On Your Own

The writer is an entrepreneur who hopes to share his experience and insights with readers who want to take that giant leap into business but are not sure if they should.

1/2020 – The education dilemma

Happy New Year and welcome to the new decade of hope and aspirations. Hopefully all of you have been well rested through the holiday season and recharged to face the new decade with optimism and a smile on your face.

I am well rested, thank you. In fact I spent most of my time on the couch binging through many movies and Streaming series. My absolute favourite has to be the eight-episode The Mandalorian, with the cute 50-year-old baby Yoda and the Ugnaught farmer, Kuiil who will close his speech with a “I have spoken” finale.

The main star of the show, the Mandalorian, a bounty hunter who lives by the Mandalorian code of life and it is summed up in one simple phrase “This is the way”.

We are only 11 days into 2020 and what a start! Our Education Minister resigned, India authorities asking their importers to boycott buying palm oil from Malaysia, the United States assassinating an general in Baghdad. Ukraine jetliner crashing after taking off from Tehran airport etc.

And just yesterday we receive a notice from the Prime Minister’s Department that our dear Prime Minister will be acting Education Minister in the interim until a suitable candidate can be found.

Going back in time, let me refresh your memory that after the Pakatan Harapan win, our dear PM appointed himself as the Education Minister but it was quickly rejected by the Pakatan coalition and the rakyat. So he gave us Maszlee Malik instead… as the Education Minister.

Perhaps it is an opportune time to remind our new Education Minister that education of our young should be above and beyond politics and religion. We need to prepare our young to be equipped with the necessary and relevant knowledge with international linguistic skill sets.

But our education system at the primary and secondary schools is polarised and broken. Polarised by language and religion, perpetuated and enhanced by politicians and religious leaders.

The education is broken at its core as the final product, our grown-up children is not properly equipped to survive the expectations of the new economy, fast paced and higher level of intelligence.

After three decades of continuous decline in education standards, what can our new Education Minister do?

In what ways can he provide solutions with the varied demands of parents, some of whom want religion to be taught in schools, some of whom want to continue sending their children to vernacular schools etc.

Like in business, transformation of a broken system will take time. More so in an education system where we have to consider all available resources at our disposal. It is impossible to make a major seismic shift which will totally dislocate the system and render it dysfunctional.

Like in business, maybe we should look into the demands of our customers, the parents, on their needs for the type of education for their children. We should take politicians and the government out of the decision-making process and instead provide the choices to the consumers/parents. The parents demand and the Education Ministry supplies.

Perhaps we should conduct a national referendum on educational needs among the parents before the ministry comes out with a blueprint for our education transformation. We need to understand the demand side of the equation before we can plan the supply side or there will be a mismatch of expectations.

Like any business plan, we always look at the available resources or assets that we have before we can make a new strategic plan.

These are the choices available (up to Form Five) to our parents to send their children to:

  • Sekolah Kebangsaan (SK) – primary, and Sekolah Menengah Kebangsaan (SMK) – secondary.
  • Sekolah Rendah Jenis Kebangsaan (SRJK) – ex-Chinese independent schools which opted for MOE syllabus but still maintain Mandarin as the main lingua franca.
  • Sekolah Jenis Kebangsaan China or Tamil – partially funded by MOE.
  • Chinese Independent schools – privately funded.
  • Sekolah Agama Rakyat (SAR) – Islamic based.
  • Sekolah Pondok.
  • Sekolah Berasrama Penuh – fully residential.

As my learned friend said in our chat group, the government can’t dismantle one type without affecting the other. Over the last six decades, the Barisan Nasional government appease to a myriad of calls from the various communities to have their “own” school and as such, we now have a mish-mash of schools that do not promote multi-racial unity among our youths.

But there is a way. Simplify the menu and leave it to the consumers to decide. Reorganise the supply side to meet the demands. Use available resources, schools, teachers, educational materials as a stop-gap measure.

