Amazon Prime in Singapore: A Game Changer?

Amazon Prime in Singapore: A Game Changer?

Amazon Prime is slated to change the retail scene in Singapore. Or will it?

This column is written by @j_chou from

@J_chou has an interest in global macro trends, financial markets and equity research and enjoys applying a combination of the three in his investments. His eventual investing goal is to manage a risk parity portfolio and achieve true financial freedom.

@J_Chou is vested in $BABA

Singapore and Southeast Asia’s growing E-commerce industry

According to a 2015 report done by Google and Temasek Holdings South-east Asia’s Internet economy is expected to surge to US$200 billion by 2025, driven by a growing middle class and greater accessibility to the Internet. For Singapore, the e-commerce market is projected to grow at 32% CAGR to be worth US$5.4billion in 2025. The Prime Now launch reaffirmed the importance of South-east Asia for digital commerce, with Singapore chosen as a testbed likely due to its tech-savvy, affluent citizens and accessibility to the rest of the region.

Amazon Prime

The launch of Prime in Singapore, Amazon’s express delivery services, signals Amazon’s entry into the Southeast Asian market. Prime will allow Singaporeans to place orders on groceries and retail items and have them delivered as fast as within 2 hours of confirming an order.

There are several delivery options given: For orders below 40 dollars, users pay a S$5.99 delivery fee; orders above S$40 are delivered free in a two-hour delivery window. For those wanting to get their goods within an hour, they pay up to S$9.99 per order.

The reason why Amazon is able to deliver so quickly is due to their superior automation and supply chain management. Using a series of complex algorithms and data the company is able to enhance productivity in middle and last mile logistics. The level of automation that is employed by Amazon is simply impressive.

Unfortunately, as the Singapore market is still in its infancy the warehouse at Jurong East are mostly dependent on humans. Nevertheless, there are still some form of technologies used by the Singapore facility such as artificial intelligence and concepts such as random stow systems. This involves using spatial design and algorithms to locate items across the warehouse based on order frequency. More details of the Singapore warehouse operations could be found here.

Amazon is also employing third-party logistic providers such as Ninja Van to provide last mile delivery instead of utilizing its own as it seeks to establish market presence first before importing its extensive network of logistic services.

Besides their advantage in technology, being the largest online retailer in the world gives Amazon the ability and the economies of scale to offer premium brands at a discount that local retailers are unable to compete with.

Amazon’s impact on SGX stocks

There is a good reason why many herald Amazon as “the most disruptive force in retail and technology”, and its ability to force retail titans such as Walmart and Best Buy to adapt is a stark reminder of its influence. Many are also predicting the death of retail in the US: Bank of America Merrill Lynch estimates that US retail floorspace is down 10 per cent since 2010, while department store sales are down 18 per cent. In 2017, the retail industry has lost an average of 9,000 jobs per month, despite the US labour market reporting positive growth.

US Retail Statistics: Online Retail vs. Department Stores

It is indeed hard to imagine a world where traditional retail will be able to compete with the low cost and convenience provided by online retail in the future, assuming that proper infrastructure is in place. Hence, it is my view that Amazon’s entry heralds the decline for traditional retail stocks, such as $DairyFarm USD(D01.SI)$Sheng Siong(OV8.SI). So any optimistic outlook of future growth for retail stocks should be treated with caution, especially if the company has not given any signals that they are looking to adapt to the online platform.

Retail REITs such as $BHG Retail Reit(BMGU.SI)$CapitaMall Trust(C38U.SI)$Frasers Cpt Tr(J69U.SI) , $Mapletree Com Tr(N2IU.SI) and $Suntec Reit(T82U.SI) may also be hit. URA figures show that the retail vacancy was at a relatively high 7.7 per cent at the end of the first quarter of 2017, despite softening rentals. As in the case in other mature economies such as the US, several high-profile brick-and-mortar players have closed shop in recent years, including department stores John Little and Marks & Spencer, lifestyle and furnishing stores IWannagohome and FrancFranc as well as fashion outlets Parco and Raoul. As e-commerce increases its market share, retail vacancies could climb even as rentals continue falling.

I have noticed that some IN members are doubtful of the impact that Amazon will have on the local retail scene, with a handful already expecting Amazon to fail to consistently deliver on its promise of 2-hour deliveries. Some also opined that online shopping cannot deliver the same kind of quality assurance as offline shopping.

I would thus like to share my personal experience: I was also quite averse to online shopping and have never done so before I went to study abroad in the UK this year. In the UK where shopping online is quite prevalent, I was encouraged by my British friends, who mostly use online delivery to shop, to make use of the service for my grocery shopping. This was despite the fact that there were supermarkets within walking distance from our campus. I was decidedly blown away by how cheap and fast the service was. The delivery fee came to only 2 pounds (which was cheaper than travelling by bus to the supermarket) and I never had any issues with food quality. I never did my grocery shopping in supermarkets since, only visiting for the occasional one-off perishable goods. I have also used Amazon Prime for online shopping. If you purchase an item stocked in the local warehouse the order can be processed really quickly. Another example of how insanely efficient Prime service is, was when I ordered a cake from a bakery located in London and it was able to deliver it to me 10 hours later at a location that was 2.5 hours away by train! I have no doubt that once Amazon has adapted to the local market it will be able to consistently deliver on its 2-hour delivery promise.

Hence, my contention is that due to the poor logistics infrastructure here, Singaporeans have not had the comprehensive experience of shopping online as compared to our overseas counterparts from USA and China as of yet. But once the likes of Amazon and Lazada have fully integrated into the Singapore markets the negative impact of its technology prowess on traditional retail will be swift.

