APAC- Retail Industry Analysis

Analysts: Jennifer Liu (McGill University), Martin Dai (Western University)

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Industry Outlook


In 2019 APAC counties accounted for $5.5 trillion in sales and though its sales declined in 2020 by 1.5% due to COVID-19, the industry is expected to pick up sales by 6 % in 202. Looking at Non-store- online retail, sales projected to grow from $1.5 trillion in 2019 to $2.5 trillion in 2024. China is expected to remain the largest market reaching 2 trillion dollars in 2024 and accounting for 50% of global retail sales. Consumer electronics is found to be the largest retail category in Asia Pacific, accounting for US$260 billion in online retail sales last year. Following close behind is apparel and accessories (US$256.0 billion), grocery (US$96.8 billion) and hardware and furniture (US$93.5 billion).


E-commerce


A rising middle class in Asia is expected to make up 64% of the global middle class and will contribute 40 % to its consumption by 2030. Moreover, with higher movie phone penetration rates, increasing logistics options for e-commerce players and changes in consumption behaviors aided by the pandemic, online retail is on the fast track.


The largest retail category in APAC is Consumer electronics, which accounted for $260 billion in online retail sales last year, followed by apparel and accessories (US$256.0 billion), grocery (US$96.8 billion) and hardware and furniture (US$93.5 billion). More than 75% of online retail sales take place via mobile devices in Asia, in contrast to the US and Europe where lower sales take place on mobiles. Online retail sales by smartphones are expected to grow at a CAGR of 13.6% to $2 trillion by 2024. The grocery segment in online retail is also on the fast track due to COVID-19 with an expected CAGR growth of 30% during the forecast period (June 2020) and has its online penetration doubling from 5.1% in 2020 to 10.6% in 2024.


Companies are also trying to reinvent themselves by building capability and adopting new solutions, retailers are also forming partnerships to enhance last-mile delivery solutions and supply chain automation aiding profitability. For example, Aeon to develop its online


grocery business in Japan has partnered with UK online grocery retailer Ocado. The retailer will build automated warehouses where robots fill customer orders ready for home delivery. Further, Aeon will also launch a new online business using the Ocado Smart Platform.


Social Commerce


Social media has an increasing role to play in today's retail landscape. It is the ability to sell seamlessly through social platforms. Digital retail channels were centred around social media platforms such as WeChat and WhatsApp, as well as live streaming. More and more brands today are investing in social commerce training, i.e. paving new channels for retail and having a one-on-one relationship between the sales associate and customer.


Asia is leading the world in terms of social commerce. The market offers numerous social platforms that have increasing levels of capability through which to sell products. New selling techniques are growing in importance and emerging all the time, while new apps and solutions are being developed.


For example, for its popular 11.11 sales last year, Alibaba ramped up social efforts and had over 17,000 brands using live streams to communicate product information. Alibaba is also testing AI-powered real-time translation for live streaming.


Constant Redefinition of Core


Large retailers, FMCGs, are focusing more and more on developing their core strategies, and continue to engage in M&A to create value by acquisitions in growing categories, channels and markets or through divestitures of non-core business components and planned exits from non-strategic markets.


For example, to focus on its core categories, Nestlé sold its Chinese bottled-water business to Tsingtao Brewery in August 2020. Similarly, Walmart exited the UK market in October with the sale of its UK grocer, Asda, to focus on its core US market and its faster-growing overseas ventures in China and India


Buying into the New ‘Rule Breakers’


New entrants, or ‘rule breakers’, have been changing the traditional landscape of retail, consumer businesses for some time and are increasingly becoming part of the status quo. The pandemic has proved that people are more open to change and experimentation than businesses expect. For example, Nestlé invested in two direct-to-consumer businesses in 2020. In October it announced the acquisition of Freshly Inc., a US-based start-up focused on healthy prepared-meal delivery, and in November it acquired Mindful Chef, a UK meal-kit company.


Building in Resilience


Companies are constantly looking to build operational and financial resilience and are looking into M&A as conventional business models are facing uncertainty in light of speedy innovation amongst peers, by diversifying supply chains, vertically integrating and focusing on digital transformation to preserve liquidity. Alibaba, for example, with its acquisition of a further stake in Sun Art Retail, a Chinese hypermarket and supermarket retailer, is hoping to leverage its digital presence and access more customers by offering a fully integrated online and physical shopping experience. In Japan, KKR and e-commerce retailer Rakuten came together to acquire a majority stake in Seiyu, a local supermarket chain, for similar reasons.


Key Deal - Flipkart to Acquire a 7.8% Stake in Aditya Birla Fashion


Aditya Birla Fashion Retail operates brands such as Pantaloons, Allen Solly and Peter England has over 3,000 stores across the country. The CCI ( Competition Commission of India) has given the green light to Flipkart's proposed acquisition of 7.8 percent equity stake in Aditya Birla Fashion and Retail. Aditya Birla Fashion had approved the issuance of equity shares on a preferential basis to Flipkart for Rs 1,500 crore.


The company has also entered into a commercial agreement about the sale and distribution of various brands of the company. Aditya Birla Fashion and Retail Limited said equity capital will be raised at Rs. 205 (US$ 2.78) per share. Aditya Birla Fashion and Retail Limited plans to use this capital to strengthen its balance sheet and accelerate its growth trajectory. The company plans to expand its core business where it exercises strong market power. Further, it plans to penetrate emerging markets like innerwear, athleisure, casual wear etc.


ABFRL is trying to accelerate the execution of its digital transformation strategy, that will deepen the consumer connect of its brands, expand the reach of its diverse brand portfolio, build strong omnichannel functionalities and augment its backend capabilities, positioning it amongst the most comprehensive omnichannel fashion players in the country


The Flipkart-ABFRL deal was 2020's second big deal in the offline consumer space. In August this year, Reliance Industries' (RIL) unit Retail Ventures acquired the retail and wholesale business as well as the logistics and warehousing business from Kishore Biyani-led Future Group as going concerns for a gross amount of Rs 24,713 crore.


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