Plan for the real transformation over the next 30 years to eventually return to a unified system, however it evolves.

A simplified menu that takes into account the needs of the various communities and promoting unity among the various races in the long run.

Template for MOE to manage:

Teaching of Math and Science in English for all schools – note that Maszlee only implemented this instruction from the PM in Sarawak schools

Divide all the schools into two groups:

Vision school – no religious classes (can be offered as after-school extra classes). This group will include SRJK, SJK, Chinese independent school and if there is demand from parents, can convert some SK and SMK. In fact in every town convert one SK or SMK school into a Vision school.

Note: This Vision school is based on Tun Dr Mahathir Mohamad’s idea of promoting unity among the multi-racial youths. Current enrolment by non-Chinese in Chinese schools have reached 18%.

National/Islamic Schools – makes it easier to manage with religious classes supplementing normal syllabus with teaching of Math and Science in English too.

Re-allocate resources, train new teachers according to demand and let this system run based on demand of the parents. We will eventually find our demand and supply equilibrium.

To all the fathers, if you are not sure what is best for your children, please seek advice from your wife as this will be the most important decision that you will have to make for your child’s education.

Just be cautious as just last night, my wife sent me this picture of a lioness growling at a cowering male lion backed against the wall and I can almost hear her shrill voice message – “Darling, can I advise you something?”

I have spoken and this is the way.

Published: https://www.thestar.com.my/business/business-news/2020/01/11/the-education-dilemma

20/2019 – We need trailblazers to transform industries

CGS CEO Koh Mei Lee

Imagine having to pay RM150 for a seat at your local cinema, or even RM120. As it is seldom that you would watch a movie alone, be prepared to fork out RM240 to RM300 for a movie with your loved ones – girlfriends, wives or anyone you consider worthy of spending two intimate hours with at the Aurum Theatre in The Gardens Mall, next to Mid Valley Megamall.

I was lucky to be invited by Golden Screen Cinemas (GSC) to attend the launch of the Aurum Theatre just two days ago. Watching Star Wars: The Rise of Skywalker was the main incentive to attend.

My wife, an ardent fan of the franchise since the first release, Star Wars: A New Hope in 1977, was ecstatic. She was blown away by the movie, especially the nostalgic final scene of the two moons and was greatly impressed by the extreme comfort and ambience of the newly built Aurum Theatre.

She is already planning to book one screening (30 to 42 seats) for family and friends not fully aware of how much it would cost me.

Well, she is the boss and I am just the lowly cashier. By the way, besides the 7+1 screens, there is a proper bar called Jin Gastrobar incorporated in the vicinity of the theatre. The +1 screen is for private bookings and comes with karaoke facilities. My wife can pre-order food and drinks for her party. She can also book all eight screens at a total capacity of 259 seats, but I will have to say no to her.

Just perfect. After the movie, my wife and her friends can sing themselves silly while I will be at the bar drowning my sorrow. After a few drinks, the total bill would seem lighter and I hope that I will remember my PIN number or risk getting a call from the CEO of GSC.

In her welcoming speech, the CEO of GSC, Koh Mei Lee (Mei Koh to her friends), mentioned that Aurum in Latin means gold. This resonates with Golden Screen and has taken over the mantle of the most premium cinema seat from the Gold Class seats (about RM60-RM80 per seat).

To analogise it to a full-service airline, GSC now has the Aurum (First Class), the Gold Class (Business Class), the Premier (the premium economy) and the economy seats.

Mei Koh and her team have taken a major leap of faith by launching Aurum Theatre. As GSC is the market leader and the most profitable cinema operator in the country, the petite Mei Koh has started to reposition GSC for the future.

The possible future scenario would be fewer viewers per screen for a higher average revenue per user. As more screens are added on to an already saturated supply, moviegoers would be spread thinly across the many locations. Improved streaming services would pose a major challenge too.

