KUCHING: The evolution of the dot com age has brought about new venture platforms for budding entrepreneurs, widening the stage for various business opportunities.
This paved the way for a myriad of online businesses. They pop up with ease, as a pure-online business eliminates various costs such as costs of property or rent, overhead, maintenance, and such.
Along with the boom in online stores, physical businesses are just as enticed to establish an online presence in the name of branding.
The ‘retail to e-tail’ movement has also been booming in Kuching, with many small web-based business owners using the Internet as a platform to market their goods or services without incurring much expenditure.
Some would say that staying as a pure-online business provides a comfort zone with minimal risks, easier marketing and greater connectivity to a wide customer base.
Rodney Lim, a lecturer from Swinburne University of Technology Sarawak Campus affirmed that this was a low cost, low risk method, so even if they fail, they do not lose much as opposed to a brick store.
He, however, also stated that entrepreneurs learn quickly that there are deficiencies with operating exclusively online.
“For instance, it is hard to get people to trust them if customers are not able to personally inspect a dress before buying. So, they have to go offline to some extent, such as meeting up with customers to show the dress,” Rodney explained.
“Things like payment can be a problem too. For instance, customers here might not feel safe sending someone an online payment without getting the goods.
“So again, there is a need for some face-to-face interface to overcome the deficiencies of the online environment.”
Unusual consumer behaviour
E-commerce is experiencing high growth, but research shows that consumer behavior on this channel are both interesting and unusual compared to offline shopping behavior.
Combined with the fact that the path from purchase to discovery is becoming more complex, it becomes imperative for companies to have a complete understanding of their consumer to drive growth.
What this means, Rodney explained, is that the online medium in this part of the world is still being frowned upon to a certain extent.
There is an unspoken perception that a business is only considered legitimate if it is able to have a strong real world presence, he added.
“Thus, we see online businesses adopting some aspects of real world presence. This arrangement is alright if the online business is small and it operates as a hobby-oriented venture, not a main income earner.”
Growing physically further
Now, when the click-only business becomes successful, and the owner intends to obtain recognition as a ‘legitimate’ business, they will usually realise that there is a need to have a stronger brick presence.
“A real store somehow is perceived to tell people that you are conventional, a real business so to speak and not a side hobby; that you are legitimate,” explained the lecturer.
Of course there are other benefits as well. For instance, it is an official business premise compared to operating out of your house (which is common for many online clothing shops). You are able to hire people to run a real business operation.
“The underlying thing is that it allows for improved credibility. People are able to trust you more if you have an official office/shop, where they can find out. It symbolizes that you have arrived, that you have made it into the ranks of a ‘real business’.”
This move towards this ‘omnichannel’ is an organic one for today’s new businessmen and for many such owners, there may have been an inner desire or a personal dream to own a real boutique, but for some financial reason perhaps, it is not always possible to have the resources to enter into such a business.
Thus an online platform may be a start. In this sense, it is a journey where the person works his or her way towards becoming who he or she aspires to be.
The opening of a real brick store also signifies a personal accomplishment for most.
Economists have theorised that e-commerce ought to lead to intensified price competition, as it increases consumers’ ability to gather information about products and prices.
Economists at the University of Chicago have found that the growth of online shopping has also affected industry structure in two areas that have seen significant growth in e-commerce, bookshops and travel agencies.
It’s not surprising, then, that while many brick-and-mortar retailers expand their online businesses, an increasing number of online commerce sites are taking the reverse route.
Catching a slice of the sweet-toothed market
The question still beckons: How many will take the plunge and move from ‘e-tail’ to retail?
There have been many success stories of entrepreneurs taking the plunge and establishing a physical presence only to be met with overwhelming success.
One such case is Joanne Lim, owner of My Sugar Bakes who has received tremendous support since making a physical presence for her business.
The young entrepreneur started the business purely as an online presence at first, working from home. However, as demand grew, she said it was increasingly difficult to keep up with just staying as a purely online business.
The issue about staying online, she said, is that the shopping journey can be divided into three parts – discovery, selection and transaction.
Modern age retailers are aware that being discovered and selected is increasingly initiated online, especially through social media, making the processes much more streamlined and convenient for the buyer.
In the past, technology enabled the back-end infrastructure of a retailer. But today, it has emerged as the key front-end enabler of connectivity with customers.
Organised retailing is all about scale of operation and the use of technology extensively to make shopping a lot more ‘self-service.’
There exists a need to balance both online requests as well as manage walk-in customers at the store, as Joanne quickly discovered.
“I started out at home with help from friends who share the same passion towards baking as I did but as the business expanded, there were less and less room at home and there was also privacy concerns as people would keep coming over to the house to prepare the baked goods,” she explained.
“I then decided that we needed a place to properly cater to the increasing demand and hence comma the decision to move to the location we are at now.”
The young visionary noted that the opening of My Sugar Bakes was not preplanned but rather an opportunity that had presented itself to her.
Joanne used the shoplot as a new place to do her baking only to realise that there was wasted space at the front of the shop.
Seeing the unused space, she took the plunge and ventured into a cafe as well.
Calculating costs
Being her first business venture, Joanne faced the typical risks involved in starting a new business, including cost of capital.
“It was a rough ride,” she noted. “We invested an estimated RM180,000 on renovations.”
But, unlike other businesses, Joanne still had a long list of pre-orders for her goods which generated money for her to fund the business.
“After the renovations are done, all in, the cafe alone only accounts for roughly 20 per cent of the income the business, which is just enough to cover our overheads.
