Fostering Retail Innovation in ASEAN

1. Lifting-the-BarriersRoundtable Fostering Retail Innovation in ASEAN Singapore, May 14th 2015 ASEAN Business Club Forum 2015 Geir Olsen

2. Agenda Round table introduction Presentation by A.T. Kearney Perspectives from chair and panelists Floor discussion Closing remarks / Q&A

3. Round Table Introduction Introducing today’s speakers Chair Sector Speakers Moderator Candice Ong Datuk Dr. Rebecca Sta Maria Tony Collingridge Teruyuki Kawabe GeirOlsen Zalora SEA MITI Malaysia UKTI Malaysia NEC Japan A.T. Kearney Asia Managing Director Secretary General for Trade Director Manager Global Retail Solutions Partner, Head of Consumer Goods&Retail

4. Round Table Introduction Today’s session will focus on Innovation in Retail and understand current barriers / opportunities Key objectives Review what is Innovation in the Retail Industry Discuss current barriers to Retail Innovation in the region Key Opportunities moving forward Source: A.T. Kearney

5. Round Table Introduction Agenda Source: ABC Forum

6. Agenda Round table introduction Presentation by A.T. Kearney Perspectives from chair and panelists Floor discussion Closing remarks / Q&A

7. Retail Innovation Landscape Innovation in retail can be grouped into 3 different buckets: Offering, Shopping Experience and Enablers Retail innovation landscape • Supply chain solutions • Payment solutions • IT applications • … Enablers Shopping Experience • Virtual reality • Social media • E- / M-commerce • Advanced pricing • … Offering • Product innovation • Service innovation • Commercial innovation Source: Tech in Asia,, A.T. Kearney

8. Retail Innovation Landscape There are three types of innovation that retailers are looking into to strengthen their offering Examples of retail innovation ‒ Offering 1 Product Innovation • New product categories / concepts • Premium private labels Service Innovation • Financial services • Telecommunications • Travel Commercial Innovation • Event marketing • Customized offerings • Seasonal marketing Source: Tesco, LlaoLlao, Big-C, A.T. Kearney

9. Retail Innovation Landscape Retailers are also looking at taking the overall shopping experience to a new level 2 Examples of retail innovations ‒ Shopping Experience Virtual Storefront Extensions Virtual Fitting Rooms Source: PlanetRetail, A.T. Kearney

10. Retail Innovation Landscape Enablers are largely IT-based and run across the value chain Examples of retail innovation ‒ Enablers 3 Procurement • E-sourcing • Supplier / customer data analytics • Supply chain optimization Inventory / Warehouse Management • Vertical supply chain integration • Store-converted warehouse • RFID inventory management Fulfillment • Digital sales force support • Automated check-out • Delivery truck GPS tracking Source: Tesco, LlaoLlao, Big-C, A.T. Kearney

11. Retail Innovation in ASEAN Retail Innovation in ASEAN

12. ASEAN and Retail Innovation Although ASEAN countries have engaged in the path towards “retail modernity”, retail innovation is still in its infancy Where is ASEAN today? Low share of modern retail(% of total retail sales, 2014) ASEAN retail eco-system today Heterogeneous market Western Europe 70-85% Focus on site acquisition / network expansion US >68% SG 59% Short-term thinking vs. strategic planning TH 48% MY 41% Significant logistics challenges ID 25% VN 25% Competitive advantage from excellence in execution PH 22% Source: Trend Macro, MasterCard, PayPal, Frost & Sullivan, A.T. Kearney

13. ASEAN and Retail Innovation Also and as we have seen last year, e-commerce volume is still low across ASEAN Where is ASEAN today? Share of online retail sales(% of total retail sales, 2014) 7.8% 7.2% 5.8% 4 to 5% ASEAN-5: around 1% EU CN US SG MY TH PH ID VN Source: Trend Macro, MasterCard, PayPal, Frost & Sullivan, A.T. Kearney

14. ASEAN and Retail Innovation Barriers to retail innovation that need to be overcome include access to finance & talent, infrastructure and regulations Key barriers to innovation in retail For discussion 1. Weak Structural Environment • Low share of modern retail • Lack of level playing field / protectionism • Limited talent pool 2. Low Retailer Appetite for Innovation • Other priorities, e.g. network expansion • Short-term focus • Limited customer service culture 3. Lack of Integration of Retail Innovators • Lack of platform to link ideas with retail • Weak incubator scene • Heterogeneity of ASEAN market 4. Other Barriers • … Source: A.T. Kearney

