Finding Opportunities for Indonesian Retailers in the Online to Offline Space
Category: Column By : Will Ongkowidjaja Read : 131 Date : Friday, November 10, 2017 - 08:32:41

In June, Amazon announced its $13.7 billion cash purchase of Whole Foods, a leading U.S. organic-food chain with over 450 stores. Amazon’s growing dominance in online commerce has impacted offline U.S. retail businesses, with en masse closures: RadioShack closed about 1,000 stores, Sports Authority 450 stores, Sears Holding 150 stores (including Kmart stores), and J.C. Penny 138 stores.

Conversely, digital commerce (desktop and mobile) is increasing its penetration in total retail sales. In the U.S., digital commerce has increased its share of total retail sales from about 9% in Q1 2013 to about 14% in Q1 2017. Moreover, Amazon still has a huge opportunity in the remaining 86% of retail sales not yet online. 

Amazon, meanwhile, is leveraging Whole Foods’ distribution network to supercharge its offline presence. In fact, Amazon started the process in 2016 with Amazon Go, a grocery store without checkout counters in Seattle, and allowing shoppers to charge items automatically to their Amazon accounts.

The automated retail experience is already in Asia. In China, Alibaba launched its smart grocery stores known as Hema in 2015. With 13 stores to-date, Hema allows customers to use Alipay to shop, dine, and order groceries from their mobile phones. Alibaba has also launched Tao Café, a cashier free coffee shop with a similar concept. This online to offline disruption forces retailers to rethink their business. In this context, Indonesian retailers need to find ways to contend with these disruptions. There are three possible strategies:

  1. Build tech capability in-house. A good case study is Home Depot, the largest U.S. home improvement retailer, which built its online sales from 1% of total sales in 2011 to 7% today. In fact, Home Depot has not opened any new stores in three years. This option to build is difficult for many traditional retailers to execute as they need to innovate outside of their core expertise. Alfamart, with 10,000 stores, just closed its Alfacart.com online business, which it had only launched in 2016 to much fanfare.
  2. 1. Acquire tech firms. Wal-Mart is transforming its e-commerce with its $3.3 billion acquisition of Jet.com, as well as e-commerce firms Bonobos and Shoebuy. The challenge is to successfully integrate existing and acquired companies, without which this strategy fails to produce desired goals. 
  3. Invest in or partner with tech firms. One example is Yahoo’s $1 billion investment in Alibaba for 40% stake in 2005. Alibaba is now worth almost $400 billion and Yahoo’s stake in Alibaba represents all of Yahoo’s value prior to Yahoo’s acquisition by Verizon in mid-2017. 

Amongst the three options, the third is the simplest to execute, enabling retailers to diversify investments with different partners across verticals, such as Fintech and big data. Regardless of the strategy, doing nothing is not an option. Traditional Indonesian retailers can no longer dismiss online commerce sector’s growth. The global retail industry is changing rapidly, and this disruption is here, with Alibaba already in Indonesia and Amazon entering Southeast Asia via Singapore.  



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