Singapore Retailers Should Take Note of this Advice: “Disrupt Yourself Before Someone Disrupts You”

There are some annual reports I like reading.

This includes Hour Glass Ltd’s (SGX: AGS) annual reports. The reports contain chairman and co-founder Henry Tay’s letter to shareholders. These letters often provide insight to the world of retailing. As Hour Glass is a luxury watch retailer with a long track record of growth, Tay’s views do carry weight.

In Hour Glass’s latest annual report (for its fiscal year ended 31 March 2016) released just last week, Tay did not disappoint. He shared three main themes in his letter to shareholders that retailers in Singapore might want to note of.

Balancing demand and supply

“Firstly, as the demand equation rebalances, so will the brand’s production output and distribution as both wholesale and direct owned store networks will be rightsized. Whilst certain watch brands continue to advance their intentions to go the last mile and engage end clients, others have begun the painful process of consolidating their presence and retreat from the problems of over-distribution in markets.

In the case of Hong Kong and China where there have been an excess of both multi-brand and monobrand boutiques, we anticipate networks may contract by up to 40% with some historic retailers exiting the market completely.”

Tay believes that there are excesses in the luxury watch retail market. His statement may be specific to his own retail sector, but other retailers might want to take a look at their own spaces. Retail activity can suffer during downturns, therefore companies might want to set themselves up for survival over the long haul.

The rise of the millennials

“Secondly, we need to recognize that there is a generational shift in the status quo. As has been repeated time and again to our senior team, there will be more of them (the millennials) and less of us (Baby Boomers and Gen Xers).

Anecdotally, this is also reflected in our organization’s composition where millennials make up 40% of the team, Gen Xers 45% and Baby Boomers 15%. Within five years, millennials will constitute over 45% of the team.

So the basis is that we cannot expect the younger generation to adapt to us, it is us who must adapt to them.

“This transition will have a profound impact in the manner in which we engage our future clients. At both the brand and retail levels, the watch industry still exist in a pre-digital era and most have not fully embraced the challenge head on. Physical showrooms alone are no longer the final retail solution and our watch retail business model will begin to alter form.

With the internet of things, how traditional brick and mortar retailers deliver an integrated online-offline service to their clients will determine the winners in this new world order.’Disrupt yourself before someone disrupts you’ has never been a more appropriate maxim.”

Tay does not hold back here. He believes that the demographic shift to the millennial generation will have a profound impact. As Tay puts it, retailers might have to adapt to their future customers who may prefer online deliveries.

Departmental store operator Metro Holdings Limited (SGX: M01), for instance, has adopted an omnichannel approach. This enables its customers to either purchase things online or offline.

Competition is global

“Lastly, every luxury consumer today is a global shopper. And as technology continues to discombobulate shopping in the form of online category killer classifieds, online marketplaces and price comparison apps offering enhanced object recognition software, we believe that brands will trend towards ensuring that there is less retail pricing dissonance globally and advance towards a higher degree of pricing parity between markets.

External factors that will also have to be closely monitored are how exchange rate fluctuations contribute almost immediately to the flow of shoppers to the lowest priced markets.

We witnessed that when both the Yen and Australian Dollar depreciated against the US Dollar and the Hong Kong Dollar. Overnight, tourist spend in our boutiques in Japan and Australia rose to 40% of overall sales. So how a brand sets their prices in each capital city will have to take account such flows as the sophisticated Asian luxury shopper traverses the world seeking arbitrage.”

Pricing information is readily available today. The implication is that the proliferation of information would drive pricing parity across the globe. This could have a profound impact on retailers as their prices may be competing on a global scale instead of on a local level.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.