SM Malls Online: The Philippines' Unique Retail Landscape

Guest: Daniel Lim, Vice President, SM Digital Group 

With the rise of digital natives and new entrants disrupting traditional business models, incumbents like SMIC in the Philippines need to continuously innovate and adapt to remain relevant. In this episode, Daniel Lim, Vice President, SM Digital Group shares about his experience with digital transformation at SM Malls Online, how digital natives and incumbents are complementary to one another, and the opportunity for growth through online channels for a conglomerate like SMIC.

Transcript

Unknown: 0:02

The AIBP ASEAN b2b growth podcast is a series of fireside chats with business leaders in Southeast Asia focused on growth in the region. topics discussed include business strategy, sales and marketing, enterprise technology and innovation.

Irza Suprapto: 0:26

Hello, everyone, and welcome to the ASEAN b2b growth podcast where we sit down with individuals who are building and growing businesses in Southeast Asia. Today, we actually have somebody quite interesting with us. We've had a lot of guests on our show from the Philippines, Filipinos who work for Philippine enterprises, conglomerates as well as government agencies. But today is actually the first time we have someone who is working out of the Philippines for a Philippines enterprise, but it's not actually native Filipino. We have Daniel with us from SM online. And, Daniel, I think you'll do a better job introducing yourself than I ever can. So can I just quickly hand it over to you to tell us a little bit about yourself as well as SM online?

Unknown: 1:08

All right. Well, hi, everyone. So as I said, my name is Daniel. And yes, I'm actually a Malaysian based out of the Philippines. But maybe just a bit background of my life before the Philippines is. I was previously a strategy consultant for a large MNC working across Southeast Asia. And I guess at one point in my life, I realized I didn't want to consulting forever. And I just resigned my job. And I took a scholarship from the Malaysian government to learn programming, specifically Ruby on Rails. And long story short from that scholarship, I actually won a major hackathon competition, San Francisco, USA, and MasterCard. And that competition win actually opened a door for me, whereby Lazada Philippines offered me a directorship in the Philippines, and I took it right, and worked my way up, down to the management team. And eventually I moved to shopee Philippines management team, so I can safely say I probably am the only management executive on both of the two Southeast Asia's largest platforms in the Philippines. But that same time, I wanted to build something my own, and coincidentally SM came about and they told me they've been having a hard time trying to digitize, but they are willing to invest. And well, I guess I felt I had the right digital experience to figure it out. And eventually I built SMS online. So it's probably like the world's first hyperlocal omni channel, business model by more retailer. And we've been doing well so far. And I guess that's pretty much my background.

Irza Suprapto: 2:43

Daniel, just give us some context. So you said you you're Malaysian obviously working in the Philippines and you moved to Philippines with Lazada. Philippines. Right. When was that? How long ago was that? Well, I think that

Unknown: 2:55

was probably in February 2016. Yeah, so many years ago. Yeah.

Irza Suprapto: 3:01

So you've been based out of Philippines since ever since February? 2016.

Unknown: 3:06

Yeah, yeah.

Irza Suprapto: 3:09

How's your Tagalog?

Unknown: 3:11

Ah, guys, I'm not gonna lie. I mean when I came to the Philippines, I only thought I'd stay for one year, yes , I did, this struck me to actually consider learning it. And then you know, as one year passed, I told myself, maybe one year and then, you know, two years passed and then eventually I got engaged down the line. And yes, I should have learned Tagalog. Yeah, so pretty much. It's still close to zero.

Irza Suprapto: 3:38

Well, you did start with 'Mabuhay', so that's a good start. Okay, let's, let's take a quick, quick look at you mentioned SMS online. And obviously, that's its larger, the entire SM IC group, right? Can you just quickly run through with us effectively, how that's structured? Based out of the entire it's effectively a conglomerate, right. Can you just quickly run through that?

Unknown: 4:00

So, what basically SM, SMIC is basically like the mother company across all the SM companies across the Philippines, right. And pretty much the is one big business unit I would say which is called SM Prime. So SM Prime generally focuses on the shopping malls, or basically at SEMC group, which is where SM digital my subsidiaries face and along with the property development, like SMDC, which if you go across the Metro Manila, you probably see a lot of their condos. community that were the ones actually that does mostly with property. And so that's SM Prime, which is one of the larger businesses and SMC and within is the SEMC the shopping center management company, and it's under SEMC where SM digital is under under and that's pretty much how SM malls online, which is essentially SM digital is situated across the whole conglomerate.

