Digitalisation key to sustainability for consumer companies

Kenanga Research said AEON’s digitalisation initiatives had benefitted small traders by enabling access to the group’s business platforms and applications such as point-of-sale and supplier portal to facilitate business-to-business transactions.

PETALING JAYA: With consumers increasingly turning online for their purchases, digitalisation becomes key to business sustainability for companies in the retail industry.

While shoppers have returned to physical stores post-pandemic, browsing and buying online has become the norm, as consumers gravitate towards value, convenience, speed, and efficiency, Kenanga Research pointed out.

On this note, the brokerage gave preference to Aeon Co (M) Bhd, MR DIY Group (M) Bhd and Padini Holdings Bhd for their digitalisation strategies, noting their ability to exploit opportunities for innovation in every stage of their business from the storefront to back-office operations.

“Following our evaluation, we award four-star ratings to AEON and MR DIY; and a 3½-star rating to Padini for digitalisation and innovation,” Kenanga Research said in its report yesterday.

It added that the gradings would leave its three-star environmental, social and governance ratings for the three companies unchanged.

“Despite small or even no revenue contributions from online channels, these retailers are intensifying their efforts across all digital platforms. Not only is their innovation and digitalisation strategy making their businesses more resilient, they are also adding the ‘social’ value to the entire business chain,” Kenanga Research explained.

It said AEON’s digitalisation initiatives, for example, had benefitted small traders by enabling access to the group’s business platforms and applications such as point-of-sale and supplier portal to facilitate business-to-business (B2B) transactions.

As at the first quarter of 2022, 500 local small traders had signed up as its eCommerce partner, up from about 200 in 2021, the brokerage noted.

“Similarly, more suppliers have come onboard due to the growing importance of eCommerce in MR DIY’s business ecosystem. The group has a dedicated B2B portal that caters to bulk orders and purchases for corporate social responsibility activities,” it added.

While no figures were provided by Padini on its spending on digitalisation, Kenanga Research said what was certain was that the company would continue boosting its digital retailing initiatives.

“Based on the group’s observation, the fashion industry is entering an important phase of digital adoption and hence it is keen to explore more online portals for regional expansion.

“Padini believes that digital retailing will continue to advance as a complementary business channel which will underpin its future growth,” the brokerage said.

For most retailers, earnings from digital channels have yet to show any material impact, it said.

AEON’s revenue from online platforms remained insignificant compared to that generated by its network of 205 outlets as at December 2022.

In the financial year ended Dec 31, 2021 (FY21), myAEON2go generated only RM24mil in revenue, a fraction of its total revenue of RM3.6bil, Kenanga Research said.