:00:00. > :00:37.Now on BBC News, Talking Business with Linda Yueh.
:00:38. > :00:50.A warm welcome to the programme. Bricks and mortar stories have seen
:00:51. > :00:55.foot traffic fall as more shoppers go online. Retailers have to be
:00:56. > :01:04.present on 100 200 high streets to gain a national presence, now the
:01:05. > :01:13.focus is a quarter of that and focusing on larger towns. In the
:01:14. > :01:23.US, there is a drop of 87% of retail square feet. The potential exodus
:01:24. > :01:30.leads to concerns over a crisis in retail. There has also been a
:01:31. > :01:40.notable move of companies into physical shops. Some are calling the
:01:41. > :01:50.new era of mixing bricks and mortar with the Internet. What is the
:01:51. > :01:54.future of retail? Joining me are Max Bittner, the Chief Executive of the
:01:55. > :01:56.largest shopping portal in south`east Asia, James Thompson, the
:01:57. > :02:00.manager of the edgier, and the managing director who advises
:02:01. > :02:05.companies on retail strategies. The first question I will put to you,
:02:06. > :02:15.Ben, is it the end of bricks and mortar? It is certainly not the end.
:02:16. > :02:20.Retailers want to think about a multichannel strategy. Selling
:02:21. > :02:23.through a combination of flagship stores and department store outlets
:02:24. > :02:25.but also online stores. What makes the question so interesting in this
:02:26. > :02:34.part of the world is simply that retailers are realising that as they
:02:35. > :02:39.move out of the larger and wealthier cities, they are looking at
:02:40. > :02:41.investing significant amounts of capital than traditional stores and
:02:42. > :02:45.they no longer have to. That combination of wanting to tap into
:02:46. > :02:49.those increasingly affluent consumers in second and third tier
:02:50. > :02:51.cities, doing it online is compelling for retailers but
:02:52. > :02:57.especially when they are in this part of the world. Max, your company
:02:58. > :03:01.is an online only company, so is that the future? Is it the end of
:03:02. > :03:08.bricks and mortar as the dominant model in retail? A lot of off`line
:03:09. > :03:12.retailers do not have an off`line presence. We see a huge demand with
:03:13. > :03:17.the rising middle`class in those parts of the country 's, and with
:03:18. > :03:21.people having disposable income for the first time but no where to spend
:03:22. > :03:27.it online is an extremely easy channel to reach a whole new set of
:03:28. > :03:31.customers which brings you in south`east Asia, instead of 100
:03:32. > :03:36.million people, 650 million people to your doorstep. James, I see you
:03:37. > :03:41.nodding. Your business is a physical business but are you banking on the
:03:42. > :03:47.feature for being online or is that overstating it? You could be
:03:48. > :03:49.forgiven for thinking it is online when you look at the pictures of
:03:50. > :03:54.American shopping moles. They used to be huge social destinations.
:03:55. > :04:03.There are now weeds on the escalators. But it is not the whole
:04:04. > :04:08.story. Three quarters of people who buy anything the search it online or
:04:09. > :04:14.on their mobiles. They carry on and end up completing their purchase in
:04:15. > :04:19.physical stores. There is something which is stopping people from going
:04:20. > :04:23.the whole hog. The area I work in which is luxury products, only about
:04:24. > :04:29.6% consider buying those online at the moment. Looking at fashion, in
:04:30. > :04:34.the States last year, fashion accessories, half of people who
:04:35. > :04:37.bought that researched it online but only a quarter bought it online.
:04:38. > :04:41.There is a dynamic that people still want to have that experience or
:04:42. > :04:46.reassurance at least in certain categories. This does not bode well
:04:47. > :04:50.to your business if what James said is true, that most people want to
:04:51. > :04:56.complete their purchases in a physical store? I think we can turn
:04:57. > :05:00.it around the other way. A lot of people go in the off`line shop to
:05:01. > :05:04.then buy online. They reset off`line and buy online. That's been greatly
:05:05. > :05:14.facilitated through the arrival of the smartphones and apps. It has
:05:15. > :05:19.made shopping much more transparent. I can pick up my mobile phone in any
:05:20. > :05:25.shop and see and compare the price. Ben, adjudicator here! You start on
:05:26. > :05:30.a physical store, you end up buying online and we have just heard the
:05:31. > :05:33.reverse as well. What is the future of the business model? Will it be
:05:34. > :05:38.predominately online or predominantly in this cool stores.
