Retail’s future is in Asia

Through much of the 20th century, the US was on the cutting edge of retail’s evolution. Flashy department stores sprang up in cities, sparkling new malls dotted the suburbs, and big-box stores grew to gigantic proportions around the country. At the end of the century and into the next, as e-commerce started to reshape the industry, many US retailers remained focused on building physical spaces.

But in the Asia-Pacific region, which spans countries from India to Japan and extends south through Indonesia and Australia, digital sales have offered an opportunity. “In China and other parts of the region, retail is leapfrogging development stages that the US and Europe once toiled through,” management consulting firm Bain & Company says in a new report. It has allowed the region to become the global leader in innovation.

The potential future Bain envisions includes stores, but digital sales are at its center. “Imagine a retail world in which cash is dead and phone screens are the new storefronts,” it says. “Physical stores still exist, but mostly as showrooms for more involved purchases or as stockists of items for immediate consumption. Artificial intelligence sets product prices and technologists outnumber merchants at head office.”

Covid-19, which is spurring online sales, should only speed this vision into reality.

Retailers in Asia-Pacific have generally put less emphasis on building stores and more on their online capabilities. It’s helped the region emerge as the world’s retail growth engine. Bain estimates it is currently responsible for about 75% of global retail growth. Yet even at that pace, physical selling space isn’t likely to reach US levels, because digital sales are driving the boom. From 2014 to 2019, Asia-Pacific’s growth in online sales was nearly double that of the rest of the world. By 2019, e-commerce already made up 19% of sales across Asia-Pacific. In the rest of the world, it was just 11%.

Most of those e-commerce sales happen on phones. Apps such as China’s WeChat, South Korea’s KakaoTalk, and India’s Paytm that combine an array of features like banking, shopping, and social media into one place are already common and only becoming more so. By 2023, 81% of e-commerce could take place over phones in Asia-Pacific, research firm Forrester predicts, versus 43% in the US.

Social shopping is an influential force too. In China, the live streaming of demonstrations of products successful and still-growing phenomenon. Brands have been using it to drive sales, and Bain points to Chinese influencer Li Jiaqi racking up sales of lipstick with livestreams on Alibaba’s Taobao and on Douyin, the Chinese version of short video app TikTok. This year, the number of Chinese shoppers who make a purchase via livestream will rise 35%, Bain predicts.

China, set to become the world’s largest retail market in 2020, is at the forefront of many of these innovations. But mature economies such as South Korea, Singapore, Japan, and Australia are following close behind, while others including India, Vietnam, and Indonesia are modernizing fast, Bain says. It’s having repercussions for how companies operate within Asia-Pacific, and also beyond.

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