In 2018, GSC raked in a revenue of RM538mil, contributing a RM63mil net profit to its parent company PPB (Perlis Plantations Bhd). Besides cinemas in Malaysia, GSC has a presence in Vietnam via a 40% joint-venture company. It is also involved in film distribution. Assuming a RM500mil revenue is generated by its cinema chain which has 55,784 seats, a simple calculation will see an average revenue of RM24 per seat per day and that includes food and beverage (F&B), which according to TGV Cinemas, is 50% of its revenue.

Managing cinemas is a tough business. Like the airline business, a high capital expenditure is required and the operating cost of rental, energy and staffing is fixed no matter how many seats are sold throughout the day.

Selling perishable seats is the name of the game. Increase revenue per seat by pushing F&B items and increase advertising revenue on the screens. Most other cinema operators have little or zero profit margins, although they are EBITDA-positive, so the performance of GSC is even more remarkable.

But the road ahead is fraught with an oversupply of new seats. New neighbourhood malls are offering cinema operators almost free rental to set up new screens. This can only dilute a market that is not growing in the number of eyeballs. So, growing revenue per seat would seem to be the logical solution for survival. Reducing non-sellable perishable seats should remain a key strategic consideration for cinema operators.

The setting up of Aurum Theatre in The Gardens Mall does make sense for GSC. Gardens is the premium mall next to Mid Valley Megamall. GSC already has the biggest cinema operations in Mid Valley with 21 screens and 2,763 seats. Perhaps in the future, the configuration will comprise economy, premium economy and business class seats.

To young entrepreneurs, it would be wise to study the actions of the market leaders in your industry. Market leaders are where they are because they are two to three steps ahead of their competitors. Market leaders make brave decisions, calculated moves and make things happen.

They set industry standards for others to follow.

To convert one out of 36 locations to test the viability of offering a first-class cinematic experience at 10 times the normal price is a brave move. Even though there will be fewer perishable seats to sell, it is still a major challenge to find customers willing to pay RM120 to watch a movie. When you have six shows a day with a total of 259 seats running 365 days a year at RM120, then the potential sales is RM68mil a year from Aurum Theatre.

If GSC can achieve 30% sales, then it would be getting a RM20mil contribution from Aurum Theatre next year. This compares with its average RM13mil-RM14mil per annum contribution from each of its 36 locations. The average revenue per seat will go up.

We need trailblazers to transform industries. Don’t just leave it to market leaders to lead the way.

If you need tips on how to trailblaze, go watch Rey Skywalker at the Aurum Theatre. You will feel her full force in the comfort of the most luxurious reclining leather chairs in the galaxy.

“Mei” the force be with GSC to hit golden heights with the Aurum Theatre.

Published: https://www.thestar.com.my/business/business-news/2019/12/24/we-need-trailblazers-to-transform-industries

19/2019 – Building trust and integrity

Chinese male beauty blogger Austin Li Jiaqi

Over dinner on Nov 11, my daughter-in-law from China was eating quietly with her eyes and fingers glued to her new iPhone 11. Elsie was one of the six million shoppers watching a live streaming of Austin Li Jiaqi, a Key Opinion Leader (KOL) and a life streamer on Taobao Live, selling beauty products.

Austin Li also known as “lipstick brother” is hugely popular and trusted among female consumers and he sells a tremendous amount of beauty products in China.

However, the top ranked live streamer on Taobao is Viya who holds the sales record (non 11.11) for a single day – 353 million yuan (RM280mil) on Oct 10,2019. Her followers also known as “Women of Viya” absolutely believe in her as she demonstrates and highlights the quality of the products that she herself has tested on. When the promo offer came on the mobile screen, the women of Viya will click on the buy button and the seamless e-commerce infrastructure of Taobao will deliver the products to the buyers within 24 hours.