:05:39. > :05:42.One of the challenges is that Asia's stores are evolving so
:05:43. > :05:46.quickly. These are well`established markets. Take the fact that most
:05:47. > :05:50.Chinese shoppers are not in the habit of going to shopping malls,
:05:51. > :05:55.loading up their car and heading home, so they are more open to news
:05:56. > :06:00.ways of buying. Chinese shoppers are more likely to buy online than
:06:01. > :06:04.American or European. But then you take second or third tier cities,
:06:05. > :06:06.where one of the highest reasons for buying online is availability.
:06:07. > :06:11.where one of the highest reasons These products are not available in
:06:12. > :06:14.local stores or shopping malls. That raises the question about whether
:06:15. > :06:19.retailers want to consider bricks and mortar. Asia may want to
:06:20. > :06:23.consider new ways of buying goods, in a faster rate than we see in
:06:24. > :06:30.America or Europe. Does that mean you will have to open a physical
:06:31. > :06:36.store? That is the next logical move. The reason that you mentioned
:06:37. > :06:42.at the beginning that some of the Chinese online guys have an off`line
:06:43. > :06:44.presence is less the result of them wanting to replicate the whole
:06:45. > :06:49.shopping experience of being off`line, it is more of a logistics
:06:50. > :06:54.challenge. One of the key things is you want to put the benefits of a
:06:55. > :07:02.much bigger assortment, no problems of cost of shelf space, a much
:07:03. > :07:06.faster way to transact, no travel, convenience. These basic things that
:07:07. > :07:11.everyone knows about but these are tailored to certain items which can
:07:12. > :07:17.be sold online. We can break quickly to the logistics cost. In the end,
:07:18. > :07:20.it is a pure economic calculation. Is it more expensive to sell
:07:21. > :07:26.something per square metre in the shop or is it more expensive to ship
:07:27. > :07:29.it to the person. When you look at some of these guys and their
:07:30. > :07:35.investment in the off`line space, many of these questions are making
:07:36. > :07:42.logistics easier for smaller basket items worshipping might not be the
:07:43. > :07:47.cheaper version. Does that mean you are not going into the off`line
:07:48. > :07:54.space? We will not see physical stores. You do not buy this
:07:55. > :07:57.multichannel strategy? I can see it as a logistical solutions so I do
:07:58. > :08:05.clearly see the multichannel working for certain parts of the retail
:08:06. > :08:09.chain. Ben let me bring you in. He does not see the advantage of
:08:10. > :08:14.building massive chains of stores. He sees the advantage of starting
:08:15. > :08:19.off online. It is a different model when you have with the traditional
:08:20. > :08:26.retailers. One point we have not raised is with the advantages of
:08:27. > :08:30.online sales, the big data, the chance to understand your customer
:08:31. > :08:34.and be able to target your future promotions. That is a huge
:08:35. > :08:39.advantage. There is a good reason for wanting to bring more customers
:08:40. > :08:42.online rather than simply coming through their front door, when you
:08:43. > :08:45.really do not have a strong sense of who they are, how much income they
:08:46. > :08:52.are earning, what have they bought in the past. Is that the
:08:53. > :08:56.difference, James, because maybe you know your customers more than
:08:57. > :09:06.perhaps Max does or then's company does. They are operating in Asia,
:09:07. > :09:11.second`tier cities, smaller cities, undiscovered shopping habits. Does
:09:12. > :09:14.that to you at a disadvantage? I think big data is phenomenal when
:09:15. > :09:19.you're looking at economies of scale. What Matt has been talking
:09:20. > :09:23.about is the scale of economics. The business I work on is about
:09:24. > :09:28.high`value purchases as much as anything. Experiences are
:09:29. > :09:32.irreplaceable. That is why it is a mixture of online and off`line for
:09:33. > :09:36.us. People do want experiences. We found it is because of our
:09:37. > :09:39.dissatisfaction with retail experiences in China, that we
:09:40. > :09:44.invented something called the Johnnie Walker house. People can go
:09:45. > :09:48.to and have meals, they can be educated, see films, have
:09:49. > :09:53.conversations and learn about whiskey tasting. That will help them
