It’s a no-brainer that one of the main reasons why malls all across Asia are facing decreasing footfalls is the rise of E-commerce. While it has developed at a different pace in each market, the increasing numbers of online channels is threatening to make physical shops an endangered species.
By directing online customers to offline stores, O2O combines the ease and traceability of online payments for customers with the guarantee of offline foot traffic and purchases for merchants.
However, there are ways that malls can mitigate the impact of e-commerce.
As seen in markets such as Singapore, China and Hong Kong, large malls in strategic locations, with ample space for events and flagship stores, can offer experiences to the shopper that cannot be matched by online shopping.
Malls can and have been adjusting their tenant mix to provide more food & beverage, entertainment, lifestyle and luxury offerings, items which cannot be easily transferred online.
However, the strategy that we feel is the most effective to combat e-commerce is to implement online-to-offline (O2O) offerings in key shopping malls in order to help retailers ease their offline sales. By directing online customers to offline stores, O2O combines the ease and traceability of online payments for customers with the guarantee of offline foot traffic and purchases for merchants.
How O2O works
Step 1: The shopper conducts online research on a product they want and is diverted to the website of the retail shop.
Step 2: Shopper pays online and collects product from the shop to save on delivery charges
Step 3: The site can direct the shopper to browse and find out-of-stock products that may not be on display in the physical store.
This was a strategy that worked extremely well for US department store Macy’s. After introducing O2O retailing, online sales have grown to 14% of total revenue, up from 4% in 2011, and saw their same store sales grow from 1.9% to 5.3% in the past three years, while their competitors have been in decline over the same period.
The “click-and-collect” service has proven particularly popular. According to a UPS survey, 50% of online shoppers like the “click-and-collect” service and 40% make additional in-store purchases while they pick up their item, which is one of the advantages of O2O retailing.
Other benefits include being able to move inventory at a higher price. Traditional brick-and-mortar retailing uses heavy discounts to move unsold products, but the O2O approach allows the item to be sold at full price in other stores in the region.
Of course, having an nice retail store in a fancy mall allows O2O retailers to have better brand visibility than online shops.
It’s your move, retailers
In Asia, O2O offerings is still at a pre-puberty stage, but that’s not a bad thing. Faster adoption of the successful practice can help overcome some of the most pressing challenges brought on by a disruptive digital environment.
The retail property sector most at risk is in China, where retail landlords are facing increasing threat from online retailers, especially in Tier 3 cities where they don’t have world class malls and carry limited inventory. The impact is less pronounced in Singapore and Hong Kong due to their well-developed retail infrastructure and shopping convenience, but as seen in many reports, even in the two shopping haven, the less popular malls have been adversely impacted by the digital age.
Still, if retailers in Asia were to learn from the success stories of their US counterparts and adopt the best O2O practices, they will have less to fear from Tmall and Taobao.
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