By Tan Chee Wei, Partner, Head of Consumer & Retail, Tax, KPMG in Singapore and Guillaume Sachet, Partner, Advisory, KPMG in Singapore

The return of tighter measures due to the recent surge in global COVID-19 cases has put the spotlight back on the transition to omni-channel strategies in retail, especially with retail among the sectors most impacted by closures or restrictions due to the pandemic.

However, based on KPMG in Singapore's interactions with industry players, few traditional retailers are well poised to deliver omni-channel success.

COVID-19 is likely to become endemic, as Singapore's ministers have said recently. There remains uncertainty since outbreaks now and then could continue to disrupt recovery in local retail sales, which rose 6.2 per cent year on year in March, albeit from a low base. This has amplified the pressure on retailers to find new ways to draw shoppers back to their stores. Hence, it comes as little surprise that the annual Great Singapore Sale (GSS) has taken on an omni-channel format this year.

More than just setting up an e-commerce store

While the approach GSS has taken is commendable, this is still just a shot in the dark.

True omni-channel is designed around the retailer's unique business goals, with physical and online formats coming together to achieve those goals, rather than as an afterthought or a seasonal consideration.

This can be a difficult proposition for traditional retailers. While they understand the nuances of old-school physical retail, their stores will need to be reconfigured to deliver more personalised, curated shopping experiences. Along with investment in automation technologies and digital marketing, their employees will need to be retrained to offer services that differentiate the store as a destination. Supply-chain management systems will also need to integrate both online and offline stores to provide an accurate view of product availability to customers.

As things stand, many traditional retailers are realising that omni-channel growth may not be in their DNA. It not only requires investment into infrastructure and increases the fixed cost base, but also potentially cannibalises sales from the retailer's own brick-and-mortar stores, adding running costs but not revenue.

However, retailers need to evolve at pace or risk being left behind by companies that have stepped up investment.

The main attraction of omni-channel lies in taking back charge of the entire customer journey. Traditional retailers face disruption on many fronts, with COVID-19 having accelerated the shift towards digital channels and triggered seismic shifts in consumer behaviour, such as reduced discretionary spending and a preference for local brands.

Retailing with a business model that's relevant now and post-COVID

These trends make it crucial for retailers to reinvent themselves, not just for near-term survival, but to thrive in the long term. In this context, omni-channel emerges as a key strategy to build up a business model that is relevant in current times, yet flexible enough to weather swings in consumer trends post-pandemic.

A lot of effort is required to pivot successfully. Given the fierce competition and need for investment, retailers will need to home in on strategies to optimise costs. Retailers of non-essential products may need to cut costs up to 50 per cent; even retailers of essential goods could target up to 20 per cent in cost reductions, going by KPMG International's calculations.

This will involve refining the product mix to meet consumer needs, facilitating higher inventory turnover and streamlining in-store logistics. Retailers will also have to re-examine their real-estate portfolios and reimagine how they utilise space. Can they, for example, adopt new retail formats such as "online to offline" (O2O)?

These models combine the traditional touch-and-feel shopping experience with the seamless online buying process, thereby reducing the costs of logistics, renting and maintaining retail spaces.

A case in point is the "click-and-collect" model, under which online orders are picked up in a physical location, making it cost-effective for retailers and convenient for shoppers.

Embracing partnerships can also help maintain relevance and maximise revenue. But these involve risks that must be thoroughly evaluated. One major issue is potentially relinquishing control over critical elements of the business model, such as customer experience, when leaving the last mile to vendors which may not share the company's values.

If selected carefully and managed well, partnerships can accelerate innovations and technology adoption in many companies. This can drive growth by propelling improvements in user experience and reductions in the cost and hassle of delivery.

Opportunities to reduce tax burden

Another area, often overlooked in the context of an omni-channel strategy, encompasses proactive tax planning to drive value. Retailers may, for example, look to minimise tax commitments on costs associated with renovating traditional outlets. They can do this by examining their current assets to accelerate writeoffs for capital expenditures on renovation and refurbishment.

Pandemic-related supply-chain disruptions have underscored the need to explore new supply-chain arrangements and review existing agreements and clauses with overseas suppliers. Retailers can look to optimise supply chains by tapping Singapore's free-trade agreements (FTAs), which can be difficult to understand but offer a wide range of tariff concessions. Retailers should also closely monitor their supply-chain models to ensure efficiency in managing indirect taxes and customs duties, in light of the imminent hike in the goods and services tax (GST).

Understanding international tax developments and changes in domestic tax laws will be key to managing the tax burden. At home, retailers will need to consider how compliance-related operational decisions impact potential tax costs. Meanwhile, the Base Erosion and Profit Shifting (BEPS) project is set to transform the global tax landscape for multinational organisations. Traditionally, the concept of "taxing profits" largely relied on businesses having a physical presence. However, the BEPS initiative aims to capture virtual or online business presence as well, thus posing a major risk for omni-channel retail.

As retailers face profound changes in the business landscape, an intensified focus on the delivery of an integrated, customer-centric and channel-agnostic proposition will be crucial. Ultimately, their omni-channel push, if carefully steered, can help them ride through the current turbulence without being swept away.

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