:09:54. > :09:55.experience and understand what they're looking for. There is more
:09:56. > :10:02.content and opportunities buy online as well. It also fits together. It
:10:03. > :10:06.was dissatisfaction with the twisting retail environment that
:10:07. > :10:11.drove us to innovate in that way. OK, I will do a quickfire round,
:10:12. > :10:26.Matt, is the traditional retail model in crisis? Guess. Yes. Doctor
:10:27. > :10:29.yes, but it is not dead. On that note I will be back with the panel
:10:30. > :10:42.later. Operating online poses challenges. I
:10:43. > :10:48.caught with Edmund a, the CEO of the company to find out the pros and
:10:49. > :10:53.cons of being an entirely e`commerce company.
:10:54. > :11:01.When people trade on our platform, we charge a commission. That is the
:11:02. > :11:11.difference between the price they buy or sell out. Why would people
:11:12. > :11:15.come to you? Our whole history is around disruption. It is all online.
:11:16. > :11:21.You do not ring up your broker and say I want to buy this amount of
:11:22. > :11:27.Singapore dollars against US dollars? That is exactly right. When
:11:28. > :11:32.retail investors do that today, they generally get the worst grade. Our
:11:33. > :11:36.passion, and I came to Oanda from PayPal, where we were all about
:11:37. > :11:41.disrupting. We were about levelling the playing fields. What is
:11:42. > :11:53.attractive to me about Oanda is Wheeler level the playing field. We
:11:54. > :11:58.give a wholesale rate and we pass a big chunk of that benefit on to the
:11:59. > :12:04.trader. And you online so you do not have the same fixed costs because we
:12:05. > :12:09.are online and we have always been online. But also what we do is we
:12:10. > :12:17.aggregate transactions and that gives us the ability to go to the
:12:18. > :12:24.market, a larger trade which gets a better price.
:12:25. > :12:30.On the data service, Lunenburg, Thomson Reuters, ie going to be in a
:12:31. > :12:35.position to challenge these guys on the data side? The two firms you
:12:36. > :12:41.talked about, neither of them have the ability to execute. What is
:12:42. > :12:45.interesting about us is not only do we have the data, so we have a whole
:12:46. > :12:49.business around the data service business, we have the ability to
:12:50. > :12:55.execute a trade. When somebody comes to us, there are two groups who come
:12:56. > :13:01.to us, retail investors who are trying to trade, and they can use
:13:02. > :13:07.the investment or trading, and corporations come to us as well
:13:08. > :13:13.because they want to know the data. Our data services, the rates
:13:14. > :13:16.business that you are talking about, the IRS uses it, all the big
:13:17. > :13:19.accounting firms use it. You can correct how good that data is. We
:13:20. > :13:21.provide the ability to trade as well. What is stopping another
:13:22. > :13:31.company from doing the same thing? A couple of things, there is
:13:32. > :13:33.a technology advantage we bring. We execute trades faster
:13:34. > :13:36.and more reliably than anyone else Because we have been at this
:13:37. > :13:39.as long as we have, we started back in 1996, because we
:13:40. > :13:43.have been at it so long, we actually have more data and more information
:13:44. > :13:46.than anyone else who is out there. Yes, today it is a highly fragmented
:13:47. > :13:52.business, but if any other players come to the markets,
:13:53. > :13:56.from the technology side, most of You were talking about phoning
:13:57. > :14:02.up and asking for the quote. We are providing all
:14:03. > :14:05.that information online. It is all about the user experience
:14:06. > :14:11.and what differentiates us. What are the changes in terms
:14:12. > :14:16.of mobiles in the field? They are trading more mobile devices
:14:17. > :14:19.and we are seeing that happen in our own business,
:14:20. > :14:21.the mobile volumes have tripled since last year, a small number,
:14:22. > :14:24.but I expect it to continue. I saw the same when I was at PayPal
:14:25. > :14:29.and I expect the same to happen. We are excited,
:14:30. > :14:45.we are well positioned. It Online companies face difficult
:14:46. > :14:50.competition. There are security issues including hacking to worry
:14:51. > :14:56.about. The growth in mobile defences mean that the consumer base is
