This article first appeared in The Edge Malaysia Weekly on February 8, 2021 - February 14, 2021

AEON Co (M) Bhd, one of the largest mall operators in Malaysia with a 10% market share, is diving head first into digital transformation in a bid to cater for changing consumer needs, which have been dramatically accelerated by the Covid-19 pandemic.

Last week, the company announced a partnership with US-based online bulk retailer Boxed Wholesale to utilise the latter’s technology and know-how in its efforts to make a significant headway in the digital space and streamline its existing platforms.

Both parties have kept mum on the value of the partnership, but it is understood to be in the range of “eight figures” in US dollars. The deal was struck within a year, implying the sense of urgency that Aeon Co had in establishing its digital platform quickly to cater for customer needs and stay in the game.

“When I came on board as CEO of Aeon Malaysia in January 2020, there were already plans for digital transformation, from the business model to the retail ecosystem,” Aeon Co CEO Shafie Shamsuddin tells The Edge.

“At the time, we wanted to do it step by step. But because of the pandemic, which started early in the year, it became a catalyst for us to convert ourselves quickly in the digital transformation process.”

Going digital is a big move for the retailer and mall operator, which had remained largely a bricks-and-mortar operation until the pandemic hit last year. In the second quarter of 2020, the company set up three online platforms as a stop-gap measure to serve its customers while the deal with Boxed was in the works. Following the partnership with the US-based company, the three platforms will be streamlined into one and carry a new name — KA-MI — which is poised to be rolled out in the Klang Valley at the end of the second quarter and nationwide by the end of the year or early 2022.

“We believe that with Boxed, we can bring new experiences to customers at a faster pace. In Malaysia, we have either fully online players or bricks-and-mortar retailers that are working on new online systems. We are going to work very closely with Boxed to transform what we have done, to go faster to reach our customers both online and offline,” says Shafie.

For context, Boxed is a seven-year-old company with an existing end-to-end solution that caters for its US-based customers. This should give Aeon Co the advantage of riding an established platform rather than starting from ground zero.

At the same interview, Boxed CEO Chieh Huang says both parties are in sync, “moving at similar speeds and thinking very similarly”.

What Aeon Co plans to achieve in the tie-up with Boxed is ultimately providing a superior shopper experience, giving shoppers the flexibility and service to decide how they want their various items from Aeon malls to reach their hands — be it through pickup, delivery or a mix of both.

Shafie believes this will help to increase the footfall at Aeon malls as it will be providing a “different experience” to suit each customer’s needs. The company hopes to achieve its target of 15% to 20% of its revenue from its online platform in five years.

“They can shop online in their homes and choose which products they would like to pick up or be delivered. This convenience will also be extended to them when they are in our malls — for example, while dining in, they can order a product via the digital platform and have it sent directly to where they are or opt for it to be delivered at a later time,” he says.

Aeon Co is also working on a one-payment gateway solution to provide customers the convenience of using the digital mall to pay for products bought from its tenants. “It sounds simple, but there are very few retailers in the world with the capabilities to do exactly that,” Chieh chimes in.

One hurdle that Aeon Co would have to overcome in its plans to digitalise its retail ecosystem is to convince shoppers to accept the changes as the majority of its members are more than 40 years old and account for more than 60% of the retailer’s business.

“This demographic is important for us to reach because most of them, who are above 40 years old, are not so used to shopping online. We want to focus on how we can educate them to bridge the online gap and still open up the offline channel for them to gradually move to a mix of both channels,” says Shafie.

While educating its more mature clientele on the new channel available to them, Aeon Co is working to target the younger generation and hoping that the new platform will spur interest and attract them to sign on.

The digital shift has also been an educational process for the company’s staff and even its suppliers and vendors. “We started the education process in the past year to prepare ourselves for the collaboration with Boxed. It has been a lot of education,” says Shafie.

But will the interest in online shopping remain as strong when the pandemic comes to an end?

“It will be a mix of both and it will never be one or the other. Customer demographics are changing and moving very fast, and we definitely see a trend where convenience will always be important for everyone,” he says.

“The way we see it, in the coming year, whether Covid-19 is still around or not, there will be demand for convenience and safety. Thus, that mix of shopper experiences will continue and that’s the reason why we have to start immediately with a tech company such as Boxed, which has the experience.”

Chieh says his data reveals that customers are quite sticky online, but he believes that it will be all about the shopper experience once the pandemic ends. “People will be a bit more used to buying ‘boring goods’ online. If anything, 2020 has highlighted how much human interaction we need and how much we want to go out. So, I think going to an Aeon mall will be about the experience.”

While waiting for the rollout of the platform, Aeon Co — like other retailers — will be impacted by the Movement Control Order, which has been extended to after Chinese New Year (CNY). However, it will continue to utilise its existing online platform to offer its usual CNY offerings and look into the different kinds of products and services that can be offered after the festive period, which is usually quiet for retailers.

“We see that most customers who are in the mid- to high-income bracket will still have spending power after the festive period, given that they would have spent less during CNY this year. Looking at the kinds of challenges we are facing now because of Covid-19, if we are fast enough and agile enough to adapt to them, there is a lot we can still bring to customers,” says Shafie.

In the financial year ending Dec 31, 2021 (FY2021), group revenue is projected to be an improvement over that of FY2020, but unlikely to reach FY2019 levels. However, operating profit is expected to be close to FY2019 levels, he says.

In FY2019, Aeon Co made a net profit of RM109.2 million on revenue of RM4.54 billion. For the cumulative nine months ended Sept 30, 2020, its revenue stood at RM3.13 billion while net profit amounted to RM14.26 million. Last Wednesday, the stock closed at 93 sen, valuing the company at RM1.33 billion.

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