The demise of brick-and-mortar (b&m) retail stores have been so acute and rapid in recent times, a phenomenon that is most common in, and perhaps even originated from, the U.S. that it has been a frequently talked-about topic recently. A testament to how relatable it is, and the potential impact it has on, peoples’ everyday lives, there even exists the coined term “Retail apocalypse”. Common reasons for it are the rise of the internet, mobile and connectivity and hence greater adoption of eCommerce, family time being spent on non-shopping-related activities, as well as change in spending habits (from material goods to experience), some of which pointing towards the eventual collapse of the b&m retail industry, but others chiming that it is merely an industry undergoing transition.
No segment within retail is spared. On the F&B front, even behemoths like McDonald’s are pivoting, since launching self-order kiosks internationally years ago (and tests in the U.S. starting 2014) to purchasing US/Israeli personalization vendor Dynamic Yield in an attempt to boost drive-thru sales. At the extreme, there are restaurants (e.g. Eatsa or Cafe X in the U.S. and Hajime Robot Restaurant in Thailand), that are fully automated and where you can get a meal with zero human interaction. On the retail front, long-time names like Sears filed for bankruptcy and is in the midst of transforming itself by operating in hardline/home-goods that have thrived.
The transformation in the retail industry goes both ways, with O2O (online-to-offline) being a recent, but rapidly growing phenomenon. Companies that started off without a storefront have increasingly started opening b&m stores or showrooms (e.g. Amazon’s book store for top-selling titles, Alibaba’s smart supermarket Hema, and upstarts like eyewear shop Warby Parker and clothier Modcloth). Alibaba refers to this as “New Retail“, the harmonious integration of online and offline, where retail is not defined specifically on the medium by which it is delivered, but rather, the way it can, and should, permeate all aspects of life, through the digitization of in-person shopping experience and the provision, and assurance, of the physical experience of shopping, even through online.
With this backdrop and amidst the disruption that is going on in the industry, there would likely be opportunities to be grabbed, which StoreHub is looking to capitalize on. Not to be confused with StorHub, the Singaporean self-storage company, StoreHub is a company that develops a suite of business management platforms and solutions for businesses, including point-of-sale (POS) solutions, inventory management, and eCommerce.
Who are they?
StoreHub was founded by Congyu Li (CTO) and Wai Hong Fong (CEO) in Malaysia in 2013 and is headquartered in Kuala Lumpur, with offices in the Philippines, Thailand, and China (although it does not offer its services there). It is reported that Wai Hong came up with the idea while traveling in China in 2012, when he got annoyed over the non-user-friendly, unreliable and expensive POS system there. At the time, cloud-based POS systems were relatively common in the U.S. but that was not the case in Asia.
StoreHub’s goal is to help retailers digitize their business. It is a cloud-based POS system, intelligent inventory management, CRM and business analytics solutions provider to SMEs, through a subscription model, priced at either $39/$79/$149/month (as well as a less-advertised, relatively new lite plan at RM59/month (~$14)), with the main difference being the number of stores and products it supports, better inventory management (composite inventory, store-specific price adjusting, low-stock email alerts) and CRM (loyalty program, offers, sms blasts). Its main market is Malaysia, which puts it right in a bustling ecosystem of SMEs, with a supportive government and core to the rapidly growing middle-income society. It started off targeting retailers but also has a strong presence in F&B. Globally, its total addressable market, albeit likely to be exaggerated, could be as large as 226M SMEs that generate an estimated $59T of revenue in 2018.
A competitor, Slurp, which was launched about the same time, in 2014, and backed by Malaysian telecommunications conglomerate Axiata, claims to have ~500 F&B outlets compared to >5K of Storehub, a clear testament to its success in the home country.
After striking a partnership with payments company GHL, it now also offers a credit card payment solution that is fully integrated into its platform, called StoreHub Pay, which charges 1.4%/0.7% on credit/debit card transactions, simplifying the payment options that an SME might need to consider. This seems reasonable, given that merchants typically pay a 1-3% fee for transactions. For example, PayPal charges 3.9%+RM2 for monthly sales volume up to RM12K and MasterCard/Visa’s ~2%.
StoreHub monthly subscription plans. Source: StoreHub website
In early 2018, it raised a $5.1M Series A round led by Vertex Ventures, with plans to use the proceeds to double down on product development to build the online-offline gap, market expansion in Malaysia, Philippines and Thailand, as well as other countries in the region. It now claims to have >5K stores as customers across >15 countries, and >133 employees and that it has helped these businesses transact over RM1.1B (US$270M) in sales.
Some key developments include the introduction of an Android POS system and Lite Plan in Jan 2019, at a cheaper rate of RM59/month, which takes away some of the inertia of testing out a cloud-based POS system for small businesses (it has a revenue cap of RM10K). Targeting the extreme tail end of the spectrum is, to me, a way the company differentiates itself from competitors, although caution must be taken with regards to the longevity of these small businesses, particularly around fixed costs of fitting them with the systems and then reclaiming them if they go out of business.
eCommerce purchase from mobile. Source: Akulaku iPhone app
What is the team and who are the investors?
StoreHub was founded and is led by, Wai Hong Fong (CEO), while co-founder Congyu Li (CTO) is responsible for designing and building the entire technology stack and product/engineering process.
