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2020 January
Online Shopping: A New Retail Channel

Conflicts and clashes triggered by the controversial amendments to the Extradition Bill over the past six months has led to a depressing social atmosphere. Comparing to the economic downturn brought about by SARS and the Asian financial crisis, we are now surrounded by even more dire circumstances, and the economy would very likely take quite some time to recover. During this period, some retailers had no choice but to close due to safety concerns. Businesses are undoubtedly affected. When leaving homes has become difficult for citizens, will online shopping channels become a market wonder with its increasing popularity?
 

 

Annie Tse: Weathering Hardship with Flexibility and Collaboration

According to the latest figures announced by the Census and Statistics Department, the value of total retail sales in October 2019, provisionally estimated at HKD30.1 billion, decreased by 24.3% compared with the same month in 2018, marking the worst year-on-year decline in a single month on record. For the first ten months of 2019 taken together, the provisionally estimated value of total retail sales decreased by 9% compared with the same period in 2018. The retail sector is heading into winter and merchants are tapping into online retail to cut costs on rent. Will online stores become a new solution for the industry?

 

Novel model an inevitable trend

Facing such an exceptionally harsh business environment, retailers need to flexibly adjust their operation approach to fully cope with market changes and to support the long-term interest of the company’s development. According to Annie Tse, Chairman of the Hong Kong Retail Management Association (HKRMA), the adoption of new retail models is an inevitable trend to promote sustainable development of the industry. Yet, expansion into online sales is not as simple as opening an online store. Rather, the ultimate goal is to improve the velocity of merchandise flows and sales processes through the clever use of the Internet, supplemented by state-of-the-art elements such as network technologies, big data, AI, etc. By doing so, integration of online services (web stores) and offline experiences (brick-and-mortar stores) can be deepened to generate a complementing effect that brings out the best in both sides.

 

“The industry must absorb new customers who prefer online shopping and retain old customers who are more used to the traditional retail mode.” Tse pointed out that traditional customers can ride on the new model and try to make use of online services. For example, they could look at a product in a physical store before purchasing it online for a more complete shopping experience. As for certain retail brands that had set up many outlets in Hong Kong but failed to expand online sales, she reckoned it was due to the shopping pattern of their target customer groups, or the limitations of internet technology, manpower allocation and logistics arrangements.

 

Perfect integration of online and offline channels

The breakthroughs in geographical and time constraints are the biggest advantages of online stores, which are also very helpful for the industry in expanding into markets outside of Hong Kong. Tse emphasized that in the medium-to-long run, new retail models are in fact an established growth direction for the retail sector. By merging the online platform with existing shop fronts, traditional merchants are better positioned to put their strengths in sales to work, which could in turn ensure new paths can be paved under different economic circumstances.

 

To achieve the above objectives, Tse suggested that the industry should get prepared as soon as possible. For example, suitable network platforms for web store hosting can be identified, talents with the relevant skills can be trained or recruited, and logistics and other complementing services can be properly arranged. Adopting the right approach does not only minimize efforts, but also maximize results.

 

Securing rent reduction to overcome a difficult time

Lackluster sales are expected in the Hong Kong market for quite a long time. Tse candidly commented that cross-discipline collaboration and a multi-prong approach are needed to improve the business environment for the retail sector. As such, HKRMA not only proposed a diversified array of relief measures to the Government, but also appealed to landlords to lower their rent to help the industry overcome current hardships. After all, rent represents the biggest part of the industry’s operating costs. As for the industry itself, she pointed out that cost control is the most important measure for the time being. “Cash is king” should also be a motto – adequate cash flow must be maintained as much as possible in adverse market conditions. For example, if a retailer rides on the festive atmosphere of Christmas and the New year and promotes clearance sales, it must not replenish its stock hastily simply because the price has gone down. Inventory pressure could affect cash flow and therefore must be avoided.

 

She also proposed that the industry can seize the opportunity to discuss rent reduction with the landlord at tenancy renewal. Retailers can try to ask for a temporary change to a shorter lease to relieve the burden of rental expenses. The original lease could be resumed later when the economic environment improves. She believes this could help the industry weather current hard times.

 

 

Ken Li: Marketing Through Clever Use of TV Shows

Opened for slightly more than a year, “Big Big Shop” is one of the best-known retail webstore in Hong Kong. Ken Li, Head of Product Management of TVB New Media Group Limited, candidly said that the relevant business has grown steadily over the past year with gradually increasing revenue. It is not facing the problem that traditional retailers are facing.

 

Online shopping unhindered by social unrest

According to Li, Big Big Shop has leveraged on the strengths of the television media, where penetration is relatively easier and more helpful for marketing. He quoted the successful example of Good Cheap Eats, which was employed to promote kitchen appliances at the beginning. Soft selling of other local food brands was equally effective in Homegrown Flavours.

