The economic prospects of traditional retailers in many global markets are in a widespread state of deterioration. Their situation even has its own term of art – “retail apocalypse” which actually now exists as a Wikipedia entry. Even strong companies and those who realize a material share of their revenue from e-commerce sales are feeling pressure to close stores. Using the US market as an example, over 20,000 retail stores closed between 2013 and 2018. Close to 7000 of these closed in 2017 alone, despite very high consumer confidence ratings, low unemployment and continued growth of the US economy.
Beyond the retailers themselves, global brands are rethinking their distribution strategies in ways that indicate a pivot toward e-commerce. Nike, for example, forecast at its October 2017 Investor Day conference that its e-commerce sales would represent 66% of its corporate revenue growth over the next five years. At that same conference, Nike also announced a massive revamp of its wholesale strategy, indicating that it would place a primary focus on just 40 out of its current 30,000 retailers. The message is clear, simply distributing product out to lots of stores is not their going-forward priority – e-commerce makes the vast majority of those physical points-of-sale obsolete.
The global offline-to-online movement is unquestionably a factor in the decline of traditional retail, but not the sole factor. US government statistics show that e-commerce sales in 2017 still account for less than 10% of all retail sales. A driving factor in the recent run-up in retail store closings is the large debt load carried by large traditional retailers, which in many cases is a consequence of leveraged buyouts made by private equity firms in recent years. Rising interest rates and changing market conditions are making this debt more difficult to refinance than in the past, driving several large retailers toward, or into bankruptcy.
As it relates to the realm of MDEC, there are at least two important takeaways from this trend. The first is that the dominant position large retail corporations hold over manufacturers in reaching consumer markets is rapidly coming to an end. While neither these companies nor brick and mortar retail stores would ever completely disappear, their consumer trust and convenience advantages over dealing directly with product suppliers of any size through e-commerce have been decimated. Consumers worldwide are becoming accustomed to using platforms such as Alibaba’s Electronic World Trade Platform (eWTP) to purchase goods directly from SMEs, and infrastructural improvements such as Malaysia’s Digital Free Trade Zone (DFTZ) make it possible for those goods to delivered anywhere in the world in three days or less. The opportunities for SMEs to serve customers anywhere in the world are now already large, and destined to do nothing but increase.
The second, as illustrated by Nike’s announcement, is the major pivot of global brands toward direct distribution through e-commerce on a mass scale. Datuk Yasmin identified our opportunity this way: “Through the DFTZ, Malaysia is optimized for e-commerce transshipment, with the infrastructure, policies, procedures, talent pool, and experience to provide the world-class support global leaders require. We are optimized end-to-end. We are already receiving enquiries from global brands who understand the potential of what we have built here, as well as the larger market opportunity.” Strategically situated as the gateway to Southeast Asia’s 630 million consumers, Malaysia is destined to become one of the world’s handful of major e-commerce hubs, and a principal contributor to the reimagining of commerce.
Perhaps more importantly, at roughtly 10% of total trade, e-commerce has cleared hit tipping point and yet is just at the early innings of a global shift towards an omni-channel consumer experience.
Datuk Dan E Khoo is the President of MDEC Americas Inc; a Silicon Valley organization established to drive the global expansion of Malaysia’s digital economy.