I have been in the cosmetic business for over 20 years and I have never seen such phenomenal sales. The “lipstick brother” earn his nickname by live streaming, selling 15,000 lipsticks in five minutes! Just 10 years ago, our industry was saying that online sales of colour cosmetics will be negligible as female consumers have a preference to feel and touch a physical product, even testing the colours on their hands, and this consumer experience will only be available at physical cosmetic counters.

In my time, brand trust with consumers was built over years of multi-million dollar advertising and promotion campaigns and product quality has to be consistent across the board. Nowadays, consumers in China do not trust brand advertising but instead trust the KOLs who recommend brands that they trust.

Viya built her trust with her fans because she will not feature a product unless her team of 200 staff has filtered and rigorously tested the it. Viya supposedly spends four hours a day testing and reviewing her products before approving it to be added to the lineups.

In her live streaming shows, she will not over-promise or make unnecessary claims on the featured products. As each individual reacts differently to a certain product, she is wise enough to be careful with what she says on what the product claims it can do. Trust once broken will take a long time to remedy.

Live streamers work extremely long hours, 300 days of eight hours daily streaming and this business is not for any lazy and pompous celebrities. Prime streaming hours are evening periods after dinner. Many top KOLs in China make in excess of 10 million yuan per annum in commissions. Superstar selling machine Viya must be raking in excess of 100 million yuan per annum in commissions but she has to feed 200 employees. Her last mile contact with her loyal and trusted fans have helped her built a sustainable business model at least until the next superstar comes along.

Trust and integrity are crucial virtues in any relationships whether in business or social communities.In the current media scenario where the millennial eyeballs have moved from traditional media of TV, magazines and newspapers to mobile phones and Internet, brand managers are forced to rethink about their previously proven marketing strategies in brand building. Add the booming e-commerce to the already complicated landscape, their job scope have become more demanding and stressful.

Going back to Marketing 1.01 of 4P’s, brand managers (eg consumer products) of MNC’s have to go through the following thought process:

Place: Distribution strategies. Brick and mortar stores. No problem. Should we engage in e commerce? Yes absolutely. Start now as it might be 30% of my future sales but how? Which marketplace? So fragmented, difficult to build brand equity, might dilute my brand image vs my retail merchandising concept.

Note: Amazon business built on direct selling to consumers based on low prices. Alibaba platform was built for SMEs to trade, brand building through KOLs – diversion from my strategic brand ambassadors. Big headache

Promotion: Worldwide advertising campaign and brand strategies to be adopted. Now include digital campaigns – but local KOLs getting to be more effective. How do we engage them to sync with my brand DNA? Advertising media mix? How much to spend on digital? How effective is it? Big headache.

Price: Retail price maintenance across all distribution channels including e-commerce but e-commerce sales primarily on price discounts – might disrupt retailers who in turn asks for more price off promotions. Long term impact resulting in lower value chain, lower margins and lower profitability. Big headache.

Product: Product mix same for retail and e commerce? Or different products for different distribution channels? Possibly result in inefficient production and higher inventories for the same business. Is e commerce the perfect distribution to clear my discontinued, over stock and near expiry goods? What will my retailers say? How will it affect my brand image and sales in retail outlets? Big headache.

For the SME’s the e-commerce platforms is a godsend innovation that has open up numerous opportunities to compete with the big brands.

Manufacturers and traders can now sell direct to consumers bypassing traditional brick and mortar establishments. SMEs do not have to follow basic 4P marketing protocols and the demands of a structured marketing company.

KOLs have disrupted the structured advertising ambassador protocols and many have gotten into direct business themselves. KOLs are now competing with established celebrities while the celebrities are rebranding themselves as KOLs.The consumer product landscape is getting so complicated that a new kind of brand manager is required. A brand manager that understands future business model, able to navigate through various distribution channels and understands the pricing and margin games. Hopefully a brand manager that is not allergic to paracetamols.As a KOL myself on SMEs and drug treatments, my dosage of advice to the new breed of brand managers – be brave in decision-making, be fast in implementation, take two aspirins every morning and have a glass of wine at the end of the day. Cheers.

