Hong Kong– August 20, 2020 – Around the world, COVID-19 has accelerated retail’s transition to a digital future, but new research from Bain & Company reveals that Asia-Pacific will get there first. Representing about three-quarters of the world’s retail growth and boasting advanced digital maturity, online sales growth and ecommerce are rising dramatically in the region, offering other markets a glimpse at the future and forcing executive teams to confront new strategic questions. These are the conclusions of Bain & Company’s, latest report “The Future of Retail in Asia-Pacific: How to Thrive at High Speed.”

The research found that from 2014 to 2019, the compound annual growth rate for Asia-Pacific retail sales was more than quadruple that of the rest of the world. Online sales growth was nearly double, even though Asia-Pacific e-commerce already started from a higher base (online penetration in the region grew from 9 percent to 19 percent between 2014 and 2019, while rising from 6 percent to 11 percent elsewhere). This advanced digital maturity is one reason why Asia-Pacific should remain the industry’s growth engine, as well as its window to the future, and COVID-19 has only accelerated many of the key shifts already underway.

“The current pandemic has sped up disruptions that have impacted the retail sector, but the industry as a whole had already begun its shift towards digital innovation and ecommerce anyway,” said Melanie Sanders, Bain & Company partner and co-author of the report. “Asia-Pacific markets were able to jump ahead by skipping development stages that the US and Europe once toiled through, allowing them to now be the industry growth engine and leader in all things digital. Other markets should be taking a step back and learning from what’s happening here.”

The research found that across the region there is no single path to a thriving future, yet organizations are prioritizing action in six areas, all of which have been accelerated by COVID-19:

1. Reinventing their value proposition: Asian consumers led the world in digital adoption and are increasingly balancing dual careers and facing a widening gap is between the rich and poor. This is translating to growth in convenience offers and formats, online shopping and polarization between value and premium retailers.

2. Winning digital engagement: Over 70 percent of e-commerce in Asia will be conducted on the phone (vs. 40 percent in US) and COVID-19 saw dramatic increases in use of digital channels. For example in China, Bain expects a 35 percent growth in the numbers of consumers who are purchasing via live-streaming short videos over 2020. This is demanding retailers to respond to a fragmenting path to purchase, as new forms of digital engagement emerge rapidly.

3. Futureproofing assets and operations: In Asia-Pacific, only retailers in Australia and Japan (and to a lesser extent South Korea) have built out their physical store networks as extensively as their counterparts in the US and Western Europe. For example, China is growing space (sq m) per capita at only 1 percent, despite having less than half the retail selling space per capita than Australia, whilst double the online penetration. Outside these territories, the region’s retailers are finding growth enough online and are now unlikely to expand their physical network to anything like Western levels of ubiquity, whilst needing to adapt the role of these stores to support omnichannel needs in fulfilment and as show-rooms. 

4. Mastering the last mile and supply chain resilience: The consumer expectations are rising on fast home delivery, yet Asia’s diversity in terms of urban density, logistics infrastructure, cost of real estate and labour costs mean that last mile fulfilment models cannot be uniform. For example, in markets like Mumbai and Jakarta, low cost labour, high traffic congestion and relatively lower real estate costs means a hyperlocal model will be the most effective and a source of competitive advantage. 

5. Defining their ecosystem destination: The rise of ecosystems in Asia has been further accelerated under COVID-19 as retailers have sought new partnerships to advance their digital capabilities, achieve virtual scale, and respond to accelerated migration to online.
   
   
6. Re-tooling for digital: Retailers have been investing in building new capabilities in advanced analytics and technology to prepare for the changing market landscape and leverage the data assets they have. For many, COVID-19 has pulled forward investments to fast-track the ability to compete in a fast changing environment.

Retailers that master these imperatives should gain a sustainable edge over rivals.

“The current macro-economic conditions have caused intense and unwavering challenges for some retailers, while others have experienced a period of remarkable results.” said Kanaiya Parekh, Bain & Company expert partner and co-author of the report. “It’s clear from this research that retailers must immediately focus on developing and implementing strategies which will future-proof their business, including reviewing the role of their stores as well pivoting their operating models to be more agile and data driven”

Even before COVID-19, it wasn’t easy to be a retailer. Leaders had to balance a range of competing priorities, running the business at the same time as changing its very essence. Amid the pandemic, the time-frames for change have shortened dramatically.  However, Asia-Pacific retailers remain unusually well placed to cope with the disruption. Profit pools remain healthy and the region boasts many companies that are already well placed to lead in the industry’s new digital future.

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