Echelon 2014: How e-commerce is evolving and what the future holds
RedMart Co-founder and CEO Roger E. Egan III takes a crystal ball to the e-commerce sector as he lays out what trends may drive the next generation of web storesBy Terence Ng 10 Jun, 2014
With mergers and acquisitions like Alibaba’s purchase of SingPost and the launch of Lazada in Singapore hogging tech news recently, as well as companies like Pricify and Shopline exhibiting here at Echelon, the e-commerce scene in Asia is certainly heating up. Amid such excitement and uncertainty, one question arises: Where is the e-commerce industry heading, and what are the trends to look out for?
Roger E. Egan III, Co-founder and CEO of RedMart, attempts to answer this question. As someone deep within the e-commerce ecosystem, he notes that there has been a profound structural shift from physical to digital retail, due to e-commerce having advantages compared to brick and mortar stores. Such advantages include:
Price: e-commerce stores enjoy cost advantages from centralised inventory management, passing it to their customers through lower costs.
Product range: By not being limited by physical shelf space, e-commerce stores can stock a wider variety of products.
Shopper experience: E-commerce stores let customers shop from the comfort of their own home.
Next, Egan speaks about the vicious cycle that happens to brick-and-mortar stores when more people shop online. Because brick-and-mortar stores have a fixed overhead, they become more expensive to operate as customers move away from them and into online stores. As a result, the stores’ offering and service become weaker and less efficient, pushing more people online and starting the same cycle over again.
E-commerce in SEA
So e-commerce is the way to go, but how is the situation in Southeast Asia like? According to Egan, Southeast Asia sports a market that is potentially worth US$330 billion, even though less than one per cent of the region’s population is connected to the internet. This creates tremendous opportunity for e-commerce firms, exemplified by the trend of VCs pumping money into e-commerce in Asia. All this will result in a tipping point, says Egan, where more people shop online than in stores.
Egan notes that there exists different platforms and business models of e-commerce companies, shown in the list below:
B2C: Where companies sell to customers directly (e.g. Amazon, RedMart, Lazada)
Traditional marketplace: Where the companies connect buyers and sellers (e.g. Amazon, Rakuten, Qoo10, Tmall)
“Asset light”, instant delivery marketplace: Companies provide rapid, near-instant service (e.g. Foodpanda, Uber, Instacart)
C2C: Where customers can also become sellers themselves (e.g. Alibaba, eBay)
Subscription: Customers are given a convenient, curated selection of products regularly (e.g. Bellabox, The French Cellar)
Private label and value added services: Companies provide customers with more than just products (e.g. Zalora, Tate & Tonic)
Daily deals: Companies that specialise in time-sensitive deals (e.g. Groupon, Deal.com.sg)
Price comparison and social shopping: Customers post about potential purchases to their friends and followers (e.g. Pinterest)
Fulfillment/delivery: These firms facilitate payment or logistics, getting the product to the customer (e.g SingPost, Flipkart)
E-commerce software platforms: Companies that provide software for other firms to set up their own e-commerce stores (e.g. SingPost)
Egan foresees that the conflict between large e-commerce stores and traditional brick-and-mortar stores will intensify, and he lays out three scenarios where this will pan out. Firstly, there could be a head-on fight where both parties compete for market share, for instance with Wal-Mart in the US. Next, brick-and-mortar retailers may team up with e-commerce stores, such as Tesco in Malaysia, to sell their wares to an online audience. Finally, e-commerce retailers can make and brand their products, eroding the last advantage of brick-and-mortar stores: branding.
In addition, Egan notes that lines are blurring everywhere within the e-commerce industry, for instance between retailer and manufacturer with for instance Amazon launching its own brand of Kindle e-readers, and between logistics and e-commerce companies where systems like Alibaba’s Alipay let them control the entire e-commerce process from browsing to delivery.
What the future may look like
In the same vein, Egan foresees a convergence of e-commerce with companies big and small branching out and covering more platforms and business models. One example is with B2C and marketplace, where for instance the acquisition of Zappos by Amazon resulted in a bigger selection of products, greater purchasing power, and faster and cheaper growth.
Other e-commerce businesses that will converge, according to Egan, are that of tech companies and e-commerce, exemplified by the Apple’s transformation from a hardware and software company to a content provider through iTunes. Google Play and AWS have led similar transformations in Google and Amazon respectively.
Ultimately, Egan believes that the companies that have the best technology as well as the most seamless ecosystems will emerge the eventual winners in the e-commerce scene, as retailers become manufacturers and drones and 3D printing bring about even greater convenience and instant gratification.
Egan ends off with a question: As e-commerce takes over brick-and-mortar stores, what will people do with their time when physical stores go extinct? For Singapore, where shopping is a national pastime, this question certainly bears noting. Will people exercise more? Will they help out in their community? Only time will tell.