- Wai Hong Fong (“Chieftain”, co-founder) – formerly co-founder and managing director at OZHut, a multi-niche online retailer, with a B.A. Media & Communications and History & Philosophy of Science from University of Melbourne
- Congyu Li (CTO, co-founder) – formerly software development engineer lead II at Microsoft in Shanghai, with a B.S. Electronic Engineering from Shanghai Jiao Tong University
- Gregory Chang (Head of Sales) – with StoreHub since 2014 and formerly a cultural orientation trainer for 3 years at the International Rescue Committee, conducting workshops for Myanmar and Middle Eastern refugees in Malaysia for resettlement in the U.S., with a B.Bus. Business from the University of Technology Sydney
- Kerry Davis (Head of Operations) – with StoreHub since 2016 and formerly a product manager of hardware at Breadcrumb POS in San Francisco, an iPad point-of-sale products and payments solutions provider. Previously a manager of hardware operations at Groupon and co-founder of a consumer products goods company, with an A.A. Environmental Studies at San Francisco State University
Investors include Vertex Ventures, Cradle Seed Ventures, Accord Ventures, Fintonia and 500 Startups (only institutional investor in seed round). One of their investors is Adrian Chng, who sits on the board and has also invested in lending and insurance-related fintech companies like AsiaCollect, AsiaKredit, CredoLab, and GoBear.
What is their value proposition?
They are specifically targeting major pain points of running an SME – inventory management, resource optimization, exploring opportunities. Moreover, in Malaysia and Thailand, where their operations are mainly, they are one of few, if any other at all, cloud-based, multi-channel commerce platform. At a stretch, they are aspiring to be Shopify of Southeast Asia.
Common complaints of SMEs is the inability to compete with larger corporations due to the lack of resources at their disposal. Beyond that, technology and globalization has increased competition, but on the flip side, the playing field is increasingly being leveled due to enablers (service providers) like StoreHub.
StoreHub, through its cloud-based offerings, helps companies to scale with flexibility at low marginal costs and adapt and react to changes in the industry nimbly. If there is a new opportunity to exploit, SMEs can explore and test without having to dedicate significant resources (which they might not even have) or take on the risk of huge expenditures. It optimizes their cost-benefit-analysis.
In addition, StoreHub has the potential to provide data analysis advantage to its customers. Like any company that leverages on data analysis, with each transaction made, the database gets richer and proficiency increases. StoreHub can help to consolidate data between a merchant’s customers and its individual shops, as well as that of other merchants, enabling them to potentially inform both their own decisions and that of their merchants.
How would an exit, if at all, of the company look like?
Despite being in various countries, its strength lies mostly in Malaysia and hence could be an attractive partner or target for a company looking to expand its reach in the country.
Some of the companies that could explore deepening of PoS services and anchoring their positions are Shopify, Lightspeed, or Lavu, which do not have a huge presence in the region, with the exception of possibly Singapore. Specifically, in Malaysia, Ebizu and Slurp are competitors who could also be partners/targets for consolidation. A point of consideration is that these competitors (Lavu, Lightspeed) are F&B focused and could view Storehub as an avenue to diversify. Particularly, Lightspeed has acquired and integrated 5 companies and Storehub seems to be one that will allow it to break into the Southeast Asian market.
Other potential corporate exits or partnerships could be those with complementary services, for example, in electronic/mobile payments. Two such examples are GoPay or GrabPay, the payments businesses of regional aspiring “superapps” of Go-Jek and Grab. Both companies have a food delivery business and are also pushing on offline acceptance points. Partnering with, or acquiring, a PoS provider will speed up their aim towards ubiquity of the app and making its usage more compelling. If they wanted to build a PoS business from scratch, it might take a long time as it is a complex product and industry-specific features take time, on top of the challenge of building an all-in-one system. These companies could look to partner global players (e.g. Square, iZettle), but there might be operational challenges (training and support, etc.) as well as data privacy and ownership issues.
Organically, Storehub has options for growth as well. This could be horizontal expansion into other categories, for example, F&B, although competition is relatively fierce there, and different industries could have very different PoS needs. It could also take a similar path to Lightspeed, which started with retail PoS, then to F&B and eCommerce, subsequently expanding its merchant value proposition to provide analytics services and a rewards program, and lastly developing its own payments system. It can provide merchants omnichannel sales opportunities, an integrated backend, and brand-building capabilities, all enabled through data.
In conclusion, in my opinion, StoreHub is targeting a sizable market that has efficiencies to gain by adopting its products and services. The huge challenge, however, is that it can be very tough for these merchants to make a switch from their legacy systems, or to adopt technology, especially with cost a huge factor in their decision making. The questions an investor or StoreHub might want to ask are whether the company can provide superior pricing or justified cost and/or efficiency savings and whether there are ancillary products and/or services that can be offered (e.g. loyalty programs, SME lending). As with any subscription business, it is important to also track their churn rate and reasons for it, as well as their ROA, given the upfront hardware costs for each merchant (and how much of it is co-funded).
- Why retailers are trying on showrooms
- Malaysian startup StoreHub raises US$5.1M in Series A round led by Vertex Ventures
- An exclusive interview with StoreHub: Securing Series A funding
- Storehub blog