Irza Suprapto: 5:01

Okay, so as you mentioned SEMC it manages obviously all your shopping centers, your malls in the Philippines and SM digital sits under that. What exactly is the mandate of SM malls online?

Unknown: 5:16

Yeah, so I guess the mandate of SM malls online is really to find where I mean, let's take, let's acknowledge two things, right. One is the digitalization of the world, everyone's trending it, if you're not really evolving to some form of technology in some shape and form, when as your automation bid from the front end, or the back end processes, you're gonna get left behind me. So that's one and two is most of the customers today, especially in shopping malls, they do cater to the older generation. But as you go down the funnel to the younger generation segment, especially the Gen z's, they tend to be a segment whereby there are a lot more digital, and they're not necessarily going to more for utility, but they're going more to experiences. And at the same time, they do seem to spend more time on their phones, or just technology apps. And I guess it's imperative that SMS online or SMS digital finds a way to park itself in to stay relevant in long run and guess, and we are complementary to the mall, we're not there to cannibalize, nor are we there to replace, but it's there to actually bridge the gap between the old and new. And actually, that's my mandate and to find, where do we stand through it all, in preparation for next five to 10 years, because at the end, a change will come. And it's imperative that SEMC is poised when the day comes.

Irza Suprapto: 6:43

Perfect. So as you mentioned, right in the Philippines, and I think we've observed that as well, you know, we've had, we've run this podcast with a couple of people from the ILR group, or even the Aboitiz group, really all conglomerates, they've been around for, you know, over 100 years. And I think a lot of the enterprises are taking steps towards digitalization, it must have been quite interesting from you coming, you know, from well, obviously management, consulting, and then going into Lazada and shopee, two of the, as you mentioned, two of the largest, I would say effectively digital retail companies in Southeast Asia. During that shift into SM and especially since you operated you are quite familiar with the Filipino market, which is one of the, well it is the youngest median age in Southeast Asia. What what what were things you saw that were you know, similar? What were things you saw that were coherent between Shopee and Lazada? And what SM is actually doing? And what were things which were actually a little bit different?

Unknown: 7:46

So, maybe to add some context. So yes, I was from Lazada, shopee, let's say I actually went to I started there, they were mostly focused on electronics and majority of the segment was really well shopee was a totally different ballgame. I think they focus mostly on cheap, cheap fashion, home and living items, predominant target is really the young female segment. And when I went to SM, it's really a offline retailer where most of the customers are really old, much older, right? And it's, I can safely say that it's in, in heavily very different. Yes, maybe in terms of culture, Shopee and Lazada is kind of the same, even though in terms of mindset was versus SMD, a bit more conservative, and really looking, you know, things like profitability, and not necessarily top line growth in pursuit of higher valuation stock markets, right. And just the way of doing things is extremely different between the two companies. I'm not going to lie and I would say that, you know, I don't I don't, you know, I applaud it. But the pandemic did help my case whereby SM took digitalization a lot more seriously and that gives me free hand because I think if SM digital were to embark on its journey, in the old way of doing SM things, where it's a bit more rigid, I don't think will be of the essence, especially when you're trying to attempt a business model has never been done before. That's not necessarily a mindset that it's very inherent in conglomerates, right? Versus Lazada and Shopee is probably like, the new kid on the block when it comes to media, you know, or digital and tech savvy, you know, and then mindset, you know, it's fast, you know, speaking execution. I wouldn't say burn burn money, but, you know, at some point in time, if you want to buy, you do have to burn money, right? So we're not there to burn money for Ansem. It's to come up with something sustainable, that that adds value to people's life. And I guess in that sense, that's where it's extremely different. But it's some but in in terms of similarities, I would say you know, I had the privilege with dealing with certain stakeholders SM and they are among the younger generation. It's a privilege to work with them and they also understand and some of them study abroad. And they actually, you know, have come to experience the likes of Amazon and other platforms like Uber, before he left Philippines, right. And so they actually understand what it actually takes to actually do SM digital. And in that sense, the similarities was really more than support, you know, to try new things and understand that at some point in time, you might fail right. And they've been, but you're not like, just burn money, you know, and try to figure out, like, we could take care of a slower pace, but really find a fit. And that's where the similarities, you know, between the old and new, we came to a halfway point. And I think that has really tremendously helped my case. And that's why I would say,

