Traditional Consumer-Focused Channels Are Heading Toward Extinction
I was recently invited to speak at the three-day Distree Asia Pacific event on technology and business model disruptions and their impact on tech distribution, where I spoke with tech vendors, consumer electronics (CE) giants, tech distributors, retailers, and e-tailers from across Asia Pacific. We discussed various topics, including the channel scenario for the coming two to five years. Based on these inputs and my understanding, I believe that the traditional IT channel, including consumer-focused distributors, will soon disappear unless its current business model changes. Here’s why:
- Direct market resellers (DMRs) and e-tailers are taking the flab out of the traditional channel. Although a large number of consumers still prefer to shop offline, increasing consumer confidence and further adoption of online payments in Asia Pacific mean that more and more DMRs will establish their presence on the Web, targeting consumers with low-cost products. eCommerce sites like Lazada are trying to build an Amazon-like model for Southeast Asia. The entry of nontraditional players such as government-owned Indian Railways,which recently launched its own eCommerce retail marketplace in India selling electronics and IT products, is also disrupting the traditional channel ecosystem.
- Hypermarkets and specialist ICT retail stores are competing directly with ICT distributors. Many local and multinational vendors are setting up specialty retail stores or hypermarts in tier 1 and tier 2 cities in newly open Asian markets. These stores not only fulfill the needs of consumers who want to see and touch products, they also serve as a one-stop entertainment destination for the whole family. Mass discount eCommerce site Groupon opened its first physical store in Singapore last year for precisely this reason.
- The slack, sluggish attitude of some Asian partners is hindering the channel evolution. Some of the distributors I spoke with during the event were not really concerned, even though they understood the changing trends and the impact on their business. Many of them plan to deal with the situation reactively, if and when things start going south. However, it might be too late by then.
With the onslaught of online and large organized retail stores, many mom-and-pop stores are likely to close up shop in the next two to three years; tier 1 cities will see the impact first. Distributors that depend heavily on this business model will see an immediate impact on their sales. The swelling ranks of middle-class consumers in Asia Pacific can act as a fantastic growth driver for the region. But not only do they now have more money, they are also well-educated, aware of the choices available, price-sensitive, and looking for a great shopping experience. All of these changes will continue to drive the already margin-deprived traditional channel ecosystem toward extinction in the age of the customer.