E-commerce: Challenges and Opportunities for Retailers

In Hong Kong, as in every other part of the world, the conventional retail industry has been hit hard by the rapid development of e-commerce. For decades, traditional retailers have defined the way in which consumers shop through both the location of their physical shops and the selection of goods they have on offer. Relatively recently, this situation has undergone a dramatic change, a transformation driven by the ubiquity of smartphones, new media, and a proliferation of new sales channels. Taken together, these factors have resulted in a radical shift in consumer behaviour, with digital innovation empowering consumers as never before in terms of convenience, speed, customer service and low-price goods.

Essentially, consumers are no longer constrained by the stock and opening hours of physical retailers. The internet – accessed by a range both portable and non-portable digital devices – has placed consumers firmly in the driving seat. Now, buyers have easy and instantaneous access to a wide range of competitively-priced products at any time of the day or night, and from any location. They are also free to compare the price and features of goods across a range of websites. They are then able to order multiple products via websites or mobile apps, try them out and return any they find lacking, with free return shipping often part of the offer. Understandably, then, those traditional retailers lacking an online presence are losing their traditional control over the consumer shopping experience.

The meteoric rise of a number of online behemoths – notably Amazon, eBay, Taobao and Tmall, all of which enjoy enormous economies of scale – is down to their facility for offering consumers everything from evening gowns to paper towels and all at the lowest possible price. More importantly, their fresh approach to technology, innovation and execution has changed the retail game, while raising customer expectations higher than ever before.

Pure play e-tailers can expand rapidly into new territories through the intelligent use of online marketing via mobile phones, websites, email and social media. They are also able to capitalise on those highly convenient aspects of the online shopping experience that traditional retailers could never match. While bricks-and-mortar shops are unlikely to vanish, those traditional retailers who wish to succeed in the increasingly internet-driven economy will need to introduce digital technology into their physical businesses.

In Hong Kong, many business owners and manager have long been aware of these changes in the retail landscape. Very few of them, however, have fully embraced this transformation let alone turned the rising e-commerce trend to their own advantage.

Tapping the Full Potential of E-commerce

Consumers often access several channels before finally purchasing a product. Typically, many view a product on a store shelf, then use their smartphones to read peer reviews and compare prices before making any purchase. Many also prefer to check inventory information online before visiting a physical store, while some online shoppers like having the option of collecting purchases from a physical store. As such, it makes perfect sense for retailers to study the synergy of those factors that are driving overall sales, ensuring all of the information required by potential customers is accessible online and easy to locate.

In addition, any data relating to the interaction of merchants and customers should be captured and analysed in real time, helping retailers to personalise a customer’s shopping experience and offer specific product recommendations. It is also worth bearing in mind that this optimal customer experience cannot be delivered if a retailer’s online and offline channels have separate databases with no data shared between the two. In line with this, retailers would be wise to also sync their product catalogues, stock inventory, order management and payment systems across their online and offline channels. This can often require the wholesale overhaul of a company’s digital infrastructure.

In the case of start-ups, they may well have a late-mover advantage in the age of e-commerce, as they are prone to connect every element – e-commerce platform, customer relationship management (CRM), accounting, payment, inventory and so forth – from the outset. For many traditional retailers, though, an e-commerce channel is often an add-on to their existing store networks. Their business structure is often so outdated and fragmented that it can hinder them from extracting the maximum benefits of e-commerce. Indeed, many traditional retailers operate their online and offline channels quite independently frequently havening the channels managed by entirely different internal departments.

Such an organisational structure encourages internal competition rather than co-operation, invariably, leading to disrupted relationships, poor information flows and misjudged incentives. Overall, a fragmented business structure is clearly not conducive to a seamless customer experience across both channels. Furthermore, retailers opting to alter their fragmented organisational structure on a piecemeal basis, rather than through a wholescale revamp, are liable to cause confusion on the part of employees and customers.

Ultimately, the most effective way to unlock value for customers and to improve operational effectiveness is to break down the barriers that exist between the various sales channels and embrace a more cohesive approach. In the future, it is highly likely that only those brands that manifest themselves clearly and consistently across a variety of channels will develop strong and enduring customer loyalty.