Irza Suprapto: 10:50

and yeah, it's a good point that you made about, you know, the, the COVID period, obviously, the malls were empty Philippines, I believe at one of the toughest and longest lock downs during the entire COVID. Period. So obviously, nobody was shopping around and malls. When exactly did you start with SM Daniel?

Unknown: 11:08

Yeah, so I started SM, like, January 2020, was like two to three months. That's right.

Irza Suprapto: 11:14

Perfect timing.

Unknown: 11:15

I would say it was perfect timing wise, it helped my case. But it also was tremendously difficult. Because when doing that COVID period, when valuations from all Tech startuops were sky high. And they were just like raising cash at valuations that were too rich in nature, it's very hard for you to get the talent that you need when they are being compensated twice the amount, this kind of technology platforms and was extremely hard to sell something that I didn't have, because afterall, though I had a working app at some point. But it was not something that you know, it was more of a MVP, a minimum viable product, compared to incumbent mature technology apps like Grab, Lazada, Shopee, and so forth. Right. So it was a lot harder to sell vision when you don't have a working product for them to actually see. And of course, from a branding standpoint, you would rather you know, join startups who were raising among a large amount of cash or this mature technology platforms versus SM so yeah, so it was a very, it was it didn't help my case. But on the cons was not easy at all. I think it's just by God's grace, you know, I made certain decisions. That really helped me create some form of buffer safety net bit of advantage. And then I took it one day at a time and then bit by bit eventually, it came to fruition. And that's pretty much I would say,

Irza Suprapto: 12:49

Yeah, I mean, you must have done something right. Because last year, you guys actually won the ASEAN innovation awards that were given out in the Philippines. But speaking about that, as well, you know, since since February 22, you mentioned you've taken it day by day, you've grown little by little what, what were the key metrics you were watching, you know, when you were first starting out, and now about what it's been wanting to do? This is the year right, you just completed your third year. So have the metrics changed over the years? What were the things you were looking out for when you were starting this out? Versus like now? What are your priorities and what metrics you are focusing on?

Unknown: 13:27

Okay, sure. I think so I would say, I think that yes, where I joined, join us and but you know, when we had a really a working product, you know, that you could actually show? What's the main meat of 2021? Right? We had a really, really basic MVP somewhere in q4 2020. And, but it was mostly off the shelf software, or third party providers, which I will just take an opportunity to tell your audience if you have business model your core systems is something you should always do in house and everything else is secondary systems, you can outsource it. So I think that was a mistake I made. I should build it in house from the very start. But then again, as I mentioned, not many technology developers which was highly in demand during that period, wanted to join SMS as opposed to you know other technology startups right. So But anyway, I think there was one thing that caught up to us, I think the one so I will just give us some context. SM digital are basically shopping malls comprises of many services to the average Filipino from food, restaurants, you have a cinema, you have your jam merchandise, like the department store, you have your groceries and so forth, right. But you could it's not something that you should attack the market all at once, right? And although we tried to throw spaghetti at the wall and see what's stick, the only one that at that time when we first launched we saw that stuff was actually pertaining to organic growth rate and retention for food delivery business pertaining to multiple restaurants in a single delivery. And most of our customers segment were two types. One were office workers who eat together. And the second one was probably young families or young mothers with kids. You know, mom gets a salad and then the kids gets, you know, their password. So I think that that was the one matric stuck. When it was when we did our initial launch of 100, orders, only 13% was multiple restaurants as a single delivery. But over time as the company progress, we actually noticed that number growing more and more to where it is today, which is about 80 plus percent. So that was our the best acquisition costs in comparison to the industry benchmark. better retention rate as well. And ABS was because I mean, your fixed your delivery fees or riders is a fixed fee where they deliver $1 or 100 US dollars, for the food, it's the same rider, right. So it was a better. I mean, from a sustainability point standpoint, from an ABS perspective, or average basket size, it just, it just made much better sense. And so that grew, I think doing we also saw that when it comes to things that Lazada and Shopee could not sell, at least they could but it will not arrive on time was the likes of medicine, or essentials during the COVID period. So that was another thing that we saw. We did see high priced items, although most of it is purchase from the app, but they go to the store to pick it up, you know, one last final check, before they actually make payment. So there was some bright spots that we saw. And those were the things that grew organically, and that's when we double down. And then pertaining to all the assets like cinema, I mean, it was COVID or anyone watching movies, online, concert tickets and all this, I thought those were assets that were only inherently exclusive to SM and that was something I could do it down the line. Same goes for groceries, you know, which is something I don't believe any player has done with that. So I those were the I think food delivery essentials and high priced goods were the initial focus. When we started, like I said, we threw spaghetti in the wall, and then we saw the organic growth.

