The e-commerce industry has blossomed from a modest start into an essential part of worldwide retail when most are derailed and cooped up at home during the pandemic. Apart from providing a boost to online shopping, the pandemic has showed the fragility of global supply chains where e-commerce fulfilment and strategy needed to change. On the back of this, we opine that the trend moving forward for e-commerce players will be the omnichannel strategy to increase its presence in brick and mortar. In this report, we highlight the case study of world’s e-commerce giants, Amazon and Alibaba move into brick and mortar and tied this back to our Malaysia’s e-commerce players. We opine that the listed retail players under our coverage namely Aeon (HOLD, TP RM1.25) and Mr DIY (BUY, TP RM4.51) are poised to benefit from this potential.

E-commerce into brick and mortar. The e-commerce industry has blossomed from modest starts into an essential part of worldwide retail when most are derailed and cooped up at home during the pandemic. Apart from providing a boost to online shopping, the pandemic has showed the fragility of global supply chains where e commerce fulfilment and strategy needed to change. On the back of this, we opine that the trend moving forward for e-commerce players will be the omnichannel strategy to increase its presence in brick and mortar. In this report, we highlight the case study of world’s e-commerce giants, Amazon and Alibaba’s move into brick and mortar and tied this back to our Malaysia’s e-commerce players.

Amazon, the Seattle-based company, which is known as the brick and mortar disruptor with its compelling offering, is moving towards the physical retail space. With its first brick and mortar presence in 2015 through the launched of Amazon Books in University Village Seattle, this marks the shift in Amazon business model. It then expands its physical presence with the purchase of Whole Foods (2017) and partnership with Kohl’s (2019). In 2017, US e-commerce sales as a percentage of total retail sales was at 8.9%

Alibaba. In 2016, China surpassed the US to become the world’s largest retail market with total sales reaching USD4.9tn, but more than 80% of those purchases still happened at physical locations. The venture into brick and mortar took a turn in 2014, when the e-commerce sale as percentage of total retail sales stands at 10.6%. Throughout the years Alibaba has made several acquisitions as part of Alibaba’s “New Retail” strategy to integrate more technology into each stage of the retail supply chain. These investments help bolster Alibaba’s e-commerce offerings and diversify its offline retail channels, similar to Amazon’s purchase of Whole Foods.

Malaysia. In Malaysia, there is a massive potential for growth as e-commerce is still in its nascent stage. Malaysia’s e-commerce as a percentage share of total retail sales stands at 7% in 2020 and forecasted to grow to 9% in 2021 (Figure #6). Emulating the two e-commerce giants from our earlier case studies we gather that Malaysia’s e commerce market is matured enough to chart strategy to progress into increasing visibility to brick and mortar. We already see some of this example panning out in terms of physical presence by Lazada pop up store and Taobao retail store in Malaysia and most recently Grab interest in Jaya Grocer and Country Heights collaboration with JD.com. We have identified 9 retails spaces in Malaysia that have the requirement needed to provide the e-commerce players with an edge of physical store namely Aeon, Mr DIY, Mynews, Parkson, FamilyMart, 7-Eleven, Jaya Grocer, Guardian and Watson. We further make comparisons based on the 4 criteria (i) supplier competitive advantage that could boost up margin; (ii) entrenched network of stores to facilitate last-mile delivery; (iii) variation of product categories and; (iv) large retail space as a warehouse to act as catalyst to boost up sales. We opine that the listed retail players under our coverage namely Aeon (HOLD, TP RM1.25) and Mr DIY (BUY, TP RM4.51) are poised to benefit from this potential.

Source: Hong Leong Investment Bank Research - 3 Jan 2022