“The largest contributor to our profit is still from pre-orders and events – about 70 per cent and 10 per cent respectively,” she highlighted.
“Those (businessmen) that rely solely on cafes to generate the income might be able to break even but it would difficult to sustain the business considering the overheads needed.”
This comes as no surprise as many businessmen and women have expressed how competitive the food industry is with some being described as, ‘here one minute, gone in the next’.
To highlight the increase in sales after opening the cafe, Joanne noted that before the shop she was using roughly 15 boxes of fondant but at the moment she uses closer to 80 or more.
Social media shaping the industry
Joanne also highlighted the power of social media and word of mouth towards smaller businesses, stating that despite being at a new area, customer count is ever increasing.
“I have hundreds of messages asking us on location and orders that it even caught me by surprise. We did not expect the amount of turnouts that we get sometimes.”
It was also noted that the large majority of the patrons were teenagers, older women and young mothers. She also highlighted that for her higher end clientele, word of mouth is the most powerful tool.
This helps highlight the ever growing importance of social media as a new age marketing strategy while also showing that word of mouth is still a relevant marketing tool today despite the rise of e-commerce and mobile commerce.
Frost and Sullivan have also shown that the future of clicks in the retail industry is expected to reach US$4.3 trillion by 2025, accounting for 19 per cent of total retail sales by then.
“We get some very prominent people coming in to ask us to cater for weddings, birthdays and the like to the point where I am now currently packed until February. I do not have the capacity to accept any more orders,” she highlighted.
“We are working very closely with all event companies in Kuching where we would help cater the dessert, door gifts and the likes, to the point where our initial return on investment was cut short by two years.
“We originally expected that it would take between two to three years to recoup the investment we laid down for the renovations and rent but assuming all remains at its current level, we might be able to recoup it in a year instead,” Joanne enthused.
The young entrepreneur also stated that there has not been any supplies issue as she has established a connection with the suppliers since the time she did it from home.
“Thus far, supplies have not been an issue – but labour is. Not many are able to design the cakes or design the fondant. I’ve tried teaching but it really is a rare skill to obtain.
“So much so that I was contacted by a prominent company to work for them and teach their staff the necessary skill to create the designs which I ultimately rejected.”
Joanne highlighted that she has plans to venture into other businesses when time permits and noted that online businesses should brave and take the step to boost its presence.
Slow and steady steps
Despite Joanna’s success story, there are entrepreneurs that have yet to gain the confidence to take that extra step and venture into a physical presence due to the risks involved.
Fitpacks is a new age online health food delivery service and despite being a very new player in the Kuching market, they have seen great success riding on the new healthy living wave that is currently sweeping the city.
Founders Saw Liang Wei and Melanie Ong told BizHive Weekly that the high level of competition of the food and beverage industry locally is extremely high.
“At the moment, we understand that we really do not have any close competitor as we are providing healthy food.
The fact that the food and beverage industry is so competitive, it is quite risky for us to venture into a physical presence as we do not have much capital to work with.
“The government so far, has helped online businesses by giving out RM2,000 incentives for most businesses, so there are some perks for us to stay online,” Saw explained.
Staying online and taking advantage of the rise of social media has helped such businesses as these platforms mitigate risks typically associated with entrepreneurship such as product, capital, and demand.
By lowering risk, they allow more entrepreneurs by lowering the perceived, and actual risks associated with launching a product, and perhaps starting a company.
“Fitpacks’ business model came to us when the two of us were still at Kuala Lumpur. There were many businesses using this model. When I came back to Kuching after seven years in Kuala Lumpur, I decided to give it a try,” said Ong.
“It is a low cost and efficient model for us to try and being a new business that do not have much capital to work with, we did not have the risk appetite to venture into something we know could be extremely volatile.”
Saw further commented that staying online not only helped them avoid the heavy cost-structure and overhead of physical retailers but in growth markets like Malaysia, it has enabled them to leapfrog onto the market without traditional retail barriers.
“Thus far business has been booming with an average of over 60 orders per day, we had to limit the orders as we could not cater to the demand.
“Seeing that Ong is the only cook while I handle deliveries, it has been rather hectic just settling the current orders,” Saw enthused.
When asked about possible expansion plans, both entrepreneurs noted that for the moment they dont have any plans yet as the business is still very young.
“We are still trying to make our process more efficient and also trying to figure out how to minimise delays on our side. As I have mentioned earlier, due to the rising healthy living mindset, our demand has been far greater than we expected from a small market like Kuching.
“But being a firm believer in quality over quantity, that’s another reason why we are still hesitant on expanding our business further as I am unsure if we could retain our current quality if we hire more people to help us out.”
Ong said as a business, they also needed to acknowledge the need to evolve, stating that maybe a little down the line, they might consider having a kiosk somewhere in town.
“It would be easier for us to manag, as well as enable us to cater to a larger demand while minimising quality loss,” Ong explained.
Not the case of one size fits all
Both interviews with My Sugar Bakes and Fitpacks reminded us that it’s not the case of one size fits all.
Going from clicks to bricks gave these ‘e-commerce only’ players another venue to gather data and learn what their customers really want.
It also served a chance to connect with customers in a meaningful way and deliver what today’s finicky shopper expects: great customer service tailored to them but again, it is not a one size fits all method with some remaining loyal to the e-marketplace.
The future of e-commerce seems to be very bright for Malaysia. However, it can only remain so if there is consumer trust and confidence in it. Therefore, there is a need for the businesses to find the right recipe for their own success.
The move from ‘e-tail’ to retail is not for everyone and despite the lure; market research and risk appetite do play a role just as any other business.