Irza Suprapto: 17:27

Okay, so you did have because of historical businesses, this gave you some, as you mentioned, bright spots for which you could focus on and from the base of your growth eventually, right. So if we look at, you know, organizational growth as SMS business as a small online business versus say, the Lazada or the Shopees, or even what are the most popular food delivery apps in the Philippines?

Unknown: 17:54

I think we still be grateful and food vendor. Yeah, I mean, again, they they have way more restaurants on the platform than the number of restaurants in total as as the most right. Lane right. Yeah. So I mean, these are the two major players for food delivery. Not going to contest that. Yeah,

Irza Suprapto: 18:12

yeah. So but but it was interesting, because the value proposition for you with your product is a little bit different. Right. As you mentioned earlier, it was meant to complement the business of the physical models of SM. Where do you go from here, though?

Unknown: 18:28

So like I said, Well, we're still double downing on the areas that we found the bright spots, it's, and it's probably niches that SM does not inherently control exclusive to them, like food. But I think looking at our product roadmap, we're pretty much almost done. Although we know that like you can't beat Lazada and Shopee because 90% of the products are non branded, which SM doesn't sell and half of its from China, right? So it's a totally different ballgame altogether. So there are certain brightspot that SM initially does not have, which I will try to do first and then that's something I'll expound on in the later years. But moving forward, especially in q3 of this year, is very likely we start consolidating all the other assets that we initially put on hold on cinemas, or our tickets, you know, our dining reservations, our geolocation in our CRM targeting, you know, when you walk into the mall, you're gonna get an in app notification to the store deal that's really relevant to you based on history. So things that really complements the in my experience, right to drive more foot traffic offline. And that's something that we are looking at, moving forward from here. And of course, I think as you progress along any journey, you start to notice certain insights, and I'm not surprised you will find more of such insights down the line and then that also something will expand. But that's generally the whole The journey that we're looking at for the next few years.

Irza Suprapto: 20:03

Perfect. Okay. Thank you. Well, now, I want to take a step back, you know, you mentioned you know, previously, you're working at Lazada shopee. And then eventually moving on to SM, which is fairly large and all conglomerate and the Philippines. While you know you have been in the Philippines for a long time, when you join SM, I believe what you have for years local market experience. And when you look at innovation versus innovation in a firm, let's say like Lazada, or shopee, versus the way the large conglomerate is viewing innovation in the Philippines. How is innovation measured? In SM, you mentioned SM digital previously. So that sounds like a pretty cool function within a large conglomerate. How is innovation measured? How is innovation pursued within the SM group as a whole?

Unknown: 20:57

Okay, I guess for innovation is I think, for us is really looking into, again, this is the early start SM digital, but for us, our innovation is really looking at relevancy. There's a product market fit. And that means measuring the number of unique customers that visit our platform. And how often do we actually stay. And of course, the NPS costs of the customers post delivery of a specific service, whether it's food or medicine, and so forth. And then just looking at from there. But then again, SM digital is really more an exception versus a norm in the current government. Because at the end, any any sound business is really looking to net income and free cash flow. I think a license. Yeah, I mean, a wise man once told me, right, everything that glitters is not necessarily gold.

