The independent ‘mom and pop’ retail sector, despite recovering slightly from its all-time low point during the Covid lockdowns, is stuck in a steep structural decline worldwide. For a combination of reasons, the retail industry is fast becoming the preserve of large chains. Nowhere is this more evident than in developing Asia, where e-commerce, shopping mall development and the financial muscle of the dominant retail conglomerates are steadily edging independents out of business. The Covi
The Covid lockdowns were a severe body blow: the elevation of costs wrought by lockdowns are still reverberating through the industry three years later: higher cost of goods, higher interest rates, higher energy costs, among other catastrophes, have brought destruction to the dreams of hundreds of thousands of small retailers.
The rush to reduce carbon footprints and the implementation of renewable energy programs has further raised energy costs while, ironically, regulators insist on ESG reporting that has turned greenwashing into an international sport.
In developing Asia, the conglomerates not only operate the stores, they build the malls that house them and control their own supply chains as well. E-commerce and social media gave retail entrepreneurship a sniff but the march of technology, including AI, will inevitably tilt the playing field further toward the large chains with strong balance sheets.
How bad is the rot?
Data from Asia on the scope of the decline of independent retail is scarce, but the estimates from the West provide a useful reference point. The evisceration of the independent sector has been decried for decades by local governments in Europe, Australia and North America, who have seen their local high streets rot before their very eyes.
The independents couldn’t go into the glitzy new malls that were suffocating the high streets because they couldn’t afford the rents. The mall operators, for their part, preferred the chains because of their brand recognition and stronger credit profiles.
According to estimates by the boffins at the Australian Bureau of Statistics, about 45 per cent of retail sales were made by independents as recently as the mid-1990s, but that number has plummeted to only 29 per cent in the first eight months of this year.
The shift (or the destruction, depending on your point of view) has been evident across most sectors. For example, 30 years ago, 62 per cent of household goods sales were made by independents. By 2015 that number was halved, and this year it has gone to less than 20 per cent.
Apparel and accessories is another segment where independents have been squeezed out: from 45 per cent of sales in the mid-90’s to 25 per cent in 2015 and now 21 per cent. These are colossal declines and they don’t seem to be slowing down much.
The personal relationships that were so central to the competitive advantage of independent retail are disappearing, being replaced by social media marketing and tech-platformed communities that bear little resemblance to the warm and fuzzy connections of yesterday.
In Asia, the street still has a pulse
In Asia, the ‘street’ is still vibrant but the growth of mall development in developing Asia, particularly in China and India, and in the wide swathe from Thailand across Cambodia and Vietnam to the Philippines, has brought air-conditioned joy to hundreds of millions of shoppers while at the same time squeezing out independents.
Food catering (cafes, restaurants and other eateries, including the popular mobile carts) continues to thrive, as do the ubiquitous wet markets. These are so deeply embedded in Asian culture that even the mighty mall operators have been unable to snuff them out. (They’re giving it their best shot though, with their ever more elaborate food courts, restaurant precincts and hypermarkets.)
Is Big C’s ‘Donjai’ the answer?
Thailand’s BJC (or Big C as it is more commonly known), a vertically integrated retail conglomerate that ranks alongside Central Group and CP All as one of Thailand’s (and Southeast Asia’s) largest, has found a cunning way to kill independent retail competition while claiming to rescue it.
This is its ‘Donjai’ program, a network of traditional mom-and-pop shops that have succumbed to Big C’s invitation to upgrade, in exchange for putting Big C’s own goods on their shelves. The network has grown at an astonishing rate, from a standing start in 2022 to nearly 9000 today. To be sure, most of the shops that are part of the network are in serious need of improvement. They are typically completely without technology to manage their inventories and the shops themselves are low on frills, often ramshackle.
To become part of Donjai, the retailer has to pay a fee of several thousand dollars in exchange for a POS system and/or other upgrades, business advice, and — this is the kicker — a commitment to purchase approximately half its inventory from Big C or one of its allied suppliers.
No money for the investment? No problem. Big C also has relationships with some of the country’s biggest banks to provide loans. Big C is aiming for 30,000 independents to be signed up for the program by 2027. It benefits from the program most obviously from gaining additional distribution channels for its products, and it also gains an opportunity to collect consumer information data.
What’s the problem?
Of course, there is a downside: while throwing out a certain amount of life support to independent retailers, it also turns them into mini-Big C’s, in which the product itself is less differentiated and the traditional relationships between seller and customer are eroded. Those relationships, along with differentiation are, after all, the things that independent retail is supposed to have going for it: selling something different, and selling it differently, to what the chains are doing. In fact, this is planting the seeds of a franchising model where the franchisee adopts strict controls on branding, operations and product in order to have an ‘independent’ business.
All of this begs the question: is a scheme like Donjai a killer of independent retail or a saviour? Time will tell. Either way, it is an idea that is ripe for spread in developing Asia, with its millions of small shops.