18/2019 – The tremendous China retail market

Singles Day 11.11 is just nine days away. Alibaba’s warehouses and e-fulfillment centres all over China have been stocking up huge inventories for the biggest 24-hour sales event in the world.

Sales on Singles Day in China is now six times bigger than Black Friday in the US.

Over in South-East Asia, Lazada now owned by Alibaba has been preparing for this main sales event with their local offerings and also special deals from Taobao. Other local e-commerce platforms and retailers have also jumped on the bandwagon and planned similar 11.11 promotions.

Almost a year ago, Alibaba achieved Singles Day sales of US$30.8bil on 11.11.2018 which were shipped via one billion delivery orders. The average ticket size was US$30 (RM120) per order. There were 180,000 participating brands of which 238 brands achieved individual brand sales of 100 million yuan (RM60mil) in gross merchandise value (GMV) in a 24-hour sales window.

On 11.11.2017, when sales on a single day were US$25.3bil, at its peak, 325,000 orders were processed per second and 256,000 payment transactions processed per second. No, I did not see wrongly. It is stated as per second, in the blink of an eye.

Alibaba was founded in 1999 and Taobao was launched in 2003 and sales in the first year were just a meagre US$5.7mil. In 13 years, GMV sales in 2016 were US$500bil and in FY May 2019, Alibaba achieved a GMV of US$853bil. Alibaba is projecting a GMV of US$1 trillion next FY 2020. This annual GMV is achieved through 10 million active merchants, monthly active users of 755 million and 89% purchases via mobile devices.

In comparison, in 2018, Amazon’s online sales amounted to US$282bil in the US, a 48% share of total US online sales and 5% of th total retail market. This would translate into a scenario where online GMV in the US is approximately 10% of total retail market size of US$5.5 trillion. E-commerce sales in USA are expected to reach 12.4% of the total retail market in 2020.

In comparison, online sales in China are expected to have a GMV of US$1.94 trillion, approximately 35% of the total retail market size of US$5.6 trillion.

In comparison, the Singapore online sales are about 5% of the total retail market while Malaysia is estimated at 2-3%.

Based on these market statistics, the total retail market size in China has caught up and will surpass the US in the near future as China’s population is almost four times bigger than the US. The potential for growth of the retail market in China is tremendous and frightening at the same time.

As the trade war looms and deepens between the US and China, Chinese manufacturers will utilise excess capacities (meant for US markets) to fulfill domestic demands which will intensify competition in China dramatically. It will be more difficult and more costly for manufacturers from other countries to penetrate the Chinese market. The latest report from the South China Morning Post indicated that the patriotic Chinese consumers will boycott American brands in the forthcoming 11.11 campaign.

When Cainiao (51% owned by Alibaba) commences logistic operations from their warehouse located in the bonded digital free trade zone (DFTZ), Asean countries, especially Malaysia, will face an onslaught of excess Chinese manufactured goods being offered to consumers, ranging from electronics to apparels to other general merchandise via the electronic World Trading Platform (eWTP) of Alibaba/Lazada.

To refresh your mind, it was reported last year that any orders below RM500 will be duty free if shipped out of DFTZ. Jack Ma’s request for a RM1200 limit was eventually turned down by our Trade Ministry. I am just wondering if cosmetics sold out of DFTZ via online platforms are registered with the Health Ministry as is the practice of all local manufacturers and importers of cosmetics?

Local importers of general merchandise from China should take defensive actions now before your lunch is eaten by your Chinese suppliers. Exporters should take advantage of the eWTP to export to other Asean countries and China, the near impossible market.

Manufacturers can trade via alibaba.com which is a b2b platform. TMall, which is a controlled and regulated b2c platform (quality guaranteed), and Taobao, which is the “everything that can be sold by anybody” platform. Margins of 5-8% transaction fee demanded is not prohibitive but like all distribution channels, other costs come into play like listing and set up costs and advertising cost.

