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Traditional retail ponders its future as e-commerce takes hold

By Charmaine A. Tadalan, Reporter

PREI T. VALENCIA was a twice-a-month online shopper before the quarantine. These days she places online orders weekly for clothes or electronic device accessories. She even bought furniture online once.

“Now that everything’s online, it’s a lot easier to shop. Even SM and Robinsons malls are on Lazada or Shopee, or have their own e-commerce sites,” she said over Facebook Messenger on Nov. 18.

“I really don’t mind paying for shipping or delivery fees because I’d rather spend extra than risk exposure outside.”

Before COVID-19, malls would typically be packed as the weather turned cold, but the pandemic has chased foot traffic away, calling into question retailers’ ability to survive without revenue from the year’s busiest shopping season.

Ms. Valencia found herself attracted to online merchants’ offerings like mid-year sales and monthly promotions. The shift away from malls, when multiplied across millions of consumers, has left an entire industry wondering how to move forward.

According to Philippine Retailers Association (PRA) Vice-Chairman Roberto S. Claudio, “The prolonged lockdown has shown up in the reduced revenues of almost all retailers. Sales have dropped between 50-80% from pre-pandemic levels.”

“Some retailers are less affected, some more. While online sales increased from 100-500% from online capable retailers, it was not enough to cover for the lost sales in brick & mortar stores,” Mr. Claudio said in an e-mail in October.

Malls had to cut back on operations to essential stores only after the government locked the country down in March to contain the outbreak.

The government started easing restrictions in June, allowing selected businesses to reopen at limited capacity. This was further relaxed in October when the Department of Trade and Industry allowed 100% capacity for establishments in areas under general community quarantine and 75% in salons.

“The pandemic has accelerated the inclusion of online channels for all retailers. What was predicted to take another five years to reach this level of digital transformation was accelerated by this pandemic,” Mr. Claudio also said.

Citing data from the 2020 World Retail Congress, he said e-commerce in developed countries increased to 25% from 16% and to 8% from 3% in emerging countries. Even with e-commerce growing rapidly, traditional retail remains dominant, while leaving the bricks-and-mortar segment the option of setting up online channels themselves.

“I personally do not see online retailing completely taking over from in-store retailing. Retailing as an industry will become omni-channel,” Mr. Claudio, who is also chairman of Toby’s Sports, said.

“Retailers without online capabilities will develop digital infrastructure. And I predict e-commerce retailers will start opening showrooms combined with digital hubs.”

While malling behavior may have changed, the industry is poised for a comeback, Mr. Claudio said, with new offerings beyond shopping, like resorts, museums, and cultural and educational facilities, among others.

Kantar Philippines notes that Philippine online shopping, while growing, also lags the region.

In May, Kantar reported that the Philippines’ online penetration was 6% for fast-moving consumer goods (FMCG), against 34% for Vietnam, 24% for Malaysia, 20% for Thailand, and 8% for Indonesia.

The equivalent number for the Philippines in September has since risen to 7.3%, still behind our neighbors’ totals in May.

“When it comes to FMCG in the Philippines, compared with other countries in Asia, we’re still the country with the lowest penetration online,” Marie-Anne Lezoraine, general manager of Kantar’s Worldpanel Division Philippines, said in a virtual interview in October.

Ms. Lezoraine added that hypermarkets, supermarkets and grocery stores in general increased their market share during the lockdown.

“All of those channels have been impacted by the current situation, but those are the ones performing relatively better. Sari-sari stores (neighborhood Mom-and-Pop outlets) are the ones that have been suffering,” she said.

The frequency of shopping is at an all-time low as people limit their activities due to mobility restrictions, budgetary constraints and fear of infection, according to Kantar. It also found changes in consumer behavior as shoppers prioritize basic necessities and cut back on impulse buying.

“There was an element of unplanned purchases and of course, with the frequency of shopping declining, there’s less of those impulse purchases now when people go to the store,” she said.

“The shopping basket is a little bit more valuable but the frequency dropped… people are spending less.”

One of the Worldpanel findings was that both the well-off and poorer consumer segments tended to maintain their spending on essentials, with the middle classes most likely to cut back. She said the lower end of the market likely was already down to bare essentials and has “less to cut.”

“They are focusing on the essential therefore the room to cut to reduce the expenditure was probably smaller,” she said.

With the situation still fluid, traditional retail is still grappling with the adjustments forced on them by changing market conditions. But if the development of online channels is inevitable, the question can be distilled to how the bricks and mortar segment can beat them, or join them.

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