16/08/2014 Talking Business with Linda Yueh

Now on BBC News, Talking Business with Linda Yueh.

A warm welcome to the programme. Bricks and mortar stories have seen

foot traffic fall as more shoppers go online. Retailers have to be

present on 100 200 high streets to gain a national presence, now the

focus is a quarter of that and focusing on larger towns. In the

US, there is a drop of 87% of retail square feet. The potential exodus

leads to concerns over a crisis in retail. There has also been a

notable move of companies into physical shops. Some are calling the

new era of mixing bricks and mortar with the Internet. What is the

future of retail? Joining me are Max Bittner, the Chief Executive of the

largest shopping portal in south`east Asia, James Thompson, the

manager of the edgier, and the managing director who advises

companies on retail strategies. The first question I will put to you,

Ben, is it the end of bricks and mortar? It is certainly not the end.

Retailers want to think about a multichannel strategy. Selling

through a combination of flagship stores and department store outlets

but also online stores. What makes the question so interesting in this

part of the world is simply that retailers are realising that as they

move out of the larger and wealthier cities, they are looking at

investing significant amounts of capital than traditional stores and

they no longer have to. That combination of wanting to tap into

those increasingly affluent consumers in second and third tier

cities, doing it online is compelling for retailers but

especially when they are in this part of the world. Max, your company

is an online only company, so is that the future? Is it the end of

bricks and mortar as the dominant model in retail? A lot of off`line

retailers do not have an off`line presence. We see a huge demand with

the rising middle`class in those parts of the country 's, and with

people having disposable income for the first time but no where to spend

it online is an extremely easy channel to reach a whole new set of

customers which brings you in south`east Asia, instead of 100

million people, 650 million people to your doorstep. James, I see you

nodding. Your business is a physical business but are you banking on the

feature for being online or is that overstating it? You could be

forgiven for thinking it is online when you look at the pictures of

American shopping moles. They used to be huge social destinations.

There are now weeds on the escalators. But it is not the whole

story. Three quarters of people who buy anything the search it online or

on their mobiles. They carry on and end up completing their purchase in

physical stores. There is something which is stopping people from going

the whole hog. The area I work in which is luxury products, only about

6% consider buying those online at the moment. Looking at fashion, in

the States last year, fashion accessories, half of people who

bought that researched it online but only a quarter bought it online.

There is a dynamic that people still want to have that experience or

reassurance at least in certain categories. This does not bode well

to your business if what James said is true, that most people want to

complete their purchases in a physical store? I think we can turn

it around the other way. A lot of people go in the off`line shop to

then buy online. They reset off`line and buy online. That's been greatly

facilitated through the arrival of the smartphones and apps. It has

made shopping much more transparent. I can pick up my mobile phone in any

shop and see and compare the price. Ben, adjudicator here! You start on

a physical store, you end up buying online and we have just heard the

reverse as well. What is the future of the business model? Will it be

predominately online or predominantly in this cool stores.

One of the challenges is that Asia's stores are evolving so

quickly. These are well`established markets. Take the fact that most

Chinese shoppers are not in the habit of going to shopping malls,

loading up their car and heading home, so they are more open to news

ways of buying. Chinese shoppers are more likely to buy online than

American or European. But then you take second or third tier cities,

where one of the highest reasons for buying online is availability.