Alibaba via eWTP should hold regular seminars for interested exporters and conduct training on “how to trade on the various Alibaba platforms” and advise on the relevant costs and budgets required.

This will help exporters evaluate the cost vs potential sales ratio and the kind of investment required. It is a distribution channel decision, digital or traditional.

My Singapore friend attended a two-day training at Taobao headquarters in China last year via his Chamber of Commerce and his trip was fully sponsored by the Singapore government. He advised me that domestic competition on this platform is ferocious and the costs can be extremely high if not managed properly.

As part of the eWTP deal with Malaysia, Alibaba has kept to its side of the bargain. I believe it have organised three cohorts of young entrepreneurs for a 10-day Alibaba Netpreneur training programme at Alibaba Business School in Hangzhou, China.

Considering their domestic entrepreneurs trading on their platform have an average age of 26 years and are 49% female, digital training for our Malaysian youth should be encouraged.

Five of our local universities are also participating in Aibaba’s Global e-Commerce Talents (GET) Network which has the objective of educating and empowering young Malaysian entrepreneurs to excel in the digital economy.

Inspired by their domestic success of Taobao Village – rural e-commerce hubs, Alibaba Malaysia did a pilot project called The Desa project where they adopted Bentong as the first rural e-commerce export hub. They identified six product SKU’s – Orang Asli organic rice, ginger products, Sempalit peanuts, Sempalit soya sauce, kelulut honey and of course durian products for export to the China market.

They then advised on custom packaging design and pre-orders from the villagers based on agreed MOQ (minimum order quantity). Taobao China then takes over the operational aspects from accounting, digital marketing, online store management, orders fulfillment to customer support. This is to ensure they can understand how it works before they empower the villagers to take over in the second phase.

During my visit to Alibaba HQ, Hangzhou last week, I asked Yao Yao, Alibaba group’s director of international government relations on how do we target halal consumers in China via Taobao and TMall?

She replied that their platform currently does not have specific sites on halal products but we can focus on marketing through their various programmes being implemented in the south-west region where most of the Chinese Muslims reside.

With a population of over 20 million Muslims, it is equal in size with the Malaysian halal market if not bigger.

Just two months ago, eWTP China organised a Malaysian week of promotions on Taobao with live streaming of their key influencers helping Malaysian brands that are selling online. It was reported that 80,000 bottles of birds nest were sold in five minutes. It just shows the potential of the market if Alibaba throws its weight behind the marketing programme. According to Yao Yao, Malaysia was given special privileges due to the eWTP collaboration with the Malaysian government as other countries were given only one-day promotions, if any. The key opinion leaders or influencers would normally not be available for unknown brands if not for the leveraged strength of Alibaba China.

I would encourage Malaysian merchants to go onboard the eWTP if they want to penetrate the China market and I believe Alibaba can do more to help our Malaysian exporters to be successful.

Yao Yao further advised that for the Malaysian exporter to be successful in China, you must understand the local consumer market and you must have Mandarin speaking staff.

I am, however, pessimistic as to the online trade imbalance between the two countries when the manufacturers in China start their online onslaught into the Malaysian market via the DFTZ.

I stand to be corrected. But then, other than durians and white coffee, what competitive advantage do our manufacturers have over China, the manufacturing capital of the world?

Local importers and manufacturers of general merchandise in retail should brace for impact from the irreversible digital economy because in the blink of an eye, your lunch and possibly dinner are going to be eaten by some rural villagers in China.

Published: https://www.thestar.com.my/business/business-news/2019/11/02/the-tremendous-china-retail-market

17/2019 – Changing landscape of the retail industry

I was born in Malaysia in 1960 and have stayed, studied and worked here all my life. I am a Malaysian citizen by law – this constitutional right is not given by any living or non-living politician, academician or racist bigot.

