Launching into bricks and mortar retail in Singapore is like boarding the Titanic on a first class ticket — it’s glamorous, expensive, and it’s slowly sinking, writes Tailor Skincare founder and CEO Sara Quilter.
OPINION: In 2012, I started a natural skincare business called Tailor Skincare. I launched the business with the financial backing of my minimum wage support worker salary, which I used to purchase a Kenwood cake mixer, a bag of clay, and a second-hand MacBook Pro.
Six years on, and Tailor Skincare has an online community of more than 100,000 subscribers. Last year, we launched into a few key retail channels in New Zealand, including Farmers. It’s fair to say that ecommerce is my jam and I’m relatively new to the bricks and mortar retail environment.
In February, I visited Singapore as part of the ASEAN Young Business Leaders Initiative, run by the Asia New Zealand Foundation for the Ministry of Foreign Affairs and Trade. This was my first experience in the ASEAN market and I want to share a few insights gained during this whirlwind trip.
A complicated landscape
After meeting with several distributors in Singapore, I felt like I was between a rock and a hard place, especially as a small business.
A popular way to enter a new market is to find a distributor who can also sell your products. The distributor will take a 15 to 30 per cent margin, depending on how you negotiate the P&A (promotions and advertising) budget. They then sell on your products to a retailer who will likely want a margin upwards of 50 per cent.
When you start to break things down — and factor shipping into the equation — you quickly realise you’re playing the volume game if you want to turn a profit. This is fine and it’s a game I want to play, but I want to ensure the path is a sustainable one.
It’s also not uncommon (it’s more like the norm in Singapore) for retailers to hold stock “on consignment” and not pay up front. The distributor is likely to want to pass the final payment risk back to you, the brand owner, which leaves you weighing up the risk.
Let’s say you decide to take this risk and agree to the “on consignment terms”. You sit back and cross your fingers that the detailed P&A plan you created with the distributor will be effective. You also hope all of your market research rests upon valid assumptions, and that you’re not missing some vital piece of the puzzle.
At the same time, you kiss direct contact with your customers goodbye, and wait for an undetermined length of time. Once the retailer sells your stock, they pay your distributor on a 60 to 90-day payment term, and then the distributor pays you (only for the stock sold, not the stock sent). Which means you’ll probably be waiting around six months until all the sales from your consignment have been recovered. Obviously you can negotiate better terms (like payment upfront), but when you’re a little guy hoping to crack the market, the negotiation power lies with the heavyweights.
Your options are to find a smaller distributor and grow with them, or turn to ecommerce.
Singapore is one of the most connected nations in the world. I grabbed a copy of The Straits Times on my flight, and plastered across the front page, along with a double page spread in the business section, was an article from Finance Minister Heng Swee Keat about “helping Singapore thrive in a rapidly changing global environment”. One of the ways he plans to do so is by catalysing loans for SMEs wanting to go digital. He has already mobilised $2.5 billion in investment, and there’s another $1.8 billion said to be available under the Enterprise Financing Scheme. This is a clear signal that Singapore sees digital channels as the future.
The move towards digital was further backed up by a conversation I had with a global cosmetics distributor. He made it very clear that they need a 30 per cent margin and expect an RRP on par with what is offered to New Zealand customers, in order to get into Singapore stores. But he also made the point that large retail chains are in decline by 5 to 10 per cent per year, which means to stay alive in this space, you’re facing some of the most cutthroat competition on the planet.
Basically, the bricks and mortar retail environment can be compared to a large ship which many brands wish to board. However, this ship is slowly sinking year on year, much like the Titanic.
But consumers are still shopping. Where are they going? They’re shopping online.
A potential lifeboat?
My logic is that you have two options: partner with an online giant like RedMart or Lazada (the Amazon of Southeast Asia), or drive traffic to your own ecommerce platform. Each option comes with its pros and cons.
First, let’s look at going it alone. Driving traffic to your own ecommerce platform can be expensive. But you get to own your customer data, including their email addresses, which is a valuable asset. However, you’re also competing for digital ad space in a crowded market. You’d better ensure you have unsinkable creative which stands out in an ocean of social scrolling.
Alternatively, you could partner with the likes of RedMart or Lazada, as NZTE in Singapore is urging New Zealand businesses to do. In fact, it’s about to do a market test showcasing a variety of New Zealand brands. The upside of this is that in a crowded market, collaboration does become the new competition and banding together to create a larger entity or “New Zealand store” is a way to stand out.
This does resonate with me because you’ll catch the organic traffic coming to the platform in search of a product like yours, and because you’re partnered with other similar businesses, your “store within a store” will stand out.
Ultimately, you must make the decision — do you want to steer your own ship by owning your customer data? Or do you want to go with the flow and jump on a wave which could take you further, but lose direct contact with your crew in the process?