Irza Suprapto: 21:52

And very true as well. Right.

Unknown: 21:54

So I mean, the tech firms? Yeah, I mean, I think the way we look at things, as far as I'm Teacher, it's kind of similar. But at the end of the day, we do want to find a way to complement the offline malls in a very sustainable manner in short term law. But in the meantime, we are just looking into growth for now.

Irza Suprapto: 22:19

And, you know, previously, you mentioned the difficulty of hiring in 2020. You know, every tech stock during COVID was flying, you know, there was a lot of news around that. And it was difficult, right? Trying to hire people because talent was there was a talent crunch has that shifted, you know, across, especially now and instead of hearing about tech valuations going up, tech valuations are tanking, all these firms Lazada shopee have all been laying off people in different places. Has that changed for SM?

Unknown: 22:50

Yes, absolutely, yes. Right. I mean, I'm not gonna lie. So a lot can be the interview. And they're not necessarily from technology, you know, firms that are laid off, you go with us, you know, on the brink of recession, or, or whatever the Federal Bank is doing, it does have impact on the market. And, I mean, Philippines majority, you know, this country whereby there are BPO services, and I think there's a lot of talent that's actually there as well. But in a nutshell, a lot of them come to SM because they want stability. There is no doubt that SM for the past 65 years focusing, you know, very frugal, and you know, focusing on value, adding services, whether it's property development, energy, the logistics, and they've been very frugal and free cash flow, it's still an imperative for them. And they still have a very watched, you know, sturdy balance sheet, I would say, and I think that does attract talent in to our site during this post COVID period. But I would say that, even though we had a tough time hiring people during the COVID period, we at least from my management team, which I personally handpick, it was, I was lucky. Some of them just didn't want to be another employee in this tech stuff. They wanted to also try something new. And they have been a great, tremendous help to SM Digital, so, and luck plays a role but in a nutshell to your question. Yeah, I mean, it's been easier for us, especially when you hire good talent. This good talent would probably be for attract other good talents. And eventually, the team just started getting stronger. Here on out every single month, you know, every single year,

Irza Suprapto: 24:45

good ol network effects, right?

Unknown: 24:47

Yeah. 50% of our initial employees were

Irza Suprapto: 24:51

referrals 15 or 50.

Unknown: 24:55

That's how because we couldn't penetrate you know, from a marketing branding employee standpoint. So We had to go through the referral and that was a bulk of our initial hires.

Irza Suprapto: 25:04

So are you are you rebuilding your core systems now, now that you have the talent?

Unknown: 25:10

I think what worked for us in the past continues to work for us certain principles or cultural values that we hold, and I don't think we're gonna change anytime soon.

Irza Suprapto: 25:21

Perfect. Sounds good. Okay, Daniel, before I let you go, just a couple more questions about, you know, the retail landscape in the Philippines. So you obviously have what now? It makes you sound old. But I know you're very young man. You have a decade of experience now working within the Filipino retail landscape, right? What do you think has changed across you know, the, what, seven, eight years you've, you've worked within the Filipino landscape? And obviously, you go back quite often to Malaysia, and you've you've traveled the rest of Southeast Asia, what is idiosyncratic What is unique about the Filipino retail landscape?

Unknown: 26:01

Okay, so, okay, so I will stick this in the context of what I know, given, I probably am the only person who really has a good gauge from offline and online on a high level. And I would say this right, despite no e commerce surging during the August digital behavior surging during the COVID periods, I would say that, you know, Philippines is still a country that has a lot of potential in terms of growth for the coming decades. I do believe it's the next trillion dollar economy or the AREAS in the coming few years. And that's really tasty, because it's a young population that is in them, average, two people, income per capita is still growing. And I still think that, though, that this country is becoming richer, in the long run, they still have an affinity to the offline world. And it could be a social aspect, kind of trait or characteristic, because Filipinos are just very outgoing, and they like being with people and so forth. But at the same time, you know, they're still bound by the, you know, I mean, I wouldn't say the government sector and so far, but a lot of things still need require a lot of building, especially infrastructure. And I think, Philippines very unique, whereby, you know, you have technology, you have grabfood, you have Lazada and Shopee. But when it comes to infra, it's still extremely expensive to ship one parcel from one end of the country to the other. And even though it's been a good seven to eight years, I know Lazada has built shopee, express Lazada Express, but the supply chain is still not there. And, you know, together with Filipinos enjoying, going out together and spend time as a family or friends with rising incomes, I still think it's very funny. But I still think offline is really a very big chunk of this Filipino economy. And that's something that I see very differently, at least in the context of Singapore, Indonesia, where I'm from, but I think Philippines just has that trade. And I think it's still gonna stay that way. Yeah.

