Retail_Location docstoc

RETAIL LOCATION Do the internet and mobile technologies signal the death knell for the traditional view of retail location? 30th September 2009 1 Introduction The Internet is the world‟s single biggest networked community; it spans every continent, connecting hundreds and millions of people. Over the years living in a „wired lifestyles‟ (Sim & Koi, 2002), retailers and more importantly, customers are finally getting the hang of it. This is a better outlook compared to the period of the dotcom burst back in 2000, where consumer confidence is rather low. What has been impossible before, has been almost a norm practise, today. Current Situation As stated in „USA Xorte‟(2008), eMarketer expects UK B2C e-commerce sales to increase two fold by 2011 and continue to increase steadily during the next 2 years. By 2012, the average amount spent per online shopper will increase by almost a-third, £2,183 ($5304) in 2008 to £2,926 (S$7110.2) in 2012. For US, as mentioned in „eMarketer‟(2007) A study by Forrester Research and Shop.org has indicated that US online retail sales are increasing for most multichannel retailers and consumer brand manufacturers. However, six out of 10 pure online merchants reported declines in online sales. Similarly, in Singapore, Info-communications Development Authority of Singapore (IDA) has reported that in 2001, Singapore companies obtained 18 per cent of total revenue from ecommerce. The 2005 IDA survey released findings that household internet penetration has increased tremendously over the years and almost six out of ten internet users made some kind of online transaction such that the average on-line dollar spent per online shopper increased from US$198 in 2003 to US$317 in 2004. The internet is definitely a lucrative platform for global commerce. Inevitably, many studies have shown that the internet has evolved the nature and structure of competition making it more complex for businesses to sustain. It has blurred the spatial and time differences, as a result, today, customers can purchase virtually anywhere in the world. Mulhern (1997) suggest that this evolution has caused a shift towards non-store formats. Although non –store retail formats are not new; it could not escape the touches of the Internet. While catalog and TV shopping are fairly established within non-store retailing, other forms like shopping via the internet are emergent, threatening traditional store formats. 2 A KMPG (2006) study, „Grocery Retailing in Asia Pacific‟ reported that online purchases that were more predominant were non-grocery related products, 39 per cent on tickets, 31 per cent on books and magazines and 30 per cent travel related. However, the internet playground today see e-grocers growing at a healthy pace; customers can now purchase their groceries through the internet and get them delivered to their doorsteps. Scope & Limitation In this paper, the focus is on the e-grocery industry, mainly in Singapore with citations of several international examples. The objective of this paper is to argue the impact of online grocers on the power of the traditional view of location. Most findings and analysis in this study are garnered through literature resources from books and trusty websites from World Wide Web. Several research limitations of this secondary research are, (1) the research of literature are limited to secondary resources only, (2) The information might be wrong especially if the sources are from blogs. This questions the issue of credibility of the sources and lastly, (3) the information is possible to be outdated as the Internet is very rapid in updating its data. (4) As mobile commerce is still at its infancy stage, especially in Singapore, more focus will be on electronic commerce. The E-grocery Industry Studies have shown that there are two basic business models in the e-grocery segment (Dunne, P.M & Lusch, R.F 2004, Retailing: Sixth Edition, p.122) 1. Brick & Click approach; whereby a traditional grocer adds an Internet operation 2. Online Only approach; where the grocers are true blood online retailers, offering products via the internet and not through a tangible store. Before Singapore, there are already several e-grocer pioneers such as United States Peapod, the earliest e-grocer which was said to be ahead of its time, founded in 1989, way before the Internet penetrate the households. Other competitors such as Streamline, Webvan and NetGrocer, to name a few follow suit to tap on the forecasted demand. As a whole, there are several complexities in sustaining the business. 