Malaysian Technology News
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By Anita Devasahayam

May 01, 2000

Parkson Gets Personal

Killer competition would aptly describe the atmosphere of the retail sector in Malaysia. With the national drive to promote the country as a tourist and shopping destination, it is becoming increasingly difficult for homegrown retailers to survive in the high stakes business of successfully managing departmental and supermarket stores.

With thinning margins that barely allow retailers to stay in the black, the attraction of a quick buck and high visibility continue to fascinate and draw new players in the already crowded market place.

Seasoned homegrown retailer Parkson Corporation shrugs off the competition and looks beyond the bottom line to continue to stay in business. The retail giant opened its stores in December 1987 and rapidly established itself as a truly diversified retail chain with different formats, comprising department stores, hypermarkets and specialty stores.

In the department store segment, Parkson has strategically tiered its stores to cater to different needs. The Grand stores are positioned as fashionable family stores catering to the middle and upper income group. It offers a wide lifestyle selection of merchandise focused on style, quality and variety.

The smaller outlets, known as Parkson Ria, are tagged as general merchandise stores and is targeted at suburban, middle and lower income segment, offering a variety of quality goods at value-for-money prices. In the hypermarket sector, Xtra Supercenter is a combination of a supermarket and general merchandise store offering over 60,000 items at daily low prices.

To complement its already wide variety of imported and local merchandise, Parkson has also developed a series of private labels for gents, ladies and children. And instead of merely growing its traditional business and sit by the sidelines watching others embrace e-commerce, the subsidiary of the Lion Group, has jumped into the fray, with both feet in.

Last year, the group signed on IBM Malaysia's Net.Commerce for B2C and B2B solution. IBM provided all components for e-commerce, ranging from Net.Commerce for merchants, Payment Server for payment options and Payment Gateway for financial institutions. "Actually, we introduced online shopping in March last year," revealed the company's EDP Manager Lee Kong Huat.

However, the foray online was executed without the usual fanfare associated with the retailer's high profile advertising and marketing blitz. Despite his convictions of getting on the 'Net, Lee intended the exercise as a means to identify weaknesses and potential of having an online shopping space., minus the publicity, attracted 100,000 customers since it was introduced in October 1998.

Last year, it won the top prize at the @my '99 Anugerah Internet Malaysia competition for excellence in e-commerce strategy. The event was organised by Mimos Berhad and Association of Computer Industries Malaysia (Pikom).

Why would one of Malaysia's top retailers with 26 large and mid-size stores spread nationwide need to get on the 'Net. The answer, according to Lee, is a matter of necessity.

"We have to be there, whether we like it or not. It is too large a potential to ignore," he said.

Having adopted technology since day one of its inception, gravitating towards the 'Net and e-commerce is, however, a rule not exception in the case of Parkson Corp.

The top management has always valued technology as an essential component in its business and is supportive of Lee's technology-oriented endeavours.

Since day one, we have used computerised point- of-sales (POS) system as sales is the core revenue generator. It was used to track movement of items, chart products that moved or stagnate and identify departments that performed better. All this information helped our buyers better plan the buying and strategise marketing plans to draw in more customers," said Lee.

He added that having advanced sales terminals and computerised merchandise control technology in place also kept inventory at low levels. By 1993, the retailer had invested close to RM7 million (US$1.84 million) in deploying technology tools across its organisation. Annual budget for hardware maintenance stands at RM1 million (US$263,000). Turnover has been healthy, with the retail chain contributing 40% to group revenues of RM1 billion (US$263 million) annually. The retailer also participated in MalaysiaOs first multi-party loyalty programme - BonusLink - that was introduced in January 1997. Anchored by four industry leaders comprising Shell, MBf, Maxis and Parkson, the programme has over 1.8 million members. Coupled by a healthy following, the retail player is confident that the pay-off at the end of the yellow click road will be overwhelming.

"We have been looking into e-commerce for quite a while now and realised that staying away is no longer a matter of choice. We have to be in it and luckily we ventured out to the frontier quite early. It gave us an insight of what needs to be done," said Lee.

The online store is divided into three categories: special occasions, corporate gifts and student needs. Between 100 and 200 items are available for sale on its Web site. Prices for all these items are reduced slightly but do not include delivery charges. "When you add the freight charges, the amount you'd be paying matches that at our stores," said Lee.

The online store also charges a 3% goods and services tax for total purchases above S$300 (US$175) per consignment shipped to a Singapore address. Under normal circumstances, the store will make deliveries within 10 days upon confirmation of the order to addresses in Malaysia and Singapore.

The initial pickup rate of its online store was very slow. Lee attributed it to the small number of Internet users in Malaysia and more importantly to the infrastructure for payment and delivery which was not clearly defined. Locals also did not have the confidence to shop online. Furthermore, progress was hampered by most bankers' hesitance to change and support e-initiatives due to Y2K worries last year.

"My colleagues and friends used to ask me what is an e-wallet or what is SSL (Secure Socket Layer) or SET(Secure Electronic Transaction). There are a lot of issues that need to be trashed out and unless education on e-commerce is stepped up, online shopping will be slow in coming," he disclosed.

But speed bumps along the high speed electronic lane has not stopped the retailer from continuing its endeavours in the virtual world. It just prompted Parkson to further question its motives and seek justification to the decisions made.

Parkson Corp certainly does not foresee the online venture generating any income in the next two years. "We are here to learn and to discover the potential," reiterated Lee.

And the tide is certainly turning in their favour. As the 'Net has brought a wave of new computer users, the government's push for the public to buy computers with the PC Ownership Campaign is expected to create a pool of 'Net shoppers in the future.

Furthermore, with a sturdier infrastructure being laid out, wider bandwidth and global efforts to strengthen security to trade on the 'Net serves to enhance Parkson's move to e-tailing.

However, Lee conceded that grey areas including fraud, return of goods, matters related to banking and law must be tackled before the volume of online shoppers here will grow.

Lee also pointed out that the civil servants' lack of IT awareness is often a stumbling block. He cited an instance where they were informed by a government official that they could offer online shopping without securing a valid trading license.

"Although we are aware of other e-tailers who are trading online without a license, we wanted to go by the book and get our papers in order before starting out," he said.

With a year's experience on the Web, Lee is studying several options that the company is keen to put in place to enhance its 'Net offerings. For example, the type of goods that would do well online, as well as opportunities to sell abroad, to open up payment options and to work with foreign or international customers. "We are in the midst of a tie-up with Hong Leong Bank to allow MasterCard holders to shop online," said Lee, adding that it had tied up with Maybank to expedite VISA payments when the online mall was opened.

Judging by the traffic, Lee also hopes to further define consumer needs as competition widens as going online is a double-edged strategy. "On one hand we are global and on the other hand, the competition manifolds overnight. People have more choices," he said.

However the retailer is not banking on price conscious consumers but will concentrate its promotions on the current pool of customers. Lee emphasised that pricing is no longer the major determinant and placed higher value on other factors such as speed, variety and service. "We will study the traffic and evaluate the feedback in order to cater to their needs. We are also seriously studying cross-border sales over the 'Net as it is a lucrative option. However we will need to iron out issues related to tax and the logistics related to this," he said.

Lee also pointed out that many shoppers of its physical store in the southern part of Johor are from Singapore which present a large potential group for its e-commerce venture. "We are looking at ways on how best to tap that market," he said.

At the end of the day, the benefits far outweigh the downside as the 'Net provides consumers as well as its practitioners a global market at a cheaper alternative. "With the right amount of products and correct channel for information, we are optimistic of doing well."

Published in Intelligent Enterprise, May 2000

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