“Out with the old, in with the new” is a common catchphrase that proponents of technological change proudly extol. Underlying this confident proclamation is the view that new is invariably better and the retail industry is one exciting battleground to observe this ongoing tussle between innovative technologies and the traditional way of life. While proponents of the online e-commerce model eulogise about the purported advantages an online-based business has over traditional physical storefronts and also cite the rapid growth of the e-commerce industry over the Covid-19 pandemic as a marker of its ascendance, I would argue that traditional brick and mortar businesses will remain relevant in this digital age and that this claim is applicable to my society, Singapore. Demand for traditional brick and mortar retail outlets remains robust in spite of the slew of challenges they have faced and the lack of accompanying structural factors to enable a complete uptake of e-commerce by the Singaporean population suggests that traditional businesses are unlikely to face obsolescence any time soon. In fact, we risk simplifying the retail landscape into a false dichotomy where one model is expected to prevail over the other. An omni-channel retail approach that harmonises the strengths of both models appears to be the future of the retail industry.
The common narrative that proponents of the e-commerce model promulgate is that the online model is essentially an upgrade from the traditional business model in a multitude of ways. As such, the e-commerce model will eventually supplant brick and mortar businesses given its inherent superiority. To them, the irrelevance of traditional businesses hence becomes a question of when rather than whether. Brick and mortar outlets use a physical storefront to showcase their goods but their customer base is invariably limited to consumers that physically patronise the shop and choose to buy from there. On the other hand, sellers on e-commerce platforms are not bound by physical boundaries and can peddle their goods to a global customer base. For example, a local Singaporean seller operating on Amazon will have access to the 300 million active customers across the 180 countries that Amazon has an established presence in. Online sellers are uninhibited by location or operating hours, constraints that physical stores are unlikely to easily circumvent. Furthermore, a business that purely trades online would likely incur significantly lower operating costs given that web hosting and content management system platforms needed to support an e-commerce business are likely to be less costly that rent or storage costs that a traditional business would have to bear. Mapletree Media estimates that, at the low-end, Singaporean businesses would require an one-off expenditure of $3,500 to kickstart their own e-commerce website. Coupled with the fact that consumers are increasingly drawn by wildly successful flash sales that have become a monthly routine for platforms like Lazada and Shopee, it is unsurprising that the Internet Trade Administration valued the Singapore e-commerce market at a staggering USD $5.9 billion. The rapid pace of growth in this industry is expected to continue with forecasts that the market will double to be worth USD 10 billion by 2026. As such, the apparent strengths of the e-commerce model and the empirically observable ascendance of this industry might suggest that the decline of the traditional retail model that rely on physical storefronts is inevitable.
In addition, online businesses appear to be better insulated from economic headwinds and global crises like the Covid-19 pandemic. A corollary of the previous argument is that the lower costs needed to sustain an e-commerce business would naturally mean that online businesses are better able to weather through economic downturns unlike businesses that have to pay expensive rents and incur storage costs for inventory. In fact, the pandemic appeared to have catalysed a global shift towards e-commerce. Adobe estimated that the pandemic accelerated the growth of the e-commerce industry by 4 to 6 years and concomitantly contributed to the dwindling market share of brick and mortar stores. Unlike their online counterparts, pandemic restrictions led to a drastic reduction in footfall traffic and its impact on traditional businesses manifested in plummeting sales. According to Rose Tong, the Executive Director of the Singapore Retail Association, sales for its 420 member merchants plunged by 30-70% over the course of the pandemic and is directly associated with shoppers’ inability to physically patronise these retail outlets. E-commerce outlets offer consumers a safe and unimpeded shopping experience and were thus able to garner wider uptake over this period, much at the expense of traditional businesses. However, it would be premature to conclude that the demise of traditional businesses is inevitable. An important caveat that proponents of the e-commerce model tend to disregard is that a global pandemic like Covid-19 is exceptional and is not a permanent fixture. The preference for online shopping over this period might be circumstantial and an eventual rebound for brick and mortar stores is on the horizon upon the easing of pandemic restrictions. YouGov found that more than a third of Singaporeans deem social distancing guidelines as the primary factor that inhibits in-person shopping, reflecting that their perceived preference for online shopping is perhaps temporary and more circumstantial rather than credible evidence of an intrinsic shift in consumer preferences.
