Even though the retail environment is in different stages in various parts of Asia, the bottom-line is that retailing is growing rapidly in the region. Examples are China's Bailian (Brilliance) Group (Top Global Retail Ranking #90), Hong Kong's AS Watson & Company Ltd. (Ranking #53), Japan's Seven & I Holdings (Ranking #17) and South Korea's Lotte Shopping (Ranking #78).'
As Asia catches up with the West, retail is going to get even bigger in this part of the world. This realisation is dawning on both Asian businesses and governments. For example, even from a small but rich country like Singapore, its supermarket chain NTUC FairPrice is trying to spread its wings by venturing outside the city state. According to media reports, the popular local supermarket chain is setting up a hypermarket chain in Vietnam. It is partnering the Saigon Union of Trade Co-operatives on the initiative. The first hypermarket under the joint venture is expected to be operational by 2012.
"Over the last decade, we have witnessed a major transformation in Singapore's retail industry," said S. Iswaran, senior minister of state for trade and industry and education, government of Singapore, at the 2010 Singapore Retail Industry Conference CEO Forum on 31 August 2010. "Today, Singapore is widely regarded as one of the most vibrant and exciting shopping destinations in Asia."
In Singapore's case, the signs are telltale. The retail industry is a significant contributor to Singapore's economy. In 2008, the industry registered some S$26.2 billion (US$20.1 billion) in sales revenue and generated $3.8 billion in Value-Add. This accounts for about 1.4 per cent of Singapore's gross domestic product (GDP). The industry also employs more than 100,000 workers in some 19,000 establishments, which is about four per cent of Singapore's total workforce.
Though there are expectations that Asia will lead worldwide GDP growth for 2011 and this bodes well for the further sustained growth of Singapore's retail industry, a drag could be slowing or stagnant productivity levels. According to the minister, Singapore already lags behind other international cities like Hong Kong and New York in this regard. Singapore's retail productivity is only 66 per cent that of Hong Kong's and 44 per cent that of New York's.
That's where the role of technology comes in in the retail story. A recent study conducted by SPRING Singapore to assess the productivity levels in the sector highlighted some paths to improve productivity. This includes process innovation and enhancing efficiency with the help of technology.
One of the major players in retail technology globally and in the region is Motorola. The US-headquartered company's enterprise mobility solutions business offers a comprehensive portfolio of products and solutions in the retail space (bar code scanners, RFID readers, wireless network infrastructure, and so on). We caught up with Singapore-based Anand Mehta, business development manager (retail), Motorola, to understand how the retail story is shaping up in Asia and what role technology is playing in this story.
It principally developed from trust because all our customers open up their businesses to us. I think this is so as the Motorola brand adds a lot of value because of its global recall. Other than that, it is rolling up your sleeves and getting stuck in the customer's problems. The bigger the scale, the more important solutioning is. It is not overly complex. It's just years and years of looking at similar processes and improving the recipe.
Absolutely. The industry is screaming for it.
In the mature markets, the biggest concern is the real estate. So what Singapore has undergone in the last three to five years in retail rental environment, will definitely pervade across the region over the next three to seven.
In China, the growth story is just mind-boggling. China relies upon our solutioning for scalability. We can cut short a lot of their learning curve. If you look at any Chinese retailer, they are doing a fantastic job. These guys have got innovation centres two, three hours out of town where we go and spend a day with them. We relay the flow--the flow of good, the flow of information, is all in our hands. I think China is definitely a tiger to watch out for.
The concern with the India market is that at this stage, the organised retail sector of India is a hugely fragmented market. Usually what we see in markets such as that is Thailand and Indonesia are sort of predecessors of India in the maturity curve. You will see first and foremost convenience stores popping up--the first thing big business can do to try an inroad into small businesses, corners shops, effectively Seven Elevens. Better merchandise, better display, better managed as well. This will be followed by hypermarts, and hypermart typically driven by FMCG (fast moving consumer goods) because LCD TV or a Blu Ray DVD player is still aspirational to emerging markets. The need for toothpaste, shampoo, detergent, is immediate. And of course, hypermart is also about value.
