COVID-19 has drastically changed consumption habits and retailers need to recalibrate their strategies to emerge stronger from the crisis.
Southeast Asia’s retail sector has not been spared by the COVID-19 pandemic, with notable shifts across purchasing channels and categories. The crisis has disrupted daily life and led to massive dislocation of the global economy, with the International Monetary Fund estimating real global GDP growth for 2020 to be -3%. Despite facing huge challenges, what can retailers do to seize opportunities during these trying times and position themselves for sustainable growth after the crisis?
With an almost complete halt in all activities except the most essential services across the world, certain channels, such as e-commerce and convenience stores, have seen significant growth, while department stores and malls have been negatively hit. Similarly, product categories relating to well-being and home convenience, such as consumer health, packaged foods and homecare, are enjoying a boom, and discretionary spending on luxury goods has slowed.
EY expects three key shifts to happen with this crisis:
Acceleration of online retail penetration in next five years
With social distancing measures in place to curb the spread of the virus, online retail penetration will accelerate. We expect to see a threefold to fourfold growth in Southeast Asia’s e-commerce market size, from US$30b in 2019 to US$90b–US$120b in 2025.
According to an eMarketer survey, 70% of shoppers avoided going to crowded places during February and March 2020, resulting in a sharp decline in brick-and-mortar retailer sales of up to 30% year-on-year.
Continued emergence and expansion of new business models
Dark kitchens are an emerging business model that lowers costs by eliminating seating, air conditioning, lighting, and the need for centralized admin staff, while providing quality customer service and customization of curated menus. We expect the crisis to accelerate the expansion of this model across the region with investment by key food delivery market players.
Another innovation is the development of community platforms, which enable multichannel engagement directly with consumers through gamification and personalization. Nike has fully embraced its community platform through its “Consumer Direct Offense” strategy, enabling them to achieve a 38% digital growth in the second quarter of their financial year 2020. The company now has 170 million active users across its five different apps.
Dark kitchens and community platforms have allowed retailers to accelerate their growth even in challenging times. As the COVID-19 disruption unfolds, we can expect more of such innovative business models.
Greater profit growth prospects for online retailers and platform-related businesses
We expect e-commerce to take off faster and large e-commerce players in Southeast Asia to turn profitable in the next few years as they scale up operations.
Five key areas for retailers to drive sustainable growth after COVID-19
According to the March 2020 EY Global Capital Confidence Barometer report, 73% of more than 2,900 C-suite respondents globally expect COVID-19 to have a severe impact on the global economy in the form of supply chain disruption and declining consumption, and a transition of consumer demand toward health, safety and online shopping. As these behaviors play out, the gulf between retailers that thrive and those that decline will widen. To drive sustainable growth in this environment, retailers need to recalibrate their strategies and operations to emerge stronger from the crisis.
We prioritize the following five steps that retailers can take to position themselves to make a strong recovery.