The Singapore logistics industry will also likely be affected if Amazon was to build a strong customer base in Southeast Asia. Notably $SingPost(S08.SI) who is working closely with Alibaba. Amazon has a “unhealthy” habit of eventually internalizing all phases of its supply chain management, with rumours that the company is aiming to replace the likes of DHL, UPS or FedEx to create a global supply chain. Hence current third-party logistic providers such as Ninja Van may find themselves becoming obsolete in the long run. Leveraging logistic technology has always been Amazon’s expertise, thus unless the logistics companies can keep pace with the technological innovation that Amazon is likely to deploy, Amazon may unseat existing freight services within the next decade.

Amazon vs. Alibaba

I thought it will be interesting to do a comparison of the two biggest e-commerce giants given that the competitive dynamics between the two will have a material impact on the direction of Southeast Asia’s e-commerce market and its economy.

Though the two companies are often seen as comparable, they operate on very different business models.

Alibaba’s core business model is more B2B and resembles that of eBay. Alibaba acts as a middleman and facilitates the sale of goods between the two parties through its extensive network of websites. The largest site, Taobao, operates as a fee-free C2C marketplace where neither sellers nor buyers are assessed a fee for completing transactions. Hence, Alibaba simply facilitates trade and does not interfere in any part of the transaction. Alibaba’s services are thus popular for small to medium businesses as it gives them the ability to sell their goods to anyone on the globe for a very low cost.

Amazon are more customer-centric and place more focus on a B2C model, selling goods directly to consumers. Amazon purchase the goods directly from producers and sells them on their platform with the inventory being kept in the company’s large network of warehouses. This allows Amazon to compress cost and their turnover high. In addition to direct sales, Amazon also provides a platform for other retailers to sell products to buyers. Products sold through Amazon’s partner retailers are often less common items or those with a higher purchase price, allowing Amazon to avoid holding slow-moving inventory that could dilute profit. But, as recent acquisitions such as the purchase of Whole Foods has shown Amazon’s eventual aim is to internalize all services to maximize efficiency of its supply chain management. Currently, to secure market dominance Amazon’s is aggressively pushing for top-line growth with an apparent disregard for their bottom-line.

At first glance, you can see that Alibaba’s model is more favorable for businesses but Amazon’s model is more favorable for consumers. I personally prefer Alibaba’s model as I believe that small and medium enterprises are the backbone of any economy, and a model that is favorable for businesses will be beneficial for both producers and consumers in the long run. Small retailers simply cannot compete with Amazon given the growing dependency on online retail and the fact that Amazon can always sell at a lower price given its economies of scale.
Their approach to establishing presence in Southeast Asia is also different. The regional market is very fragmented, but with Amazon’s entry consolidation is expected to come soon.

Alibaba has already enjoyed the first mover advantage by focusing on inorganic acquisitions: investing an 83% stake in Lazada (who also owns RedMart), Southeast Asia’s largest ecommerce platform and a majority shareholding in Singpost, Singapore’s premier logistics provider. The fact that both Lazada and Singpost are based here has already given Alibaba presence in the region, which Amazon may find hard to overcome. However, when it comes to consumer trust I may be underestimating the effect of Amazon’s branding, given Singapore consumers preference for US companies over their Chinese counterparts and its existing base of loyal customers. But given that both companies have already established a certain level of consumer trust, in my opinion the advantage will eventually come down to cost. The company that is able to present itself as the cheaper option for consumers will establish market dominance. This will be determined by how quickly both companies will be able to develop new disruptive technology, such as in the field of artificial intelligence and drone delivery, which could significantly reduce cost and improve delivery time. Ultimately consumers will stand to benefit the most from the price reductions as both companies seek to prioritise growth over profits, and I can foresee this scenario being played out for the next few years.

Uber vs. Grab vs. Taxis

The battle amongst Uber, Grab and taxis shows how disruptive technology can be. Initially many found the idea of ride sharing unfathomable, but within 2 years of its introduction Uber and Grab has already crippled the taxi industry. Uber and Grab are able to keep pricing competitive due to its geolocation and data technology, which the traditional taxi industry are unable to compete with. Hence, the taxi industry is forced to adapt and innovate or risk being forgotten. Though some may view the artificial pricing as temporary, it must be noted that these companies are still constantly innovating in the meantime to drive down cost and improve margins. For Uber and Grab, the race is on to see which company is able to develop a system of self-driving cars first, as this will eliminate their biggest expense (the drivers) and hence enjoy dominance in pricing.

I see many parallels in the online vs traditional retail battle. There may be resistance initially, but once the convenience of online shopping catches on, especially in Singapore where technology adoption rate is high, the effect will be felt quickly. Amazon and Alibaba will compete to have more promotions and artificially drive down pricing to make online delivery attractive. The sheer size of the companies will allow them to do so for many years. Once market share has been established, the advancement in technology by then will allow prices to remain equally low as operational efficiency and margin improves. Hence, as seen in the case of Walmart in the US, traditional retail will be forced to move to the online platform or risk losing its customer base to existent online counterparts.


It will be folly to underestimate the impact of ecommerce on traditional retail. The online experience is vastly superior to traditional shopping and the growing dominance of online retail over brick and mortar in countries with established ecommerce presence is proof of that. At the end of the day, online retail will always be the better alternative: providing the same quality of goods at a lower cost and greater convenience than traditional retail could never achieve. Even if one may argue that online shopping will never replace the tangible experience of going to a physical shop and inspecting the goods, what is stopping consumers from simply visiting and then making their purchase online if it is cheaper? Hence, anyone who views traditional retail companies as stable and resilient based on the past should look to the taxi industry as a prime example of why nostalgia and tradition simply will not last. In the age of technology, companies must innovate or die.

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