15. ASEAN and Retail Innovation Discussion: How can we lift the barriers to retail innovation in ASEAN? For discussion 1. Weak Structural Environment • Incentivize direct investments • Proper execution of infrastructure projects • Increase high-speed internet availability 2. Low Retailer Appetite for Innovation • Build awareness of need for innovation • Develop talent / capabilities • Flexibility in labor laws (part-time) 3. Lack of Integration of Retail Innovators • Support entrepreneurship • Build collaboration platforms • Encourage local Innovations 4. Other Barriers • … Source: A.T. Kearney

16. Agenda Round table introduction Presentation by A.T. Kearney Perspectives from chair and panelists Floor discussion Closing remarks / Q&A

17. Perspectives From Chair & Panelists Perspectives from the chair Managing Director, Zalora SEA Candice Ong

18. Perspectives From Chair & Panelists Perspectives from the Secretary General for Trade, Malaysia Secretary General for Trade, MITI Malaysia Datuk Dr. Rebecca Fatima Sta Maria

19. Perspectives From Chair & Panelists Perspectives from sector speakers Director UK Trade & Investment Malaysia, UKTI Tony Collingridge

20. Innovation in Retail - A UK Perspective Tony Collingridge OBE Director of UK Trade & Investment - Malaysia

21. UK Retail In ASEAN • ASEAN is a priority market for UK retailers • Many UK retailers have extensive footprints in ASEAN • New UK retail brands continue to expand into the region • Retail is a priority UKTI sector in Malaysia, Singapore, Thailand, Indonesia & Philippines

22. Barriers to Entry & Innovation in ASEAN • Relative size and immaturity of retail sector in markets in ASEAN • Diversity of ASEAN region • Protectionism • Franchise the most popular way to enter overseas markets • Poor infrastructure • Lack of suitable retail locations • Lack of qualified staff with a customer service culture. • Language • Increasing local and international competition

23. Opportunities in ASEAN • ASEAN is a high growth region – average +5% GDP per annum • Increasing young population • More urbanised and growing middle class and associated rising consumer spending • Business friendly government policies • Investment in large format shopping malls and increased lifestyle and brand shopping in ASEAN’s more developed markets • ASEAN’s retail sector is fragmented, providing opportunities for consolidation and acquisitive growth • Increasing internet and mobile penetration and use of e-commerce • Increased tourism within Asia and to Asia • ASEAN Economic Community slated for December 2015

24. Examples of Innovation by UK Retailers

25. Digital TechnologyImprove Customer Experience & Brand Loyalty & Drive Sales “The brand is not this kind of cold, static name outside a shop or on a piece of clothing.” Christopher Bailey, Chief Executive Officer

26. Virtual RealityImprove Customer Experience, Increase Availability & Drive Sales "The Virtual Footwear Wall shows adidas to be pioneers of innovation in retail, giving our customers a unique and cool experience.” Chris Aubrey, VP of Global Retail Marketing

27. RFIDImprove Availability, Cut Excess Inventory & Reduce Stock Shrinkage “The M&S RFID implementation was driven by measurable financial benefits, as well as a desire to improve customer service through greater stock availability.” Steve Finlan, Retail Director

28. Staff Partnership &Customer ServiceQuality Customer Service, Increase Loyalty and Drive Sales “John Spedan Lewis gave the Partnership to his employees in 1929 with an ultimate purpose to balance the happiness of Partners with a successful business.” Chris Coburn, Corporate – Partnership Councillor

29. Social MediaIncrease Reach, Improve Customer Experience & Drive Sales “We want to take the energy and the excitement of our iconic Oxford Street store to millions of people all over the world through Topshop.com. It’s social, it’s commerce and it’s entertainment all rolled into one.” Justin Cooke, Chief Marketing Officer

30. Online ShoppingOvercome Protectionism, Increase Reach & Customer Loyalty “With plans to continue supporting our global position and online growth, we needed to strengthen our e-commerce end-user shopping experience in order to remain competitive.” Chirag Shah, Lead Service Manager

31. Reality TV ProgrammeIncrease Reach, Improve Brand Affinity and Grow Market Share “The inspirational stories that will unfold as the contestants transform before the viewers’ eyes, are intended to help audience members find their own motivation and exercise their right to go further in life through fitness.” Simon Flint, CEO Asia

32. Steps to Help Retail Innovation in ASEAN • Reduce protectionism • More opportunity for overseas retailers to invest directly • Better educated workforce • Better infrastructure • Incentives to encourage retailers to innovate (Singapore model?) • Greater availability and acceptance of internet and mobile technologies • Effective ASEAN Economic Community

