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Tuesday, 25 April 2017 | MYT 2:31 PM

Online shopping spells trouble for status quo

WHEN the dotcom bubble burst in 2000, one of the stocks that promised to change the way the world shops - Amazon.com - saw its share prices fizzle from the lofty heights it was trading before.

The demise then of its stock price brought about comments that the idea these online traders were promoting were before its time and the world was not ready to change the way it works. Brick-and-mortar businesses had a laugh after the hype of Internet shopping burst.

Guess what. Amazon’s stock, which hit a low of US$5.97 in September 2001 in the aftermath of the dotcom bust, was last trading at US$907.41 a share and retailers in the US are filing for bankruptcy at record pace.

It was reported recently that Credit Suisse in a research report said it was possible for more than 8,600 brick-and-mortar stores will close their doors in 2017.

The report said that in 2016, 2,056 stores closed down and 5,077 folded in 2015. The worst years was in 2008 when 6,163 stores shuttered at just around a quarter into 2017, more shops have closed down than during the 2008 Global Financial Recession in the US.

The world has increasingly changed the way it shops and Amazon’s founder Jeff Bezos, a former hedge fund manager who wanted to sell books online, is now the world’s third richest man. The way Amazon’s stock price is going, he will be in the top 2 in no time.

What Amazon has done at first was to change the way the world buys books and music. As it started selling larger quantities of books, book shops, some of them retail giants, began to file for bankruptcy and later folded. Amazon did not stop with books and, like its stock price suggests, has grown in size and scale. Buyers now have so much variety of goods to buy from Amazon.

Amazon, like many online businesses, have benefited not because it was online but also from the growth in broadband. Larger bandwidth has made it possible for richer content to be displayed online and has made the shopping experience more immersive. Courier companies too will flourish as they prove connectivity between online retailers and buyers.

The growth of online business in Malaysia too has gained traction fast and recently, Lazada Malaysia, which styles itself after Amazon, said Malaysia is now South east Asia’s fastest growing e-commerce business with sales growth exceeding 100% in 2016. 

It is speed of delivery and lower costs that has drawn shoppers online. In fact, some do order goods from China where shipping from there to here is sometimes free. The likes of Lazada are already pervasive in Malaysia and many younger Malaysians, and in growing numbers older ones too, are buying online. 

A growing number of Malaysians also order their food through popular apps that take a substantial cut from the selling price by restaurants to deliver food to homes.

What this means is that the traditional brick-and-mortar businesses, which were feared to go out of business with the rising popularity of e-commerce, will slowly become a reality. As it is, a number of shopping centres are finding it tough to fill up available space with retailers and foot traffic might not be what it will be for some malls..

That problem is set to worsen with the number of malls and shopping space booming in numbers over the next few years. It was reported that within the next five years, 15 million sq ft of space will flood the market. That will create a glut and the worry is that occupancy rates of mall on average will drop below 80%, which is the line in the sand for mall occupancy. If the trend of online shopping in US will gravitate here, then that will become a reality.

Unfilled space and the absence of sufficient rental incomes will squeeze repayment of debt taken to build some of the new malls coming up.

With an abundance of space coming up at a time when Malaysia shoppers are getting very comfortable shopping from home through the Internet, the future of a number of peripheral malls are under threat, many even before the roll up their shutters for the first time.

The way we shop is changing and it is all not good news. It is good for consumers but a number of retailers will have a torrid time.
 

Tags / Keywords: Stocks , Corporate News , Earnings

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