Digital transformation is more than just e-commerce

Digital transformation is more than just e-commerce

26 May 2021

The renovated AEON Co Bhd headquarters in Taman Maluri, Cheras, feels like a newsroom — a brightly lit office space with an open floor plan — and seems especially vibrant, with several discussions being held at different corners of the floor when City & Country paid it a visit on a recent Monday afternoon. 

Established in 1984, the AEON brand hails from Japan. The group’s main business is operating general merchandise stores (GMS), supermarkets and convenience stores. It is also involved in speciality store operations, shopping centre development and operations, the credit card business, as well as services. The headquarters, together with the adjoining retail component — then known as AEON Taman Maluri Shopping Centre — had gone through a massive makeover from early 2017 to end-2019. 

Now called AEON Style Taman Maluri, the shopping centre saw its retail space grow 50% to 450,000 sq ft after the makeover. It is part of the group’s nationwide renovation efforts. 

The group operates a total of 43 malls — 28 AEON malls and 15 AEON BiG malls — with an aggregate net lettable area (NLA) of 16 million sq ft, or about 10% of the market share in the country. The occupancy rate for AEON malls is almost 92% of the total NLA, with more than 3,048 tenancies. Meanwhile, AEON BiG malls have 900 tenants occupying 91% of the space. 

According to its FY2019 annual report, all the 14 properties that AEON owns in Malaysia are shopping centres and have a combined net book value of more than RM1.8 billion.

Besides the nationwide renovation efforts, the group is banking on digitalisation to create synergy between its businesses, which is in line with its principles of people, planet and peace. This will give retail a new concept and function that AEON Co and AEON BiG CEO Shafie Shamsuddin calls “new retail”. It is also looking to launch new concept stores this year.

New retail

AEON Group has eight companies in Malaysia: AEON Co; AEON BiG (previously Carrefour, it was renamed after the company purchased the Malaysian chain of French retailer Carrefour in 2012); AEON TOPVALU, which focuses on private labels from Malaysia and Japan; AEON Global Supply Chain Management (AGSCM); AEON Delight, which offers integrated facility management services; AEON Fantasy, which offers entertainment facilities, such as Mollyfantasy, in shopping centres; AEON Credit Service, a financial services provider; and the Malaysian AEON Foundation, which holds major charity events and provides community services with a RM5 million fund.

AGSCM operates the regional distribution centre and perishable transfer centre; outsources three distribution centres for chilled and electrical products; and operates a food processing centre in Shah Alam, which also serves as its central kitchen.

AEON Co also owns speciality store Daiso and pharmacy AEON Wellness, says Shafie. Besides operating in its own malls, both AEON Malaysia and AEON BiG operate in other malls as anchor tenants.

The group now has 34 AEON stores, 44 Daiso outlets, 66 AEON Wellness branches and 22 AEON BiG hypermarkets. Together, AEON Co and AEON BiG have a total workforce of more than 12,100.

“Many people don’t know we are a mall operator — we are one of the largest mall operators in Malaysia and we have many businesses. AEON BiG has been making losses, and we finally achieved an operating profit last year even though it is still a net loss, owing to interest we needed to pay. This year, we expect to see an operating profit of 2½ to 3 times more than in 2020. We started the B2B segment with AEON BiG last year and made RM50 million, and we will continue to focus on this segment, with a revenue target of RM300 million this year,” Shafie says.

While AEON BiG caters for middle-market and middle-low-end customers, AEON supermarket-cum-GMS targets middle-market and middle-high-end customers. Daiso and AEON Wellness attract the middle-market and middle-high-end customers. The group also has nine MaxValu/MaxValu Prime stores in Malaysia to capture high-end customers.

Shafie, a Singaporean who joined the company in January 2020, explains that the group’s diverse businesses allow it to capture the whole spectrum of customers. Nevertheless, like many other businesses, it was affected by the Movement Control Order (MCO) imposed last year.

AEON recorded a net loss in 2QFY2020 ended June 30. It managed to return to the black in the following quarter, and eventually closed FY2020 with a lower net profit of RM41.4 million, versus RM109.2 million previously.

Last year, AEON implemented restructuring and cost-cutting measures, including relocating its AEON BiG headquarters from Subang Jaya to Taman Maluri. Despite the impact of Covid-19, it is keeping both its contract and permanent staff, with no pay cuts. Meanwhile, C-suite-level employees — including Shafie — volunteered to take a 10% salary cut between April and December last year.

“For AEON Co, we have both supermarkets and department stores, which contribute equally to the business. What really affected us is the latter because we were unable to open department stores during the MCO. Nevertheless, we committed to what we said and we didn’t terminate anyone, but there was no immediate replacement for those who resigned. We had also said we would not increase salaries and pay bonuses, but we did give the staff a bonus at the end of last year and in April this year,” Shafie says.

“The mall operations are also heavily affected because we have many tenants, and the non-essential tenants were facing problems paying rent as they could not operate their business. Therefore, we worked with them on a case-by-case basis [including waiver]. Also, at that point, we knew we needed to [restructure] the whole business model. We look at it positively, and we know this is the time we need to expose our employees to digital transformation and the idea of multitasking.”

Shafie explains that department store staff were asked to help out at supermarkets as personal shoppers. With the AEON Personal Shopper service, customers pass their shopping lists to the personal shoppers, who will pick up the items for them. The customers will then be called to make payments at the designated cashier counter. AEON served 700,000 customers under the personal shopping service last year. 