Real estate concerns are one; the other thing to be mindful of is the affordability of the consumer. I think people simplify retail by saying India 1.1 billion people, China 1.3 billion people. That is just absolute headcount. That includes one week old children for God's sake.
A very favourite line of my entire career is that all retailing is local and local is not a country. Local is your catchment. It could be one building, it could be one kilometre. Following that, you use technology immediately for support.
The larger objective of SPM is very simply to get goods to the market cheaper than your competitors. Again, it is a study of processes, where are the bottlenecks, where can you maximise the throughput.
There are two typical supply chain structures: there is one called the agile and one called the lean. Agile is pull-based. Agile is more based on the consumer demand and replenishing according to that. Lean is based on stocking up so you minimise transportation cost and so on. But that may catch up with you if you got the wrong inventory. So, the old model was let's go lean, let's go lean, let's go lean. It is increasingly now going towards the agile. Of course, the perfect supply chain is a mix of the two. But this cannot be done without technology.
You see, this is what pull-based does. The reason pull-based needs technologies because it is real time. Lean is legacy; this is what we got in the warehouse and every Monday morning the warehouse manager sends a list out to the store front and they got to trade what's in stock. Good old model worked for years but everything is changing, right?
So, pull is market-sensitive, real time data and demand, which leads to a virtual bond first so you are sharing your data and then you get processes integration and you allocate your core competencies. The retailer says I am good at this, the supplier says I am good at that and you are not duplicating any effort. And then you coordinate in alignment with customer needs. It is almost an IT supply chain instead of a physical one. This is absolutely where the world is going. There is no doubt about it. Best practices in America indicate this.
We talked about Asia and the differences within Asia but the Mecca of retailing is still the Western world. And now the Western world's growth is maximised and they are all looking to Asia, the final frontier. The big retail story is Asia. Nothing else, not Middle East and Africa.
Industry-wise, definitely convenience stores and hyper format in physical formats is going to lead the charge. I think e-tailing is starting to become very big in China and India. You call it e-tailing or e-commerce and we play in that space in the backend. E-tailing is all about logistics and supply chain. It is about the distribution sometimes. We are thick in the things of that as well. I think in terms of physical shop front retailing, we are using virtual commerce such as coupons and promotions on your mobile phone which is typically a barcode.
So a customer could now literally walk into a Starbucks, show them something and scan it on one of our scanners where our solution does all the processing, gives them 20 per cent off the latte. Again, taking away menu, minimising duplication because otherwise someone would have to print a barcode there and someone would have to print a barcode here; it is now seamless. And the goal again is increasing throughput.
RFID (radio frequency identification) is going to get big and China, especially, is starting to realise the value of RFID because of the scale of the country and its geography. RFID usually starts at what we call the Palette level, so you want to see where your shipments are in transit at any given point of time and then gradually it leads to item level. A bit of a hindrance is still the cost of the tag which is about 15 cents US.
Some of the key beneficiaries of RFID technology would be the FMCG industry. But you could be talking about a dollar fifty tube of toothpaste and you put a 15 cents tag and as a percentage of retailing price, you don't have that much of margin. So we are seeing very strong adoption in fashion, in apparel, in expensive and not substitutable products. So, RFID will keep your 'out of stock situation' better than any other technology. And the trend is clear that it is not only the retailer; the retailer is also pushing the need upstream to the vendor, saying let this be an entire supply chain solution.
RFID will evolve very rapidly in the next 24 months. In other technologies, I think business intelligence is getting increasingly popular. It's certainly an avenue that we are pushing because to capture information is one thing but to profit and make it commercially valuable is the business goal.
You mean in storage? There is a lot of talk about cloud. I think it will do a little more than it has but I don't see a massive migration.
Third thing, if you want to call it technology, is mass personalisation. So, when a customer is walking in and because of the solutions available now, RFID, barcoding, so on and so forth, every customer is an individual with their shopping history which can be tailor-made to their needs.
So, RFID, business intelligence and mass personalisation are three technology trends to look out for in this sector.