Retail is facing its biggest reset post-pandemic.
It survived multiple economic depressions, two world wars and a catastrophic fire. But after 162 years, Robinsons will be no more. The iconic Singapore department store may have been the pandemic’s latest casualty, but the truth is that the red ink had begun bleeding long before Covid-19 struck. Suffering from intense competition from e-commerce, the once-publicly listed company had not turned a profit since at least 2014. The pandemic has merely knocked the last nail into its coffin.
Similar stories are playing out for many retailers across the world. The double whammy of shoppers’ increasing penchant to go online, and a pandemic that locked billions of people out of stores and in their homes, has devastated retailers from individual brands such as Zara and H&M, to multi-label shops such as Robinsons and the granddaddy of them all: malls.
The dust has yet to settle, but the numbers do not look good. In Singapore, wearing apparel and footwear sales plunged a record 62.7 per cent year-on-year in June. While overall online sales in the same month jumped 151.2 per cent year-on-year, this surge will not overturn the damage done by store closures and reduced spending from consumers worried about jobs. According to the Boston Consulting Group (BCG), the global fashion industry alone is expected to shrink by one-third, losing US$640 billion in revenue this year.
What can retailers do to stem the tide?
The online pivot
These dismal figures underline how vital it is for retailers to pivot online. Worldwide Covid-19 lockdowns have pushed previously resistant consumers to try out e-commerce: 14 per cent of consumers in the US and 17 per cent in China purchased clothes, shoes and bags online for the first time due to the pandemic. And, if history is anything to bank on, these neophytes will turn into converts: after the SARS epidemic, increased e-commerce spending remained at the new level after the outbreak had subsided.
Brands that did not pay sufficient attention to their online channels have been the worst hit, including high-street retailers such as Zara, H&M, Esprit and Gap, which rely heavily on walk-in custom. Zara’s owner Inditex, for instance, had to shut 90 per cent of its stores and suffered its first quarterly loss, amounting to 409 million euros, despite its online sales surging by 95 per cent.
It will close 1,200 stores globally by 2021 and will be investing one billion euros to increase online sales from 14 per cent last year, to a quarter by 2022. It will also be upgrading its remaining stores to integrate them with its digital platform, including making them distribution hubs for online sales.
Inditex, whose strength has been in aping market leaders, is embracing the shift in digital marketing strategy known as omni-channel retailing. This involves interacting with customers through various channels such as websites, physical stores, pop up stores/kiosks, direct mail/e-mail and catalogues, call centres, social media, mobile device apps, gaming consoles, televisions, networked appliances, home services, and so on. Conventional merchants must integrate these disparate channels into a seamless omni-channel experience, to stay in the game.
The same BCG report says that these channel shifts will keep accelerating. In tandem, retail stores’ role will change, with flagship locations remaining for branding purposes, and the average physical locations shrinking, serving as order fulfilment and community activity hubs.
Shopping as an experience
The operating model of malls is also due for a revamp. True destination malls that offer fancy amenities and unique experiences are better positioned to ride out the pandemic, over ageing, threadbare malls that offer stale, two-dimensional shopping choices, indistinguishable from other malls down the road. Malls remain relevant in the retail landscape, despite the convenience afforded by e-commerce, especially for “chore purchases” such as groceries and other daily essentials, because shoppers still enjoy offline shopping as a pleasurable leisure activity. This is especially true in land-scarce Singapore – witness the crowds on Orchard Road over Black Friday weekend. Pandemic? What pandemic?
Instead of fighting e-commerce head on, innovative malls will incorporate value-added elements, according to a McKinsey report. Such amenities could include concert halls, fitness clubs and farmer’s markets, which provide leisure and entertainment that cannot be satisfied online. Global examples of malls that have embraced such a direction include Spain’s kids-friendly Xanadu, which features a ski slope, go karts and balloon rides for parents to spend quality time with their children, and Minnesota’s Mall of America, which boasts of an underwater aquarium, a theme park and a dinosaur walk museum.
In Singapore, CapitaLand’s Funan Mall has found a new focus. Formerly the go-to place for computers and accessories, Funan went into slow decline as shoppers turned to buying such commodity products online, which offers an endless product selection and easy price comparisons. After redevelopment, Funan now features a centrepiece rock climbing wall, a rooftop futsal court, an indoor cycling track and an urban farm. It also deploys advanced technology, such as facial recognition for entry control to the two office towers attached to the mall.
The mall of the future
Retail in the post-pandemic future will see a greater cooperation between malls and their tenants. Imagine driving into Ion Orchard. As you park, a message pops up on your smartphone. The mall’s app is offering to place an order for your favourite mocha Frappuccino. You accept, and pick up the beverage, brewed a la minute, from Starbucks on your way to the boutique. As you browse through the apparel, you take a picture of a dress that catches your eye. The app, knowing your measurements, superimposes an image of the dress on your avatar, showing how the garment fits you. It also suggests matching shoes and accessories, alongside alternatives from other shops in the mall. You add your selection to the cart on the app, click “Pay”, and the goods will be delivered to you the next day.
As farfetched as this scenario may sound, one of the leading mall operators in Singapore is in fact working to create such a shopping experience, which leverages on artificial intelligence and digitalisation to merge the convenience of online shopping with the enjoyment of good old browsing at a brick-and-mortar establishment.
The more malls they operate, the more customer data they will be able to aggregate to improve the consumer experience. Size matters, after all. And that data will be monetisable in a myriad ways; just look at Facebook’s and Google’s business model which leverage on aggregating their user’s information to make money. Retailers will flock to larger operators who can offer a larger addressable market.
The cost of acquiring valuable personal data and developing the technologies to create such a shopping environment would require a huge capital outlay, creating a further divide between operators with the monetary firepower from those without. One thing is certain though: mall operators need to pivot from being landlords to providing shopping entertainment if they are to avoid being a footnote in marketing history books. Do that well and they will have staved off the palling of the mall.
A version of this article was published in the Business Times on 2 December 2020.