since the pandemic wreaked havoc in 2020. For industries, like retail, the seamless integration between online and offline channels worked like magic as they became the main drivers of the economy amidst a year of uncertainties. 

The pandemic has been one of the biggest growth catalysts for omnichannel retail in the Asia Pacific region, with online sales accounting for US$994.9b in 2020 up by 28.1% from 2019, according to reports from GlobalData.

“The pandemic-induced lockdown has accelerated a move towards digital that was already underway. It is increasingly becoming clear that omnichannel retail will take the center-stage of retail development in the region over the next five years with online sales expected to grow by 98.3% during 2020 to 2025,” GlobalData Retail Analyst Ankita Roy said.

To give perspective, GlobalData reported that in 2020, online retail consisted of 12.3% of retail sales across the region compared to just 5.6% in 2015 and is further expected to grow by 5.2 percentage points from 2020 to 2025 to reach 17.5%. 

“These figures indicate that retailers were already embracing omnichannel strategies before the pandemic, however, COVID-19 has accelerated the strategy across the region as demand increased and more consumers were converted to the service,” Roy said.

Similarly, IGD Senior Business Analyst - Asia Jiong-Jiong Yu mentioned that the omnichannel business model has been well-established in China since 2019 and was pioneered by retail giants Alibaba and JD.com.

“The pace of evolution in retail from multichannel to omnichannel was fast even before the pandemic, but the onset of COVID-19 meant retailers had to drive these changes quicker than ever before,” Yu said.

What omnichannel retail looks like today

Omnichannel retail is more than just the integration of online and offline retail channels, but about meeting the demands of consumers, whose lives have been disrupted with the recent changes, through these new channels.

This is because consumers today are becoming smarter, seeking more convenience without sacrificing quality—which is why retailers are now compelled to bring worthwhile experience for them across touchpoints to keep them interested. For Roy, retail is bound to parallel societal changes.

“Moving forward, brands and retailers need to treat the internet not just as complementary to the in-store experience, but rather as a key channel that expands their reach globally. And so, the online experience must be smart, personalised, and engaging,” Roy said.

The GlobalData analyst added that with continuous improvements in access to smartphones, the number of internet users in the Asia-Pacific region is expected to increase by 24% and broadband subscribers are likely to grow by 17.6% from 2020 to 2025.

Meanwhile, Yu described that the development of omnichannel strategies in the food and consumer goods sector varies by country.

In China, omnichannel is more mature with the focus shifting to rural areas for untapped growth. Whilst in South Korea, omnichannel is still relatively new, so retailers are making big investments in delivery services, logistics, and IT to meet shoppers’ demands. Retailers are also transforming their stores to be more compatible with online operations.

Yu also mentioned that there are many other countries in the region, such as the Philippines, Vietnam, Indonesia and India where online grocery penetration is low. However, these markets are showing strong online growth due to changing shopping habits.

As omnichannel capabilities increase in the region, retailers are now investing to enhance these channels due to the surge of smart buyers. 

“Omnichannel retailing ultimately meets shoppers' needs better, enabling them to buy anywhere, at any time in any way they want. It will become an increasingly indispensable way for consumers to shop in Asia,” Yu said. 

GlobalData’s Q1 2021 survey revealed that convenience (73%) and time-saving aspects (67%) are the two primary drivers of online shopping in the APAC region. Shoppers also relied on online channels to take advantage of lower prices (48%) and variety and choices available (47%).

“COVID-19 pandemic has made online shopping more of a permanent lifestyle. Against this backdrop, the online channel is benefitting and is overcrowded with prospects... Investments in omnichannel capabilities will help retailers to cater to shoppers with a changed set of preferences,” Roy said.

Meanwhile, a huge aspect of omnichannel retail present today is collaborating with other industry players to ensure smooth operations. Since the pandemic fast-tracked the need to meet consumer demands in a more efficient way, retailers have since teamed up with other marketers, suppliers, and third party logistics companies, amongst others—which, according to Yu, is essential in building trust, a solid foundation for omnichannel to thrive.

“Brands need to select the right companies to partner with, choosing those that share the same vision or with complementary capabilities. It’s important to take the long view, for example, discount platforms might generate short-term sales gain but may dilute brand identity longer term. Brands should be reviewing their strategies and market position in the post-COVID environment,” Yu said. 

Roy also noted that some retailers are using technologies such as non-fungible tokens (NFT) to monetise value and exclusivity, by ensuring traceability through the supply chain and retail operations. 

“The integration of NFTs in business will help retailers to maintain credibility and transparency for customers,” Roy said.

A huge opportunity for retailers

The need to integrate online channels in businesses is not an easy task. A lot of time, effort, and resources must be put into being able to operate successfully in such an unfamiliar and challenging environment.

Roy mentioned that those struggling with omnichannel strategies must consider selling on marketplaces as it reduces their fixed costs of operating physical stores and also allows them to showcase their product range to a wider customer base. 

“To turn the COVID-19 pandemic into an opportunity, retailers must use technology to expand the geographical footprint of their services. Partnership with logistics and supply chain startups will enable retailers to offer cutting-edge logistics services such as delivery by drones and autonomous vehicles and robots,” Roy said.

Several physical store retailers have switched to online marketplace models to expand their reach and explore new business avenues.

“Consumers' extended use of social media and greater internet penetration offers opportunities to retailers to use digital platforms as retail touchpoints to translate into sales and consumer loyalty. From new product launches to creating buzz around the product, social media is an excellent tool to attract consumers,” she added.

Meanwhile, Yu acknowledged the complexity and the challenges for the struggling retailers, including cost, capability, coordination, and cultural change. To address this, the first steps are to establish a future vision, recruit the right people, invest in data, and digitise the supply chain, Yu said.

The future of retail

The analysts believed that omnichannel is here to stay and it will become the main retail model in the next few years, helped by advances in technology. 

“As the economy continues to recover and countries reopen borders, omnichannel retail will develop even further, creating more opportunities for companies to collaborate and learn from each other,” Yue said.

Although stores reopen this year, GlobalData expected the yearly growth in online spending to drop back to 13.4%, but this is still $352.1b in more than consumers have spent since 2019.

“Value-seeking consumers in APAC present a huge opportunity for online retailers. Retailers with discount-based business models will leverage the rise in spending power of growing urban middle classes in the region,” she said.

“Retailers need to ensure they have fully embraced a change in mindset where channels are irrelevant, and stores are more about experience than selling. Data is also incredibly important and understanding it is the centrepiece that links all the elements together from analysing what customers need to inventory, marketing, promotions, sales forecasts and deliveries,” Yu concluded.

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