Irza Suprapto: 28:10

Yeah, I agree with you. Right? We were there during when COVID was close, when the rules were pretty strict. I think my last trip, one of my last trips was to the Philippines, and everybody was pretty afraid of going out. But then I was there recently as well. I mean, I just met you earlier this year. And all the malls were back to being really, really full, really, really crowded. And that's what everybody have said to us as well. Filipinos, they like the social aspect of getting together or even walking around malls, I believe, SM owns quite a few of the largest malls in Asia. And one, I think a couple of one or two of them are actually in the Philippines as well. So mall culture that is pretty strong as well. So SM online must be set up pretty well, because you have both the online and offline covered pretty well there. In terms of technology in the region when it comes to the retail space, or you know, in Southeast Asia, are there certain things that you are excited to see developments in over the next couple of years? Last question, I promise.

Unknown: 29:13

You, am I excited? I don't know I'm not gonna lie. I'm not special in FinTech and, and all of this, but I still think, you know, ecommerce or omni channel. I think a lot of retailers are really going to be the only chanterelle. Everyone's trying to cover No, both sides, you know, given what COVID has done to them. I think it's still in a very decent early stage, but I do see a lot of vendors or third party companies approaching us with technologies on that aspect. And I am very curious, given how strong offline is in the Philippines at the same time, with windows being one of the like top social media users in the world. I am quite interested in actually see, that specific technology aspect of retail omni channel growing, because at the end day, that's also when it comes to brands that just seem to be more concentrated the number of brands in the Philippines compared to what you see in Singapore, it's always a big one, they Jollibee, and so forth. So I want to see how this all works. Because this big companies where it's quite concentrated most of the retail spend, they would have the money to invest in such technology. So I do see more and more. And I do like to see where this goes from here.

Irza Suprapto: 30:36

That is a great point, I think you're perfectly correct. We, a couple of the enterprises, or the large retail brands in the Philippines have actually done quite a few RFPs with quite interesting problem or pain points or solutions they're looking to solve, and you're looking for quite innovative technology solution providers. So that's something I'm quite excited about. But yeah, you know, I think the Philippines is positioned very well. Second largest population here in Southeast Asia of the Indonesia. It's interesting. You You say it might be the next trillion dollar economy, I think that's like very likely with the growth that you guys are seeing. So seems like your position perfectly Daniel, sitting out of the Philippines. Maybe someday, Motherland will want you to come back to Malaysia.

Unknown: 31:21

Oh, you know, you never know.

Irza Suprapto: 31:22

Exactly. And again, this whole talk about one ASEAN and, you know, mobility between people within Southeast Asia. So that's something I'm quite excited about as well. All right. Thank you very much, Daniel, for joining us today. It has been a wonderful conversation. If you're looking to connect with Daniel, obviously, he's available on LinkedIn. Any other contact points you might want to give out? Daniel, be careful, though, some people might go overboard with trying to connect with you.

Unknown: 31:50

Well, I would just want to see now as we maybe just point is everyone approach omni channel and given my experience in Lazada and Shopee, I can say that whatever preconceived notions that you have, I think you have to pocket a door and enter it with a blank slate, because then you're going to be very surprised with the data, the insights that you will see, especially in different locations, depending on where your offline retail may be. So I think I've been quite surprised at this journey tree, what two years plus already and I'm still learning based on the new insights every single day. But yeah, happy to help and thank you for having me.

Irza Suprapto: 32:29

Thank you, Daniel. Thank you very much.

Unknown: 32:31

All right. Cheers, guys. Thank you. We hope you've enjoyed the episode. For more information about business growth in the ASEAN region, please visit our website www.iotbusiness-platform.com.