Online-offline integration key to AS Watson Group success

Don’t mention the so-called ‘Retail Apocalypse’ to AS Watson Group MD Dominic Lai.

An ardent enthusiast in new-generation retail technology, he heads a company that has just celebrated its 15,000th physical store opening. And that network expansion is showing no signs of slowing, with a new store opening on average every seven hours for the foreseeable future.

“A few years ago, technology arrived and people said: That’s the end days for retail. But no, we never thought that,” Lai tells Inside Retail Asia during an interview outside the 15,000th milestone store, a Watsons health & beauty shop in the new Central I-City mall in suburban Kuala Lumpur.

AS Watson Group is possibly one of the best examples worldwide of a retailer successfully merging online and offline in a way that is achieving growth in both sales and profit. Revenue was up 10 per cent last year and profit increased 9 per cent. “My shareholders expect even more,” he deadpans.

Embracing online and developing an O2O (online-to-offline) business model is the key to the company’s success, he says. It keeps his customers happy.

The company has invested some US$130 million in technology since 2012, to be sure to be competitive in the online era.

“We anticipated e-commerce. We anticipated big data. But we are not just about e-commerce. We have to connect our customers through digital, social media, mobile, everything. This is what we have done and we will continue to invest in technology. We are ready. Technology-wise, we are up to speed.”

At the heart of this O2O business model is click and collect, linking 13,000 stores to their localised e-commerce site. Most online retailers only offer click and deliver, but Watsons’ customers can browse its sites online at midnight and pick up in any of the stores the next morning.

Watson-store 1

The best part of this model is that the company has the opportunity to sell more goods to customers collecting their online purchases.

“The traffic comes straight to the store,” adds Malina Ngai, AS Watson Group COO. “So on average, 20 to 30 per cent of the shoppers will buy something else.” In some markets, like Taiwan, that rate grows as high as 52 per cent.

Moreover, As Watson data shows when its loyalty program members shop online and in store, their spending is on average three to four times higher than those who shop only in stores.

Ngai says the business model – combining physical stores with mobile, website and social media – sits well with the retailer’s core demographic. In Asia, 60 per cent of AS Watson Group’s customers are aged under 35. In China, that segment jumps to 80 per cent. “So you know you have to offer those digital options.”

The company’s loyalty program, with 135 million members worldwide, represents one of the largest of any retailer’s anywhere in the world. That provides a treasure chest of data, helping the company recognise and understand trends, assess the performance of different promotions, and personalise offers or other marketing communication. And it is clearly working: the health & beauty store network growth is running at 6 per cent, yet sales are growing at 9 per cent.

New store sites are chosen based on interpretation of customer spending both on and offline, using big data. They are typically staffed by people in the same age profile as its customers. “We have a lot of Gen Y and Gen Z staff,” says Lai. “Retail is detail and we look at every [way] how to connect with our customers.

In the years ahead, Lai’s vision for AS Watson Group is succinct: “We will continue to open new stores and at the same time we would like to get more members, more formats and make more investment in technology.”

He is unafraid of any economic downturn.

“Look at [our] business model. We sell essential products. We are not selling watches and jewellery, we are selling essentials. That’s why I use the word resilient to describe our business: we are resilient.”

AS Watson Group this year added Vietnam to its footprint, taking the number of countries and territories it trades in to 25. Lai says the company is always looking for new markets, but for now is more focused on expanding within the ones it is already in.

“We are international. We plan prudently. So we went into Vietnam because we realise the customers there already know our brand and the demographics – and the market entry strategy was to open the flagship and enable the online. That’s the process by which we look at the international market.”

Ngai points out that the 25 markets AS Watson Group already trades in represent 32 per cent of the world’s population, “and we only have 15,000 stores”.

“That is why we can still open one store every seven hours.”

With a new-store payback time of less than one year, that strategy is clearly working. “We open, the customers really love us and we get enough sales to get payback within one year.”

AS Watson has 12 retail brands across the globe, of which Watsons is by far the largest, with 7200 stores in Hong Kong, Mainland China, Taiwan, Macau, Thailand, Singapore, Malaysia, the Philippines, Indonesia, Vietnam, Turkey, Russia and Ukraine. Sales last year nudged US$22 billion. Across its banners, the company has some 20 different formats.

“Going forward we will be seeing more and more different models because it is about specialising the offer for the customer needs,” explains Ngai. “It may be [we serve] the same customer, but when the customer goes to a work area they just want to buy wellbeing products, so we have a Watsons Health; and in an area with a lot of young mothers we have a Watsons Baby store; and when they go back to the residential area and want to pick up personal-care products, we have a more regular Watsons store.”

Lai says the reason the company has been so successful over the years is its customer connectivity. And because it has embraced technology.

“We have even been quietly investing and developing our big data and analytical capabilities.

We have been using technology to identify sites to control our inventory, to connect with our customers, to do the assortment planning and space planning.

“I would like people to know that AS Watson Group is a very modern company, it is not just a retail company opening physical stores. We know how to reach young customers,” he says.

“We are one of the longest-standing companies in the world with 178 years of history. To be able to reach yet another critical milestone, this is only possible with the love from our customers, passion and commitment from our 140,000 colleagues around the world, and the unfailing support of our business partners.”

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