 

You can buy everything you see

In fact, product placement in TV shows is not something new, even for the local market. Li explained that sponsoring brands seen in TV series, or prizes given out in game shows, are all promotional. One of the promotion strategies advocated by Big Big Shop is “You can buy everything you see”. The show-and-sell promotion strategy is rather effective in synergizing the reach of TV and the audience’s urge to shop.

 

Li revealed that the company has tried to produce short promotional videos for individual products, but the approach was only mildly effective. As the company’s business is still in its embryonic stage, it must learn from field experience and make use of different channels for promoting products of different categories. Field exposure has given them a better grasp of how to sell different products. As such, the webstore is selling not only tangible merchandise, but also tour packages and concert tickets.

 

Overcoming logistics problems to improve customer service

Li added that his company has been facing logistics problems over the past six months. As most are aware, deliveries have been delayed owing to frequent traffic blockage. As such, they have been trying to improve shoppers’ experience in hopes that customers can still shop delightfully under current limitations.

 

Circle K has become their logistics partner since early last year to offer a convenient click-and-collect service. The more flexible delivery channel also made room for merchants that cannot provide door-to-door delivery service, which significantly increased the variety of products available for online shopping.

 

Speaking of the company’s future direction, Li said that Big Big Shop is also riding on the strengths of TVB’s programs to expand new product offerings. For example, a deluxe beauty pageant mini tie-in set has been rolled out for the long-running Miss Hong Kong Pageant, and a plush cat was launched thanks to the feline character in the high-rating series Barrack O’Karma. Li stressed that although the social atmosphere has cooled down the general desire for shopping, his company still wishes to unleash positive energy through its service and weather this difficult time with the people of Hong Kong.

 

 

Brian Lo: Leverage Data Analysis Without Neglecting the Essence of Service

In an increasingly competitive landscape for online food delivery platforms, Deliveroo has excelled in 2019, logging over 100% annual growth in both revenue and order numbers, and plans to increase its restaurant partners and recruit more food couriers.

 

Data analysis for shorter food delivery time

Brian Lo, General Manager of Deliveroo Hong Kong, said the service that Hong Kong customers want inevitably has to be “fast and on time”. Hong Kong people order food online to save time as they always want to seize every minute and second, so they pay the most attention to food delivery efficiency. “How to deliver food in a timely manner often determines the success of a food delivery platform.” Therefore, Deliveroo offered half-hour deliveries to attract customers at the beginning of its foray into the Hong Kong market. Lo revealed that Deliveroo has a special weapon to help ensure deliveries are made on time even during peak hours, i.e. Frank, an AI system.

 

He explained that the system stores data such as past food delivery routes and preparation times. Once an order is received, the system selects the most suitable food courier and recommends the best route to ensure that the highest number of orders are completed in the shortest time. According to Lo, with the help of Frank, delivery times have been reduced by an average of 13 minutes.

 

To make progress together, Deliveroo also offers a big data tool for restaurant partners to tailor their promotions to different target customers. The tool provides insights of delivered orders such as the total number of deliveries, the average time between order acceptance and courier pick-up, as well as competitors’ average preparation times in a particular area. These data insights enable restaurant partners to get to know the competition and improve their service to win orders.

 

Customer service center for person-to-person communication

In addition to introducing new technology, Lo stressed that real people-to-people communication is a necessity for quality customer service. Therefore, the firm employs dedicated staff to answer customer calls in order to deal with unexpected incidents more holistically and in a timely manner. He said: “Most customers are impatient while waiting for their food to be delivered. If there is a problem with their order and it still cannot be resolved after listening to a bunch of phone recordings, their impression of the service will be badly affected and they may even tell their friends and relatives about the experience, which will have a great impact.”

 

He believes that a combination of technology and user-friendly customer service is the best way for online ordering services to continuously improve their competitiveness. To get close to customers, the firm’s founder and management will serve as food delivery couriers from time to time. For example, Lo has a record of completing eight deliveries in one hour. By experiencing the entire process, management can better understand the operational details and thus implement improvements that are more effective.

 

Diversification of business for multi-party win-win results

Noting that delivery fees are an important factor in whether consumers use food ordering services or not, Deliveroo launched Deliveroo Plus recently. At a subscription fee of HKD98 a month, customers can enjoy unlimited free deliveries. Lo believes this will help increase customer usage and could increase monthly turnover by about 20%. He said that the income of Deliveroo mainly comes from commission and service fee. Gainsharing from enterprises is not much at this moment.

 

In response to competition, following its first delivery-only kitchen space set up in Wanchai in 2017, the firm at the end of last year invested about HKD7.5 million to launch a 1,500 square-foot shared kitchen space in Sai Ying Pun, where customers can order for takeaway. Besides offering food delivery service, the site is equipped with tablet computers for walk-in customers to place order and collect the food themselves. Lo looks forward to the new service bringing win-win results for multiple parties as it offers more options to customers and can accommodate more small businesses to expand into the area through takeaway services.