Social Commerce, a retail game-changer with triple growth potential

Olivier Gergele of EY-Parthenon unveils the dynamic trends reshaping retail — from social commerce to AI, ESG sustainability, and the emerging Metaverse.

Compared to traditional e-commerce, social commerce is expected to see tepid growth and present unique opportunities for retailers, according to a consumer expert from global management consulting firm EY-Parthenon.

“Social commerce is expected to grow at three times that of traditional e-commerce due to a combination of both demand and supply factors,” Olivier Gergele, EY-Parthenon consumer leader for Asia Pacific, told Retail Asia in a recent interview.

Social commerce refers to the integration of social experiences and e-commerce transactions on a single platform and since it has gained traction across the region, Gergele said retailers must adapt their strategies to leverage this transformative trend.

“From a demand standpoint, we see a strong pull, especially from consumers aged 18 to 24 years old, who are very active on social networks and have increasing purchasing power,” he said. “From a supply standpoint, this is data that attracted investments. As you know, private equity firms bet on the strong future for technology.”

But first, Gergele cited three key elements of social commerce: content-driven engagement, interactive shopping experiences, and leveraging social networks for discounts, sales, and commissions.

What drives the demand for social commerce is the active participation of younger consumers — the tech-savvy millennials and Gen Zs — who are heavily reliant on social networks, seeking input from peers and influencers, and engaging in social shopping experiences.

This is complemented by significant investments made by brands and retailers in social commerce.

“Just in 2021, there were about 110 investment deals that involved social commerce companies, which represented roughly [US]$8 billion in capital. You need to compare this with 14 deals in 2016 involving less than [US]$1 billion,” said Gergele.

When asked about the differences between social commerce in the Asia Pacific region and the rest of the world, Gergele acknowledged that countries like China, South Korea, and Japan are at the forefront of social commerce adoption.

However, he also asserted that any country with a high level of social media activity and e-commerce engagement has the potential to excel in this space.

Addressing the challenges posed by global inflation and tightening monetary policies, Gergele recommended that retailers tailor their strategies based on their target consumer base.

For retailers catering to value-conscious consumers, optimising assortments and reducing costs through supply chain and logistics optimisation are crucial, he said.

Developing private label brands can also help retailers ensure affordability and quality, he added.

A different approach works for trendier consumers, so Gergele suggested: “Retailers targeting less price-sensitive consumers need to focus on personalised experiences.

In this case, he said retailers should invest in advanced analytics and embrace new channels to create a smooth and integrated omni-channel shopping journey for this customer segment.

Advanced data analytics, machine learning, and emerging technologies such as artificial intelligence, augmented reality, and virtual reality can play a pivotal role in delivering targeted deals, personalised product recommendations, and interactive shopping experiences.

Moving on to the commercialisation of AI technology, Gergele told Retail Asia that whilst AI has been in existence for many years, recent advancements in generative AI have unlocked new possibilities.

He highlighted that leading players are already piloting and testing AI technologies, and he expects AI to significantly transform businesses and consumer interactions in the next couple of years.

Touchin on the importance of ESG (Environmental, Social, and Governance) and sustainability programs for the retail sector, Gergele said the times call for retailers to commit to sustainability throughout the entire value chain.

“Retailers need to undertake many initiatives if they want to meet their ESG goals, such as sustainable sourcing practices, decarbonisation, reducing wastage, and incorporating more sustainable products like eco-friendly packaging and recycled materials,” he said.

In addition to social commerce and AI, Gergele identified the Metaverse as another key trend that retailers should monitor. As the sector unfolds in the next few years, the Metaverse will reshape consumer lifestyles and purchasing behaviour, he said.

“Metaverse is probably one of the key next stages for the sector, and it’s essential for all retailers to keep an eye on it and prepare to embrace it,” Gergele said.