Saturday, 8 April 2017
WHEN Jack Ma came to Malaysia two weeks ago, the local tech community was awash with high anticipation and admiration for the man of the moment. The mighty little man that was supposedly rejected 10 times for admission by Harvard Business School now stand tall amongst giants of the industries, having global discussions with ex and current US presidents, prime ministers and dishing out advice on entrepreneurship, jobs and personal dreams
As my young techie friend, ex-Magic Warren Leow posted the phrase “Game Changer” in his Facebook page on Alibaba/ Jack Ma coming to Malaysia, I could not agree more with how appropriate the use of a single phrase could describe the expected changes that would revolutionise our retail industry. It is a major catalyst that would restructure at a faster speed, the retail distribution business in Malaysia.
There have been many game changer moments in our local retail industry in the last 40 years. From mum and pop grocery shops, hardware shops, household items shops to modern air conditioned mini-markets and supermarkets/ department stores in the 70’s and 80’s to the modern retailing concepts of hypermarkets and retail chain stores in the 90’s and the 2000’s.
These were all brick and mortar enhancements. The basic concept of moving manufactured and agricultural products to consumers through so called modernised outlets remains the same. The lower the cost that you can deliver, the bigger the market share you will achieve. Or you sell higher priced brands cloaked in dreams, aspirations and desires as advertised.
For retail entrepreneurs, the invention of POS – point of sale cash machine was a godsent tool to store cash and change, record sales and to find out at the end of the day the basic breakdown details of products or services sold. This POS was extended to restaurants and eateries. Strangely enough, this was the beginning of the retail chain store concepts as cash can be collected safely and recorded by the POS system and so entrepreneurs or corporations can entrust certain employees with daily cash collection in multiple outlets. Even with the introduction of credit and debit cards, we still see high cash usage in many transactions and proof of trust amongst employees was of paramount considerations.
For manufacturers and producers, the main game changer was the invention of bar code. The “electronic” identification was the crucial link in distribution channel from the manufacturing production lines to its warehouse and through logistic and distribution warehouses until final identification at the retail POS scanner.
For marketeers, predicting sales was both science and art, past year sales numbers juxtaposed against future shopping trends. Every year end, I would normally lick my finger and then hold it up to feel how the wind will blow in the next twelve months and try to guess the speed of restructuring of traditional stores to modern trade. Guessing the future based on solid past sales information would become an art amongst CMOs and entrepreneurs. CEOs of major corporations that were financially trained are entirely dependent on their CMOs for sales forecast as “the art of guessing” was never taught in the accounting curriculum. The most successful entrepreneurs have perfected this art of guessing. They sometimes call it “gut feel”.
Jack Ma claims that it took him and his team 19 years to build Alibaba group into the biggest retailer in the world. Alibaba/Taobao according to him moved US$590bil gross retail merchandise for last financial year ended March 2017, another 20% year-on-year (y-o-y) growth. This movement of manufactured goods was from producers/ distributors delivered direct to consumers (B2C) bypassing traditional retail stores. These sales numbers also included producers/ distributors to producers/ distributors/ merchants (B2B). Imagine US$590bil worth of merchandise marketed, sold and paid online bypassing the POS tills of the brick and mortar retailers.
Jack Ma and his team of computer geeks do not have to depend on their CMOs to forecast sales or ask for their gut feel on what the shopping trend will be like for next year. Jack has in his computer the full details of Jill’s shopping habits for the last 19 years, her residential/ office/ address, her price point affordability/upgrading or downgrading over the years, her credit standing – Unionpay/Alipay, her preferences for types of merchandise, her marriage status, and probably a record of Jill’s children’s age from birth to teenage years.
Everything you need to know about Jill is in the consumption data stored in Jack’s computer. All Jack has to do is to get his mathematician geeks to design algorithm formulas to crunch the vast amount of data into predicting future purchases, type of merchandise preferred and probably pushing new financial products and services to Jill and the 300 million middle class customers in their data storage. Jack does not like to use the AI word but big data driven by artificial intelligence will be the key competitive edge of his e-commerce model over the traditional retail distribution model. Game changer indeed.
So the billion dollar question in our Malaysian traditional retailer’s mind right now is “How should we react to this game changing e-commerce threat that is coming our way?” Perhaps you should look at another Chinese e-commerce project that is currently developing as we speak. Have a look at the ule.com business model where they are trying to build the world’s largest retail network by connecting 1 million rural grocery shops in China through a real-time retail-data network with China Post as their logistic partner. Being on the network means each store a virtual Walmart: they can sell what they like, even if it’s not in the shop, to turn themselves into an Internet business. The same (captured) big data advantage applies when it comes to understanding consumer consumption patterns. Check it out at http://www.wired.co.uk/article/ule-China-retailers.
On our home front, perhaps MDEC can convince our Higher Education Minister to include a compulsory subject on e-commerce for our computer science students with the other compulsory subject on Islamic civilisation. Learning about the past and preparing for the future will be a right step towards a game changer mindset of staying relevant in this technology driven global market place.
One thought on “8/2017 – Jack and Jill love story”
Dear Mr Tan, i am following every post that in your blog since last 2 years. In Jack Ma model, he seem to destroy all the current retail business model by offering massive discount even selling in the lose in order for them to gain the consumer big database. They will educate consumer looking for cheapest product rather than services like what already happen in China. May i ask, how local retailer can survive from Jack Ma model?Follow their step or create different positioning. Regards, Lew