where one of the highest reasons These products are not available in

local stores or shopping malls. That raises the question about whether

retailers want to consider bricks and mortar. Asia may want to

consider new ways of buying goods, in a faster rate than we see in

America or Europe. Does that mean you will have to open a physical

store? That is the next logical move. The reason that you mentioned

at the beginning that some of the Chinese online guys have an off`line

presence is less the result of them wanting to replicate the whole

shopping experience of being off`line, it is more of a logistics

challenge. One of the key things is you want to put the benefits of a

much bigger assortment, no problems of cost of shelf space, a much

faster way to transact, no travel, convenience. These basic things that

everyone knows about but these are tailored to certain items which can

be sold online. We can break quickly to the logistics cost. In the end,

it is a pure economic calculation. Is it more expensive to sell

something per square metre in the shop or is it more expensive to ship

it to the person. When you look at some of these guys and their

investment in the off`line space, many of these questions are making

logistics easier for smaller basket items worshipping might not be the

cheaper version. Does that mean you are not going into the off`line

space? We will not see physical stores. You do not buy this

multichannel strategy? I can see it as a logistical solutions so I do

clearly see the multichannel working for certain parts of the retail

chain. Ben let me bring you in. He does not see the advantage of

building massive chains of stores. He sees the advantage of starting

off online. It is a different model when you have with the traditional

retailers. One point we have not raised is with the advantages of

online sales, the big data, the chance to understand your customer

and be able to target your future promotions. That is a huge

advantage. There is a good reason for wanting to bring more customers

online rather than simply coming through their front door, when you

really do not have a strong sense of who they are, how much income they

are earning, what have they bought in the past. Is that the

difference, James, because maybe you know your customers more than

perhaps Max does or then's company does. They are operating in Asia,

second`tier cities, smaller cities, undiscovered shopping habits. Does

that to you at a disadvantage? I think big data is phenomenal when

you're looking at economies of scale. What Matt has been talking

about is the scale of economics. The business I work on is about

high`value purchases as much as anything. Experiences are

irreplaceable. That is why it is a mixture of online and off`line for

us. People do want experiences. We found it is because of our

dissatisfaction with retail experiences in China, that we

invented something called the Johnnie Walker house. People can go

to and have meals, they can be educated, see films, have

conversations and learn about whiskey tasting. That will help them

experience and understand what they're looking for. There is more

content and opportunities buy online as well. It also fits together. It

was dissatisfaction with the twisting retail environment that

drove us to innovate in that way. OK, I will do a quickfire round,

Matt, is the traditional retail model in crisis? Guess. Yes. Doctor

yes, but it is not dead. On that note I will be back with the panel

later. Operating online poses challenges. I

caught with Edmund a, the CEO of the company to find out the pros and

cons of being an entirely e`commerce company.

When people trade on our platform, we charge a commission. That is the

difference between the price they buy or sell out. Why would people

come to you? Our whole history is around disruption. It is all online.

You do not ring up your broker and say I want to buy this amount of

Singapore dollars against US dollars? That is exactly right. When

retail investors do that today, they generally get the worst grade. Our

passion, and I came to Oanda from PayPal, where we were all about

disrupting. We were about levelling the playing fields. What is

attractive to me about Oanda is Wheeler level the playing field. We

give a wholesale rate and we pass a big chunk of that benefit on to the

trader. And you online so you do not have the same fixed costs because we

are online and we have always been online. But also what we do is we

aggregate transactions and that gives us the ability to go to the

market, a larger trade which gets a better price.