“We call it personalisation, and this is the direction we are moving into, alongside demand change as well as transparency as the three philosophies of our digital transformation. Demand change is about knowing and giving what customers want, while transparency is about sharing the truth about what happened; and it is important, especially about what happened to the mall. Transparency has a lot to with data, and it is about how we share the data with our partners, and [from there] how we do personalisation with the data,” he says.

“In early April 2020, I gathered the team members and told them Covid-19 is just like a war. We need to know not only how to recover but how to rebuild the infrastructure. That is when we expanded into the ‘new retail’ offerings with digitalisation and technology. Digitalisation had been growing strongly even before Covid-19 hit; people knew they needed to transform digitally but there was no urgency to change, and people normally do not want to change the status quo. At AEON, we see Covid-19 as an agent of change.”

Retail as the means

AEON embarked on its journey to digital transformation in 2020, and it will launch the MyAEON SuperApp in July to serve its ecosystem. As the digital transformation — called Engine 2.0 — focuses on new retail, the company is set to expand vertically by “connecting the dots” between all its business offerings. 

For example, potential tenants can apply via the SuperApp to lease space with AEON. The negotiation and the deal closing will be done digitally. Any requests from tenants, such as cleaning and maintenance, can also be done via the app.

Sharie says: “While Engine 1.0 is about our existing core businesses, Engine 2.0 is about building a new model. It is about ‘new retail’ and how we connect everyone in the ecosystem through digital so that our businesses can support our customers in a fast-changing retail landscape. It is more than just e-commerce. Retail is part of the ecosystem and it is a means to everything else.”

He adds that the five components of the ecosystem are products and services; physical and online; distribution and logistics; payments; and communication. 

It means AEON can offer its products and services via its bricks-and-mortar stores or the online platform. Then, the transaction moves to the distribution and payment of the products and services. The final component, which Shafie says is very important, is communicating the message to the customers. He believes content will be an important element in the future.

“We are learning to build and manage content now, rather than owning a channel. Airtime on YouTube and Facebook is free, so we are doing our own video content for storytelling, with the help of production houses. To celebrate AEON’s 37th anniversary this year, we have planned storytelling and contents in three phases: drama series, talk shows and reality reporting. When you look at the ecosystem, customers are at the centre and we don’t mind working with other partners to support our customers,” he says.

A partnership it recently entered into involved having its central kitchen double as a cloud kitchen. In February, it partnered with actor and TV host Alif Satar — who has more than four million social media followers — to produce Sambado Chicken Rice. The cloud kitchen produces the dish before it is sold in AEON stores. Shafie explains that this move enabled Alif to start his business without putting in cash. 

At the same time, for every 10 packets sold, AEON donated one packet of chicken rice to the B40 group. Within 45 days, sales reached RM1 million, with more than 100,000 packets sold. This means AEON has donated 10,000 packets.

“I don’t think we can do everything on our own. The way forward for AEON is about collaboration, focusing on how we can leverage current assets. For instance, we are partnering with Boxed for the SuperApp to speed up the [digital transformation] work. There are also other new offerings we will do via the SuperApp, such as a subscription model for our grocery. Take, for example, a customer who has a buying pattern with AEON. When we offer her a subscription plan, we will lock in the price for the products she normally buys from us. Before we deliver the product to her, we will [always] verify the quantity she needs,” he says.

“Also, we will launch AEON Makan soon. It is like FoodPanda but, for now, it is only for the tenants in our own malls, where customers can order online and the items will be delivered to them. Unlike the market standard of about 30%, we will charge the merchants only 10% to 15%. We are also sourcing for riders for this segment.”

Future expansion

Besides creating synergy among its businesses via the digital platform, AEON will expand horizontally. Shafie notes that Daiso will continue to expand with more stores, and AEON is also changing the positioning for AEON Wellness. The latter will focus on three elements: wellness and healthcare for senior citizens; halal beauty products; and Japanese products. 

The opening of the AEON supermarket and department store in IOI CityMall, Putrajaya, will be postponed to next year because of a delay in construction caused by the MCO.

AEON also plans to open three new brands in Malaysia this year. The first is a flat-priced store called Komaiso, with products priced at RM2.50, RM5 and RM10. This Japanese-inspired modern lifestyle store concept will feature cashless stores, and AEON is working with Multimedia University in Melaka on the implementation.

“The first store opened in Melaka at end-April and the second launch will be in KL this quarter. Customers must register with AEON before they enter the store. To pay, they will scan the products with their phones or at the self-checkout counters. We plan to open 10 Komaiso stores this year,” Shafie says.

The second brand is a Japanese concept called Home Coordy, which is a smaller version of Ikea and has a store size of about 5,000 sq ft. The standalone store is scheduled to open in June in AEON Style Taman Maluri.

The third is a clothing brand called Inner Casual, which is akin to Uniqlo but offers products of a similar quality in a more affordable price range. It will open in the second half of the year.

Over the past few months, AEON has brought in talent of different backgrounds, as Shafie believes the transformation needs variety to grow. As he puts it, the business is no longer just about retail; it is now time to take it to “a new level”.

“We believe in the power of the people, and people decide our destiny. Covid-19 has inspired us and it is an agent of change for us. We have three Ss in moving forward and faster: they are speed, skill and synergy. People are the most challenging part because I don’t want to leave anyone behind. It is a train transforming into a drone that is moving fast.”

Source: The Edge Markets