33. Thank You Tony Collingridge Director of Trade & Investment Tel: +60 3 2170 2310 Mob: +60 12 305 2202 tony.collingridge@fco.gov.uk UNCLASSIFIED

34. Perspectives From Chair & Panelists Perspectives from sector speakers Manager Global Retail Solutions, NEC Corporation TeruyukiKawabe

35. Agenda Round table introduction Presentation by A.T. Kearney Perspectives from chair and panelists Floor discussion Closing remarks / Q&A

36. Floor Discussion Floor discussion

37. Agenda Round table introduction Presentation by A.T. Kearney Perspectives from chair and panelists Floor discussion Closing remarks / Q&A

38. Q&A

40. Appendix Driving retail innovation represents a unique opportunity for ASEAN: innovation will directly foster ASEAN market integration Benefits of retail innovation BENEFITS FOR RETAILERS DRIVE ASEAN INTEGRATION • Improved brand & image • Increased customer loyalty • Improved processes • Higher profitability • Contribution to societal development • Improved innovation platform – also for adjacent industries • Direct positive impact on GDP BENEFITS FOR CONSUMERS • Enhanced shopping experience • Wider assortment of products • More convenience • Lower prices Market integration is both an enabler and an outcome of retail innovation. Barriers need to be lifted to start this mutually re-enforcing cycle Source: A.T. Kearney

41. Appendix The ASEAN market is very heterogeneous with pockets of excellence and a vast rural area that will remain low-cost Retail innovation in ASEAN today • Singapore & city centers of metropolitan areas (e.g. Bangkok): mature / saturated • Focus on cost, client relationship • Hinterland and 2nd / 3rd-tier cities:> 50% informal retail • Comparatively low level of sophistication • New markets: e.g. Myanmar, Vietnam: focus on site acquisition • Low cost models Innovation-based model No focus on innovation Shift from short-term transaction-level to long-term strategic model Source: A.T. Kearney

42. Appendix As the boundaries between online & offline get diluted, retailers need to offer a consistent experience across all touch points Mainretailinnovations ‒ omni-channelmanagement • Assistance to the in store customer through a 'position detector' that indicates the location of products on the map of the store (Lowe's) • Customer involvement throughout the buying experience (Tesco) • Before: Location finder, dynamic shopping list, downloading of digital coupons PhysicalStore • During: scan of products, promotions, personalized offers (even geolocated), redemption of coupons and mobile payments • After: consultation of historical purchases, access to loyalty program, … • Online channel with specific assortment and possibility of delivery at home or withdrawal at store M-commerce e-commerce Source: A.T. Kearney

43. Appendix A comparatively low penetration of private label products is one manifestation of the low share of modern retail Where is ASEAN today? Low Penetration of private label products(% of total, 2014) 25-45% 18% Western Europe 8% Indonesia ThailandPhilippines United States Singapore 2% Malaysia 1% Source: A.T. Kearney

44. Appendix Most innovations are sales and customer driven and are heavily IT-enabled Top innovations transforming the retail business • Advanced commercial IT applications • Advanced segmentation of PoS and assortment • Promo optimization • Advanced pricing • Digital • wall • Virtual shops at airports, subway, … • Supply chain vertical integration • Sharing of real time data (sales, forecast, …) with suppliers to increase supply chain efficiency • Omni-channel management • «Seamless» customer experience across channels (e-commerce, m-commerce, physical store) • Real • time B.O. • Collection, analysis and use of PoS data in real time Point of Sales Sales & Marketing Logistics • Targeted • Marketing • Promo bases of customers behaviors, location and other data • Social • Media • Use of social networks to gain insights and interact with customers • Product tracking • along SC • Sharing of product production and distribution data with the client • Advanced check-out • Tools and mobile app to automatize check out process Digital support for salesforce • Mobile tools to support sales force improving sales efficiency and customer experience Sales & customerdriveninnovation Source: A.T. Kearney

45. Appendix At the supply chain back-end, retailers share information with all suppliers through a collaboration portal to reduce e.g. stock-outs Main retail innovations ‒ vertical supply chain integration Example • Collaboration Portal with suppliers (Tesco) • Real-time sharing of sales data • Communication of planned promotions • Sharing of sales and reordering projections to 7 days • Piloted with Innocent, Nestle and Unilever in 2012, now extended to all suppliers • Benefits: reduction of lost sales for stock-outs by 20% in grocery food and 10% in fresh food Source: Tesco, A.T. Kearney

46. Appendix Beacon technology