A logical extension to the argument of consumers’ temporary pivot towards online businesses is that the demand for traditional brick and mortar stores remains robust in spite of the onslaught from their online competitors. Just as e-commerce has an edge in costs and consumer outreach, there are apparent advantages of the traditional brick and mortar model that the e-commerce model fails to replicate. A physical storefront offers consumers the ability to view, touch and interact with goods they are keen on purchasing, Coupled with personalised and intimate in-store guidance provided by sales assistants, brick and mortar stores are better able to create a shopping experience that is largely unrivaled in the e-commerce setting. The 2022 Singapore Retail Report Study found that consumers prioritise excitement and pleasure derived from their physical shopping experiences and this desire for a quality shopping experience can ensure that physical storefronts remain relevant in this digital age. Furthermore, shoppers at physical storefront receive instant gratification as they can obtain their item of choice right away as opposed to buying online where they will be subject to the time lag due to delivery and backend logistical sorting. According to YouGov’s 2021 White Paper on Omni-Channel retail, 85% of Singaporeans purchased something from brick and mortar stores over the past three months, suggesting that consumers have not been able to fully relieve themselves of their reliance on traditional means of commerce. Additionally, Emarsys, a customer engagement specialist company, crucially points out that the choice between brick and mortar retail and e-commerce might vary based on industry and the type of goods sold. For example, consumers are four times more likely to buy groceries in person than through online platforms. The YouGov study showed that the primary source of basic essential items remain to be brick and mortar stores for Singaporeans and that surprisingly more shoppers prefer to buy clothing in-person as opposed to online. These findings lend credence to the claim that physical retail outlets will unlikely face complete obsolescence as there is continued demand from sections of the Singaporean population for it.
Additionally, the success of e-commerce is predicated on the receptiveness of consumers towards this disruptive change and most crucially the ability of consumers to access e-commerce in the first place. For the e-commerce industry to flourish, structural conditions such as technological literacy, robust internet security infrastructure and an alignment with public preferences will need to be fulfilled. While Singapore has more than 3 million e-commerce users, and an internet penetration rate of 98%, it would be premature to conclude that Singaporeans are prepared and are willing to live in a society devoid of brick and mortar businesses. Only 58% of residents make online purchases, suggesting that close to half of the population still rely on traditional means of commerce. Key demographic groups such as elderly, young children and the impoverished tend to be excluded by e-commerce platforms due to their lack of access to technological devices in the first place. Additionally, ensuring access is not the be all and end all, as there must be a commensurate willingness for Singaporeans to pivot entirely to e-commerce in order to render brick and mortar stores obsolete. The YouGov study reflected that a primary concern consumers have with online retailers is with data protection. 38% of respondents reflected that they hesitate to reveal personal information and doubt the credibility of online retailers. This overriding suspicion of online retailers is correlated with age as the share of respondents that have such sentiments increases to 45% for those aged above 45. While it is reassuring that Singaporeans are rightly wary of internet scams and fraudulent online retailers, skepticism from broad sections of the population will hinder the complete uptake of e-commerce in Singapore. Until that is achieved, a complete takeover by e-commerce businesses will remain a moon-shot in spite of how technologically advanced our nation is.
Lastly, I believe that viewing the two models as directly competing would be too parochial. Instead of perceiving the issue in purely binary terms, retailers should consider the synergies that can be harnessed through a masterful amalgamation of both models. Recognising the strengths of the e-commerce model, new businesses broadly adopted the digital-first and online-only approach. This approach became a default standard for prospective businesses with low starting capital. However, online retailers are increasingly pursuing the reverse of a seemingly conventional shift online by increasing their physical presence. In Singapore, wildly successful apparel blogshops like Love, Bonito and the Tinsel Rack have ventured into our local shopping malls, with the former boasting 5 outlets and counting across Singapore. According to Fieldstack, a renowned retail management platform, businesses that are able to create an omnichannel model which integrates the strengths of both e-commerce and brick and mortar models were able to create a seamless shopping experience and were thus remarkably resilient over the Covid-19 pandemic. In gist, the surge in online businesses had caused the costs of digital advertising to grow to unprecedented levels, resulting in a 60% increase in customer acquisition costs based on estimates from Growth Intelligence. Having a physical presence gave businesses a new avenue to remain relevant with their customer base. In fact, businesses have arrived at an innovative middle ground that allows them to avoid committing to long-term leases and hefty fixed costs by establishing pop-up stores. Besides increasing in-person engagement with their customer base, businesses can meaningfully experiment with the feasibility of brick and mortar stores as a longer-term business strategy. The exclusivity artificially created by a limited time pop-up is an innovative marking tool that has achieved much success as well. A few years back, the Louis Vuitton Supreme pop-up store in Ion Orchard generated so much public interest that prospective customers began queuing two days in advance of opening to get a shot at obtaining a raffle ticket. Increasingly, it appears that a masterful approach that combines the strengths of both models is likely the blueprint for success in the retail industry.
In sum, it would be premature to dismiss traditional brick and mortar businesses as a forgone conclusion nor to conclude that e-commerce is the future. While e-commerce is on the ascendance and is rightly recognised for its many strengths over traditional businesses, there remains substantial consumer demand for physical storefronts. Additionally, the absence of accompanying conditions like access to the Internet and a robust internet security infrastructure might prevent the complete transition to a future state where e-commerce businesses will dominate the marketplace. A nuanced and carefully considered position to the claim made would be that a zero-sum game is an oversimplification as we can expect retailers to adopt both models jointly to achieve the best possible results for themselves.