3 Research has shown that the pure play US Internet grocers can hardly reach breakeven and the forecasted demand is uncertain as it is easily swayed by many reasons (Ring and Tigert,2001) Even then, as stated in „The Independent‟ (2008), according to MyVoucherCode, online grocery shopping has outgrown electronic goods. Sales statistics suggested that customers look for the best deals for essential food items through online supermarket sites due to offers and discounts” This makes the top four online shopping sectors in UK to be grocery at 31percent, computers, televisions and gadgets (25 per cent), clothing and fashion items (21 per cent) and holidays (15 per cent). Currently in Singapore, there are several pure players in the e-grocery industry namely Green Grocer, Yum Trade, MyOnlineGroceries, GroceryStore, FreshDirect and Online Grocer, etc. Supermarket chains are also expanding to online operations such as, Cold Storage, largest grocery retailer in Singapor and NTUC FairPrice. The buying process is almost similar; upon signing up for first-timers, customers can place an order by selecting the chosen groceries into a “shopping cart” and then proceed to make payment through nets on delivery, cash on delivery, credit card or even cheque as an alternative. Most e-grocers impose a delivery charge and a minimum order requirement. The groceries are then being picked in a warehouse and then delivered to the household. As pointed out in The Straits Times (27 June 2009) as an ongoing trend, online grocers are doing some good business. Green Grocer, a pure online gourmet store has 300 orders a month, increasing three-fold compared to 2 years ago. Others like Yumtrade.com reported a 20 per cent growth every year. Now, brick and click supermarket chains such as NTUC and Cold Storage are also enjoying better response from their e-grocery orders. When interviewed, online shoppers state freshness, lower prices, range and high convenience as the reasons for doing grocery shopping. 4 Logically, this implies that the penetration of online grocers is pushing the traditional idea of retail location to its death knell in attracting potential customers to a certain extent. Several reasons for are as follows; (1) Hassle-free (2) Precautionary measure (3) Cheaper with discounts and rebates (4) Freshness Grocery shopping impacts on all consumers, however, as shopping for groceries is a frequent and repetitive activity and therefore can be seen as a chore for some individual (The Business Times, 10 August 2009). Therefore, it is not surprising that some groups of people are turning to the internet to purchase these routine items. Online grocery shopping is beginning to attract a potential market as several groups of online grocery shoppers emerged. One of them is housewives of expatriates, as mentioned by manager of Yumtrade.com, Ms Sally Tan, in a recent Straits Times article. Quoted from the same The Straits Times article, “Converts like Mrs. Low are not looking back, I have three small children, two of them are twins and a husband who hates to shop, I don‟t really have a choice” For a $5 delivery charge, she can make the irksome task of shopping go away” The above implies that locals too are not excluded; Mothers with young children in the household is another group of online grocery shoppers (Morgansky and Cude, 2000; The Straits Times, 27 June 2009). Shopping for their groceries online save the hassle of bringing their young children along and also help them to avoid giving in to their child running off with the latest snack or candy (Morgansky and Cude, 2000). Especially in times where the health is concerned, customers prefer to stay home as a precautionary measure. Thus, supermarket chains like NTUC FairPrice have noticed a hike in online sales when health threats become epidemic like SARS, Avian Influenza and now, the H1N1 flu (The Straits Times, 27 June 2007; The Business Times, 10 August 2009). Customers feel safer shopping at home without having to brush shoulders in the walking aisle or witnessing a nasty sneeze from waiting in the queue. 5 Fuss-free and cheaper are some of the descriptions of online grocery shopping (The Straits Times, 27 June 2007). E-grocers butter the situation by giving discounts to their customers, like YumTrade, which gives bulk discount of between 2.5 per cent to 12 per cent and a 1 per cent green tag rebate for all orders as it does not use any plastic bags. Some consumers feel that by ordering straight from the supplier, it is much cheaper. These rebates appear to be more attractive amid the economic crisis. Freshness used to plagues the worry of online grocery shoppers as freshness and physical appearance of the products are an important consideration during purchase thus are more likely shop at a physical store (The Business Times). But now, things are turning around, online grocers such as The Fishmonger, new kid on the block which started its pure online seafood business last February and GreenGrocer, an e-grocer set up by wholesaler and distributor of chilled frozen meat and seafood Indoguna (Singapore), delivers their orders fresh from the factory. The