Since Malaysia achieved independence in 1957, those born in Malaysia and naturalised citizens of all races have played a part in the economic development of this country. The nation’s rapid industrialisation was due to the hard work of responsible politicians, gung-ho entrepreneurs and diligent citizens who just wanted to build a better life for their families.

Capital was scarce in the 1960s. Fortunes were built by those who had access to capital, foreign companies (mostly British) which owned most of the plantation land and local entrepreneurs who pooled their capital to trade, manufacture and build houses. Citizens needed food, clothing and a roof over their heads as basic necessities. Thus, it was a demand economy with tremendous opportunities for yesteryear entrepreneurs.

When I was young, I remember that my family would purchase our groceries from the local grocery shop on credit, with the details of each purchase like the date and amount being written in a small 555 notebook – a long way from the computers of today. After receiving his meagre salary at the end of each month, my dad would pay the grocery bills just like any other creditor throughout the country. The grocers got their supplies on 90-120 days’ credit terms from the wholesalers, who, in turn, got 90-120 days’ credit from the importers who managed to arrange trade financing of 90-120 days from their bankers.

My early trading days were spent on arranging trade financing facilities, as I had to get my bankers to issue a letter of credit to purchase imported goods on 120-day trust receipts (30 days for shipping and 90-day for stock-keeping). Then, once the product was sold, there were another 90 days on average in accounts receivable. It was common then to work on a total trade financing of an average of six months for a single item purchased and sold.

The retail industry in Malaysia grew on a supply chain network used to working on long credit terms. As the retail formats evolved into air-conditioned supermarkets in the 1970s and 80s, consumers with better cash flows would buy their items in cash at the supermarkets. Because of the easy credit terms offered by suppliers, it was easy to open supermarkets and convenience stores with minimum capital, as the immediate cash flow generated by daily sales was used to finance the merchandise stocked on long credit terms.

My first lesson in managing credit risk was in 1985/86 when I started my trading business. The collapse of the Emporium Supermarket and Department chain stores with a debt of RM290mil crippled the entire supply chain of grocery and clothing entrepreneurs. The well-financed suppliers withstood the write-offs, but thousands of SMEs along the supply chain went bankrupt.

This practice of easy credit from suppliers continued into the 90s and only after the further collapse of local supermarkets and department stores like Super Komtar Group, etc, did the supply chain start to tighten credit policies with strict credit limits and a no payment-no supply policy. Managing credit risks is now a major concern even among SMEs.

With the introduction of credit cards, some of the easy credit risks have been transferred to banks. Retail outlets have to pay their suppliers on shorter credit terms. White goods suppliers and their chain stores sell direct to consumers on credit card installment plans.

Chain stores are better managed financially nowadays, traditional wholesalers and independent grocery stores have diminished in numbers and importance, and overall credit risks in the retail supply chain have reduced, leading to a healthier retail industry, going forward.

With the online shopping disruption underway, supermarket chain stores all over the world have to speed up internal transformation to meet new challenges. Malaysian retailers and supply chain players should study supply chain format transformation practices of advanced countries, as they have a much longer history.

John James Sainsbury and his wife Mary Ann opened a grocery store in Drury Lane, Holborn, in 1869. A grand 150 years later, Sainsbury’s has a 16.9% market share of Britain’s grocery retail market. Besides the chain of supermarkets and convenience stores selling groceries and fresh food, Sainsbury’s sells petrol at its gas stations normally situated next to its supermarkets. Sainsbury’s Argos sells general merchandise through a hybrid model of online and offline/high street stores.

My eldest son, who has lived in the UK for six years while pursuing his education, describes his experience with Argos and Sainsbury’s – if he needed general merchandise urgently, he would walk into an Argos high street store, place the order via the computer terminal placed at the shopfront and the staff would then pick up his order and hand it to him over the counter. As an Amazon Prime member, he can order online from Amazon for next-day delivery. He can also check online and compare prices of the same merchandise in both market places.