:14:57. > :15:01.international and expanding rapidly. Global sales have grown at an
:15:02. > :15:06.impressive 17% annually since 2007, that is despite the global recession
:15:07. > :15:13.and slowing local recovery since 2009. It has been sick the strong
:15:14. > :15:19.Latin America, followed by Asia at 25%. `` particularly strong. Many
:15:20. > :15:27.are buying electrical goods, a fit of the purchases are closing, 18
:15:28. > :15:30.toys and 5% of food and drink. What is it like to run a business on the
:15:31. > :15:37.Internet and what are the strategies that are different to a traditional
:15:38. > :15:40.business? To discuss those issues is the Chief Executive of the largest
:15:41. > :15:47.online shopping portal in Southeast Ager, the global marketing director
:15:48. > :15:56.of brands such as Johnnie Walker and in Hong Kong, the founder and
:15:57. > :16:00.managing director of an adviser to Asian commercial strategies. Are you
:16:01. > :16:04.finding when you are expanding online, what is the biggest
:16:05. > :16:08.obstacles to making your brands stand out? You want to offer
:16:09. > :16:13.something special, something that people cannot buy in more
:16:14. > :16:18.traditional retail. The obstacle would be more awareness for us. We
:16:19. > :16:23.want to do more fewer, more special gifts, personalised, things like
:16:24. > :16:30.that. For us the challenge would be a awareness of that. Max, how do you
:16:31. > :16:36.stand out amidst the noise? There are two different ways of standing
:16:37. > :16:40.out among the noise. My biggest advantage, my goal is to make him
:16:41. > :16:45.feel like I can make him stand out on my website, that is the main
:16:46. > :16:50.challenge and that is what I need to give to brands. I am a channel, not
:16:51. > :16:55.the brand. When you advise companies, what is the biggest
:16:56. > :16:58.challenge they have two expanding their online presence? We have
:16:59. > :17:04.spoken with a dozen regional CEOs over the past few months, the single
:17:05. > :17:07.biggest challenge they will say is recruitment and retention of skilled
:17:08. > :17:11.professionals, there are massive labour shortages and that will be
:17:12. > :17:15.intensified in the online sector. There is a limited pool of talent,
:17:16. > :17:20.there is greater competition from talent, not just the retail sector,
:17:21. > :17:24.but even the financial sector. There will be some retailers that simply
:17:25. > :17:29.cannot find the people to run, let alone develop their online
:17:30. > :17:33.strategies. What about things like security and hacking, that is
:17:34. > :17:37.typically for countries that are underdeveloped, they are more
:17:38. > :17:41.vulnerable, their systems are more fun than Bob. More or less of an
:17:42. > :17:47.rubble is less dependent on where you are, how you treat the data you
:17:48. > :17:54.have. `` vulnerable. For us the number one priority for me even
:17:55. > :18:00.before some of the targets or other company scandals happen in the US,
:18:01. > :18:04.we have got grade one talent from the UK, from some of the biggest
:18:05. > :18:09.companies to help us protect the data. In China, that tends to be a
:18:10. > :18:15.massive issue anyway and the underdeveloped payment system
:18:16. > :18:20.prevents the development of some of the online retail, how big problem
:18:21. > :18:27.is the security? I will disagree with you there, I will quote work by
:18:28. > :18:32.KPMG. China's online payment system is not only very advanced in many
:18:33. > :18:37.areas, it is superior to what we see in America and Europe. It has come a
:18:38. > :18:41.long way just in the last 24 months, the regulators have really
:18:42. > :18:45.understood this point. Online payments is actually one of the
:18:46. > :18:51.smaller obstacles to the growth of the sector. What are the big
:18:52. > :18:56.obstacles? I would say logistics. Particularly distributing in the
:18:57. > :19:01.Firth `` third and fourth biggest cities. Pricing a Dyson vacuum
:19:02. > :19:05.cleaner which I noted to the sales staff that it would be twice the
:19:06. > :19:10.cost of what it is in London. She looked at me and sighed and said it
:19:11. > :19:16.was all logistics, overcoming that is big. Are you surprised about
:19:17. > :19:21.that? To some extent people have more trust in online retailers in
:19:22. > :19:25.China than off`line retailers. It works the other way around.