Butcher, a meat retailer with one retail outlet and an online operation has enjoyed 20 per cent growth of online sales every year (The Straits Times, 27 June 2007) Quoted from The Straits Times, “Green Grocer customer Rowene Law, 32, said: 'By the time meat reaches the shelves at supermarkets, it is not as fresh. But when I order online, it comes straight from the wholesale supplier.” Thus, online grocery shoppers give up the physical environment of the store and the ability to see, touch and smell the merchandises (Ring and Tigert, 2001). This is in exchange of significant savings on transportation, time, hassle and additional charges upon changes. As retailers bring the product to customers and leave its services to technology, retail location might not be so important after all. The old adage, „Location, Location and Location‟ which has been understood to mean that it is through location that goods and services are made available to potential customers (Ghosh and McLafferty, 1987) has been overplayed to a certain extent. Now that spatial and time differences are covered by Internet usage, the idea that retail location is of fundamental importance is diminishing. 6 However, the penetration of online grocers is not pushing the traditional idea of retail location to its death knell in attracting potential customers to a certain extent. Location are still surviving despite technological advancement due to, (1) Processes in e-commerce still consider slocation (2) Singaporeans prefer traditional shopping (3) Increasing malls and supermarket retailers in Singapore. (4) Physical stores are more attractive with promotional initiative. Firstly, do note that the groceries ordered over the Internet will still have to be delivered to the households via traditional means; on wheels or on foot, from a nearby location (Couclelis, 2004). This argues that to a certain extent, there are still some truths in the old adage, „Location, Location and Location‟ afterall. Regardless of store format, all retailers still have to undertake some, if not, more thought on a strategic location. Internet grocers still need outlets (warehouses or conventional stores) in the vicinity of a potential number of household areas (Couclelis, 2004) to ensure freshness of goods and to optimize resources. E-grocer.com.sg planned their delivery days so that the truck does not need to travel to many different locations in one day; Thursday mornings (0600hours to 1300hours) are set for only the areas in the east whereas Tuesday mornings are kept for the north east side of Singapore. They are also smart to avoid Electonic Road Pricing (ERP) charges by having their delivery to central areas such as Orchard and Marina South scheduled on Tuesday afternoon (1300hours – 1800hours). In a recent article by The Business Times (10 August 2009) ,it stated that in a survey done by Mastercard Worldwide, Singaporeans are less prone to online shopping albeit high internet penetration in households compared to other Asian counterparts. The article also states the main reason to be – cultural; traditional shopping is perceived to be more convenient and easier relative to online shopping. Currently, in Singapore, there are an approximately 280 grocery stores which spans across an approximately 647km. This depicts customers chancing upon a grocery retail store at every 2km (approximately). This might be the basis of the perception identified in the article. As inferred from the article, Singaporean might still prefer to patron nearby stores compared to waiting overnight for orders to be fulfilled. The article 7 also suggest that especially for low-grocery expenditure items, consumers tends not to wait until they make a major online trip, they simply go to a nearby store to refill it. One example is the famous Singapore‟s Econ Minimart which today spans at over 130 outlets in most residential areas. Research has shown that the heartland icon used to have an online function offering groceries upon cash on delivery or pick up services, (Galaxy.com, ‟Welcome ECON Minimart). However, this online operation must have not lasted till today as the website, www.econ-minimart.com.sg, no longer state anything about its online business function. As the stores are offering low-grocery expenditure items, it is not required of them to have an online function which will increase operational cost; website maintaining or even performing delivery. As products for online and offline shopping varies, physical grocery retailers should not be largely affected by the presence of online grocers. According to a study done by Sim & Koi (2002) on Internet shoppers‟ behaviour, it claims that 88 per cent of the respondents who have previously shopped online do not agree that it affected the frequency of offline shopping. This can be evident by the increase of shopping malls such as