Opportunities for Hong Kong Retailers

A problem faced by many physical retailers in the city is that, although the sector has slowed down considerably, Hong Kong’s retail rents have remained sky-high. Moreover, their business development is often constrained by the limits of the local market. The rise of e-commerce poses many challenges for such retailers, but it also represents a great opportunity for merchants to access the global market without requiring a physical presence. Essentially, the online channel offers an easy and cost-effective alternative for those local retailers looking to expand their market reach beyond Hong Kong. This is particularly the case for those retailers looking to service the mainland China, Russia, the Middle East and ASEAN markets, territories where there is high level of customer demand for authentic, high-quality products.

Genuine, High-Quality Products

Retailers in Hong Kong enjoy an unrivaled advantage when it comes to servicing the growing demand for good-quality, authentic imported products and services on the mainland. As well as its robust reputation for conducting business in an ethical manner and its high regard for protecting intellectual property issues, Hong Kong is also one of the leading destinations for mainland tourists. Over the years, many such visitors have developed a particular fondness for products sold in Hong Kong, which they frequently consider to be of superior quality to those they can purchase at home. Overall, the most sought-after overseas items available in Hong Kong are baby products, health and beauty products, consumer electronic items, food products and luxury brands. In terms of the most in-demand services, these tend to be financial and insurance products, educational products, medical services and emigration services.

For Hong Kong retailers who already operate outlets on the mainland, it is well worth implementing an integrated e-commerce strategy as a complement to their existing sales channels. In line with this, a number of Hong Kong retailers already have a prominent digital presence on the mainland, including SaSa, Chow Tai Fook, Bossini and Vita Green Health Products.

Retailers should also be aware that one of the major concerns amongst online shoppers is the sale of counterfeit goods. This is particularly the case on the mainland, where fake products have flooded the market and home-grown ecommerce sites have had a troubled reputation for dealing in counterfeit goods. Trustworthiness, then, is the perhaps the key element that differentiates Hong Kong products from more locally-sourced items.

Creating an Omni-channel Strategy

Customers and merchants are now able to interact through a whole variety of channels and retailers should create a business strategy that takes this development into account. Ultimately, the aim of an omni-channel strategy is to create meaningful consumer engagement across a connected ecosystem, with consumers’ in-store experiences extended across web and mobile platforms, while their web and mobile experiences are consistently recreated at physical stores.

When adopting an omni-channel strategy, some retailers may wish to maintain their extensive network of bricks-and-mortar shops, while others may prefer to keep a limited inventory in their shops in order to encourage online purchases. While the perfect blend and balance of channels will, of course, vary from company to company, online and offline integration remains vital when it comes to delivering the highest possible degree of customer satisfaction. It is worth bearing in mind that treating e-commerce as just one among a number of independent sales channels will not result in the creation of a seamless cross-channel customer journey.

In terms of customer satisfaction, retailers with physical stores often have an advantage over pure-plays. Traditionally, bricks-and-mortar stores have added value by providing hands-on product experience and customer service via interaction with shop staff. In spite of their remarkable range of products and price advantage, pure-plays do not have the brand heritage and customer loyalty that traditional retailers enjoy. That said, full e-commerce integration with any existing system is essential for any traditional retailers hoping to leverage its network of physical stores.

Developing an omni-channel roadmap, then, should be foremost among every retailer’s management goals. This will serve to define the brand vision and act to summarise and prioritise all activities, scheduling and investments across all functions, including supply chain management, payments and social media marketing. In order to develop such a roadmap, retailers should first develop a thorough understanding of the entire customer journey, from browsing, shopping, payment, fulfillment and use to post-purchase social sharing and engagement.

Traditional retailers should also consider capitalising on their traditional strengths when competing with online pure-plays by employing technologically-savvy staff in key positions and embracing social media in an imaginative fashion. By doing so they will fully take advantage of their brand heritage, allowing them to achieve peak market performance.