:19:26. > :19:29.Suspicion of counterfeit is different across different markets.
:19:30. > :19:39.It is often an exaggeration, but people tend to trust online more. It
:19:40. > :19:41.may sound counterintuitive, but it is a strong point. To be
:19:42. > :19:46.professional about who you deal with and who sells on your platform, to
:19:47. > :19:51.deal with counterfeit, if you have a no way policy and take things if
:19:52. > :19:55.they are counterfeit, it becomes very transparent quickly. The
:19:56. > :19:59.difference between online and off`line, online there is nowhere to
:20:00. > :20:04.hide. If you do something dodgy, the customer will tell you. What is
:20:05. > :20:10.massive in this region even more so in `` than in the Western world is
:20:11. > :20:14.through Facebook, Twitter, all the kinds of social media, word spread
:20:15. > :20:18.so incredibly fast. If you do something which is perceived as not
:20:19. > :20:22.being trustworthy by the customer, he will let you know. The
:20:23. > :20:28.expectation in this region is even higher than that of the US or
:20:29. > :20:33.Europe. They will let everyone else know as well. They are very vocal,
:20:34. > :20:38.the amount of Facebook penetration in this area is higher than in the
:20:39. > :20:42.Europe `` European and western world. Their ability to tell the
:20:43. > :20:49.customer about something they do not like is massively increased. You
:20:50. > :20:53.wanted to jump in. It is a terrific point. One thing we see when we talk
:20:54. > :20:57.to mid`market firms, they may not realise that their products are
:20:58. > :21:04.already being sold in China. Most often through resellers, the risk is
:21:05. > :21:09.that those really sold items, the channels are getting mixed up with
:21:10. > :21:13.faked products. Consumers are disgruntled and going online to vent
:21:14. > :21:17.their frustration, they lose a lot of brand integrity as a result of
:21:18. > :21:20.that. Trying to convince the firms that you have to have an online
:21:21. > :21:25.presence to allow the consumer to buy the genuine product and feel
:21:26. > :21:29.comfortable that is what they are doing. Finally I will go around.
:21:30. > :21:38.Max, was the last thing you bought online or off`line? I bought a
:21:39. > :21:42.newspaper and I bought it off`line, because I tend to like reading a
:21:43. > :21:50.newspaper off`line, by holding it in my hand. James. A necklace for my
:21:51. > :21:56.daughter for her 18th birthday and that was done at a store. I bought a
:21:57. > :22:01.pillow and I wanted to test it before I bought it. I think this
:22:02. > :22:13.suggests a that physical retail is not dead! A lot of changes at that.
:22:14. > :22:18.`` a lot of changes are happening. Competitors find it easier to set up
:22:19. > :22:22.a business since costs are lower. Traditional retailers are coming up
:22:23. > :22:26.with clever ways to use technology to compete. Whether we will give up
:22:27. > :22:31.our strips to the high street remains to be seen, but the smart
:22:32. > :22:45.money is to chase consumers online as well as on the high Street. ``
:22:46. > :22:50.our trips. I will see you next week. Goodbye from me, Linda Yueh.