When in Cambridge, he would buy his groceries and toiletry supplies from the Sainsbury’s mini market, located just across the street from his college dorm at Sidney Sussex. When in London’s Kensington High Street, he would walk across the street to either Sainsbury’s or Tesco Express. Shopping online or offline is all about convenience and lower prices to the Millennials.

Such shopping demands from the Millennials weigh heavily on Mike Coupe’s mind. As the CEO of Sainsbury’s, he has to constantly drive his team to improve his supply chain in terms of sourcing, quality and lower prices. He has to continuously tweak his store estates in terms of size and location, being mindful that the cost of last-mile delivery to customers is manageable without sacrificing the convenience and service quality required by his discerning customers.

To compete with the online grocery competition, Sainsbury’s now has to sell online while at the same time delivering to homes. Home delivery of groceries is not profitable, as it does not make economic sense due to small-sized purchases and poor routing efficiencies. The tipping point for cost-efficient home delivery will be when Sainsbury’s can fully fill up the truck with orders before it leaves its warehouse/supermarket. Still a long way to go.

To help Coupe and his team of buyers understand customer habits and preferences, Sainsbury’s employs 800 data analysts to crunch customer purchase data through loyalty cards and debit/credit card purchases. Besides the basic analysis of sales numbers, sophisticated software can help reveal minute details like the peak sales time for sandwiches by location, the delivery time of fresh sandwiches, the type of sandwiches needed, and the purchase patterns of these sandwiches.

With AI, you can actually predict consumer demand and stock the right kind of sandwiches by store, time and location. Real-time information can be given to sandwich suppliers the night before as they start to prepare the orders by store throughout the night, assuming deliveries start from 6am the next morning. Centralised orders are written by computer softwares based on previous days’ sales figures, so no manual instructions need to be given. Shelf space is allocated by space management software based on a predicted sales volume for each individual store for the day. This is the future of efficient store operations.

With AI, Sainsbury’s will understand each individual customer’s purchase pattern, frequency and type of products purchased. AI can help predict when this individual customer will buy a particular product and at what price. This information will help buyers plan strategically in terms of product stocking and maximising margins due to the criteria of availability and not product price.

As for Argos, I was curious as to how it competes with Amazon with its high cost of managing high street stores. Surprisingly, 40% of Argos sales come from walk-in customers. The stores actually act as a fulfillment centre, where walk-in customers can purchase immediately, or for those who order online, pick up the items at the nearest store when there is no one at home to accept online deliveries.

With AI, Argos can expand its product range, as it will help predict the right mix of merchandise to be made available at its fulfillment centres. Stores that have fewer walk-in customers can be closed down, as the fulfillment can be done by online deliveries. Some Argos stores have been moved to Sainsbury’s supermarkets for efficient space utilisation and cost-savings. From a catalogue sales company, Argos has morphed into an efficient and profitable general merchandise retailer hybrid – online and offline. To remain relevant and sustainable, Argos will continuously transform its distribution channel to fulfill changing consumer needs.

In 2018/19, Sainsbury PLC achieved annual sales of £29bil and an operating profit of £518mil. As the CEO, Coupe’s annual salary was £3.9mil. His annual salary requires approval from shareholders in their annual AGM. Being a transparent PLC, the board of directors and the CEO are open to public scrutiny. When asked about his role and responsibility, Coupe told me that he is in a position of stewardship in Sainsbury, planning for the long-term sustainability of its retail business model and preserving shareholder value in this iconic company.

Biased as I may sound, “Honest” Mike is the consummate retailer who has morphed into an elegant corporate leader in the UK. Friendship will be put aside the next time we meet to discuss the supplier and retailer relationship. I might have lost the war but I intend to win a few battles yet. It is personal.

Published: https://www.thestar.com.my/business/business-news/2019/10/12/changing-landscape-of-the-retail-industry

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