Orchard ION, Orchard Central and the upcoming Scape and City Square Mall. Albeit increase in online grocery shopping, grocery retailers remain in the pink of health; Upon its success, FairPrice Xtra, the hypermarket format of NTUC FairPrice will be opening its third and fourth outlet in the recently renovated Jurong Point and the upcoming City Square Mall. The third hypermarket in Jurong Point will be operating for 24 hours to cater to shoppers who keep later hours to shop and for those who work night shifts. This instant gratification offered by physical grocery retailers might just attract more potential customers compared to e-groceries do. In a highly competitive arena, retailers will hope for the highest response of their marketing initiatives. Findings from The Business Times (10 August 2009) indicated that promotional activities are more effective for physical stores compared to online stores. It also points out that promotion in stores tend to draw customers to shop or at least, patronize more than online stores. This is because it tends to be difficult for customers to avoid stimuli that engage the five senses. Promotions in physical stores come in gaudy posters, bright colours, announcement services, samples and testers. For instance, Cold Storage in the newly revamped West Coast Plaza covers an approx 17,847 square feet and has an integrated wine 8 lounge which allows consumers to help themselves in the pleasure of wine tasting (Retail Asia, May 2009). This is more attractive compared to online e-grocers‟ pop-ups and email which will be blocked or stored in junk mail folder at default mode. E-commerce is a growing phenomenon but it is not strong enough to outgrow human activity of patronizing, browsing and purchasing in physical retail stores. As mentioned by Sim & Koi, (2002) even shoppers who shop online frequently still prefer real life shopping. Thus, penetration of online grocers is not signaling the traditional idea of retail location to its death knell in attracting potential customers to a certain extent. Conclusion In conclusion, the internet and mobile technologies have not signaled the death knell of the traditional view of retail location to a certain extent. As the world gets more connected via the Internet, consumers will make use of it as another shopping method. In Singapore, online groceries will find it difficult to compete as the industry has become more fragmented with a growing polarity of retailing formats. Furthermore, most pure players are smaller when compared to grocery giants like NTUC FairPrice or Cold Storage. On the other hand, an online function is also important as consumers are increasingly techsavvy. Consumers are better at searching for information for a lookout on the best deals before enjoying the shopping experience at a favourite or nearby mall. In addition, the understanding of retail location is a venue where goods and services are made available to potential customers. Therefore, regardless of store format, the idea is to be located at a place where it is prominent enough to attract the target market. Recommendation As competition gets more intense, it is recommended for retailers to invest in a multi-channel strategy. Although, it is unlikely that internet technology is able to wipe out the malls and physical stores, it is important for retailers to keep ahead of the consumers thus meeting changing demands. Grocery retailers are highly recommended to have a website which unleashes information on logistics, food quality, store locations, etc to further educate the consumers on its retail offerings and promote their brand name. This will provide a platform for the physical grocery 9 retailers to build up strength of its brand in cyberspace and might provide retailers with a positive outlook to tap the online consumers. Upon having a website, retailers have to ensure it works. Errors pertaining to websites such as downtime error or a broken link are unpardonable and might appear unworthy of a second attempt. Therefore, grocery retailers have to ensure the right webhost is employed for the website. Being in a strategic location for both website and physical stores implies high accessibility in terms of information flow and tangible products. When grocery retailers have this match of „click and bricks‟, they are then in the game in this decade. 10 References Chu, J H 2009,‟Would you shop online for groceries?‟. The Business Times, 10 August, viewed 23 September 2009, http://www.asiaone.com/print/Digital/News/Story/A1Story20090812-160615.html Couclelis, H.,2004, „Pizza over the Internet: e-commerce, the fragmentation of activity and they tyranny of region‟, Entrepreneurship & Regional Development, vol 16, pp 41-54 (online Emerald) Dunne, P.M & Lusch, R.F 2004, Retailing: Sixth Edition, Thompson, USA. 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