On the data service, Lunenburg, Thomson Reuters, ie going to be in a

position to challenge these guys on the data side? The two firms you

talked about, neither of them have the ability to execute. What is

interesting about us is not only do we have the data, so we have a whole

business around the data service business, we have the ability to

execute a trade. When somebody comes to us, there are two groups who come

to us, retail investors who are trying to trade, and they can use

the investment or trading, and corporations come to us as well

because they want to know the data. Our data services, the rates

business that you are talking about, the IRS uses it, all the big

accounting firms use it. You can correct how good that data is. We

provide the ability to trade as well. What is stopping another

company from doing the same thing? A couple of things, there is

a technology advantage we bring. We execute trades faster

and more reliably than anyone else Because we have been at this

as long as we have, we started back in 1996, because we

have been at it so long, we actually have more data and more information

than anyone else who is out there. Yes, today it is a highly fragmented

business, but if any other players come to the markets,

from the technology side, most of You were talking about phoning

up and asking for the quote. We are providing all

that information online. It is all about the user experience

and what differentiates us. What are the changes in terms

of mobiles in the field? They are trading more mobile devices

and we are seeing that happen in our own business,

the mobile volumes have tripled since last year, a small number,

but I expect it to continue. I saw the same when I was at PayPal

and I expect the same to happen. We are excited,

we are well positioned. It Online companies face difficult

competition. There are security issues including hacking to worry

about. The growth in mobile defences mean that the consumer base is

international and expanding rapidly. Global sales have grown at an

impressive 17% annually since 2007, that is despite the global recession

and slowing local recovery since 2009. It has been sick the strong

Latin America, followed by Asia at 25%. `` particularly strong. Many

are buying electrical goods, a fit of the purchases are closing, 18

toys and 5% of food and drink. What is it like to run a business on the

Internet and what are the strategies that are different to a traditional

business? To discuss those issues is the Chief Executive of the largest

online shopping portal in Southeast Ager, the global marketing director

of brands such as Johnnie Walker and in Hong Kong, the founder and

managing director of an adviser to Asian commercial strategies. Are you

finding when you are expanding online, what is the biggest

obstacles to making your brands stand out? You want to offer

something special, something that people cannot buy in more

traditional retail. The obstacle would be more awareness for us. We

want to do more fewer, more special gifts, personalised, things like

that. For us the challenge would be a awareness of that. Max, how do you

stand out amidst the noise? There are two different ways of standing

out among the noise. My biggest advantage, my goal is to make him

feel like I can make him stand out on my website, that is the main

challenge and that is what I need to give to brands. I am a channel, not

the brand. When you advise companies, what is the biggest

challenge they have two expanding their online presence? We have

spoken with a dozen regional CEOs over the past few months, the single

biggest challenge they will say is recruitment and retention of skilled

professionals, there are massive labour shortages and that will be

intensified in the online sector. There is a limited pool of talent,

there is greater competition from talent, not just the retail sector,

but even the financial sector. There will be some retailers that simply

cannot find the people to run, let alone develop their online

strategies. What about things like security and hacking, that is

typically for countries that are underdeveloped, they are more

vulnerable, their systems are more fun than Bob. More or less of an

rubble is less dependent on where you are, how you treat the data you

have. `` vulnerable. For us the number one priority for me even

before some of the targets or other company scandals happen in the US,

we have got grade one talent from the UK, from some of the biggest

companies to help us protect the data. In China, that tends to be a

massive issue anyway and the underdeveloped payment system

prevents the development of some of the online retail, how big problem

is the security? I will disagree with you there, I will quote work by

KPMG. China's online payment system is not only very advanced in many

areas, it is superior to what we see in America and Europe. It has come a

long way just in the last 24 months, the regulators have really

understood this point. Online payments is actually one of the

smaller obstacles to the growth of the sector. What are the big

obstacles? I would say logistics. Particularly distributing in the

Firth `` third and fourth biggest cities. Pricing a Dyson vacuum

cleaner which I noted to the sales staff that it would be twice the

cost of what it is in London. She looked at me and sighed and said it

was all logistics, overcoming that is big. Are you surprised about

that? To some extent people have more trust in online retailers in

China than off`line retailers. It works the other way around.

Suspicion of counterfeit is different across different markets.

It is often an exaggeration, but people tend to trust online more. It

may sound counterintuitive, but it is a strong point. To be

professional about who you deal with and who sells on your platform, to

deal with counterfeit, if you have a no way policy and take things if

they are counterfeit, it becomes very transparent quickly. The

difference between online and off`line, online there is nowhere to

hide. If you do something dodgy, the customer will tell you. What is

massive in this region even more so in `` than in the Western world is

through Facebook, Twitter, all the kinds of social media, word spread

so incredibly fast. If you do something which is perceived as not

being trustworthy by the customer, he will let you know. The

expectation in this region is even higher than that of the US or

Europe. They will let everyone else know as well. They are very vocal,

the amount of Facebook penetration in this area is higher than in the

Europe `` European and western world. Their ability to tell the

customer about something they do not like is massively increased. You

wanted to jump in. It is a terrific point. One thing we see when we talk

to mid`market firms, they may not realise that their products are

already being sold in China. Most often through resellers, the risk is

that those really sold items, the channels are getting mixed up with

faked products. Consumers are disgruntled and going online to vent

their frustration, they lose a lot of brand integrity as a result of

that. Trying to convince the firms that you have to have an online

presence to allow the consumer to buy the genuine product and feel

comfortable that is what they are doing. Finally I will go around.

Max, was the last thing you bought online or off`line? I bought a

newspaper and I bought it off`line, because I tend to like reading a

newspaper off`line, by holding it in my hand. James. A necklace for my

daughter for her 18th birthday and that was done at a store. I bought a

pillow and I wanted to test it before I bought it. I think this

suggests a that physical retail is not dead! A lot of changes at that.

`` a lot of changes are happening. Competitors find it easier to set up

a business since costs are lower. Traditional retailers are coming up

with clever ways to use technology to compete. Whether we will give up

our strips to the high street remains to be seen, but the smart

money is to chase consumers online as well as on the high Street. ``

our trips. I will see you next week. Goodbye from me, Linda Yueh.