A tie-up between SingPost and Adidas shows how postal carriers can make more from e-commerce

November 4, 2013 4:09 pm

Singapore delivers a new post

By Jeremy Grant

©FT/Munshi Ahmed

Mail man: Wolfgang Baier brings family pedigree and experience at McKinsey to the postal business

When Wolfgang Baier was on a trip to his native Austria from his current base inSingapore, he dropped by to catch up with his 94-year-old great aunt. To his surprise, he discovered something he had never known about her. Like his mother and maternal grandfather, she too had worked in the Austrian postal service decades before. “It can’t be an accident that I have the postal business in my blood,” says Mr Baier, who has been chief executive of Singapore Post since 2011.It is unusual for a non-Singaporean to be at the top of one of the city-state’s big corporations. Singapore Airlines, Keppel Corporation – one of the world’s largest offshore oil rig builders – and SingTel, the main telecoms carrier, are all headed by Singaporeans.

But Mr Baier not only has a family pedigree in the postal business, he has also brought his experience as a consultant at McKinsey specialising in postal and logistics businesses.

The company probably needed all the experience it could get. SingPost has had to embark on a radical transformation of a business model that goes back a century and half. The organisation has been responsible for delivering letters across the tiny island of Singapore since the former British colony was founded by Sir Stamford Raffles in 1819. In those days, a single mail office collected and delivered the small volume of letters and was run by just three people. As trade flourished – Singapore was a major entrepôt in southeast Asia – postal and marine traffic grew. Such was the importance of mail in Singapore by the late 19th century that novelist Joseph Conrad, a frequent visitor to the island, was prompted to describe it as “the most important post office in the East”.

These days SingPost, 26 per cent owned by SingTel, still plays the dominant role in mail delivery, accounting for about 90 per cent of all letters delivered across the island. But, as with the rest of the industry, it has had to respond to the demise of the physical letter thanks to electronic communications. Royal Mail, which went public in Britain last month, and Germany’s Deutsche Post have both been re-engineering their business in response to the same pressure.

McKinsey: a school for elite postmen

McKinsey is known for producing leaders of high-profile businesses, writes Adam Jones . James Gorman, chairman and chief executive of Morgan Stanley, is a former senior partner at the strategy consultancy, for instance.

Vittorio Colao, chief executive of Vodafone, is another McKinsey alumnus, as are Boeing’s Jim McNerney, Standard Chartered’s Peter Sands and Prudential’s Tidjane Thiam.

However, FT analysis of data held by Boardex, a service that maps connections between senior managers, shows that the less glamorous world of postal deliveries is a surprising stronghold for ex-McKinsey bosses too.

As well as Wolfgang Baier at Singapore Post, there is a McKinsey alumnus at the helm of Deutsche Post DHL, Frank Appel. Austrian Post, meanwhile, is led by Georg Pölzl, who started his career at McKinsey.

Under Mr Baier, SingPost has been pushing into e-commerce parcel delivery as the business faces dwindling revenues from its network of 800 post boxes across the island. “Ten years ago it was doom and gloom but most people see a silver lining with e-commerce and the associated parcel volume,” he says.

While SingPost, which listed on the Singapore exchange a decade ago, is not alone among postal carriers in being forced to make such changes, it is taking a novel approach. Instead of concentrating the effort at home, SingPost is reverting to its historical roots as a regional hub. And it is doing so by offering a service that is unique among the world’s traditional postal carriers: building websites for retailers that want to tap Asia’s emerging generation of young consumers.

Six months ago it built and launched an online sales portal in Singapore for Adidas, the German sport shoe maker, that includes catalogue management, on-site marketing, payment solutions, inventory management, returns and customer service integration.

Not only does this provide a new source of revenue but, by connecting this “front end” of the business to its traditional “back end” logistics and warehousing operations, the postal group can better track sales than it can waiting for sales to come in from third-party retailers using other systems.

The Singapore website for Adidas was quickly followed by one each for Malaysia, Thailand and the Philippines, giving Adidas an online “shop window” in southeast Asia for the first time, complementing its existing physical stores.

SingPost also operates a customer service call-centre where, with input from Adidas, staff have been trained to ensure familiarity with the shoemaker’s products. The only giveaway that SingPost is involved is the company’s red logo, tucked discreetly at the bottom of the Adidas site.

Shahin Padath, director of e-commerce and business development for southeast Asia at Adidas, says the company picked SingPost rather than build its web presence in-house because it needed a quick rollout.

“We thought: ‘Let’s go with someone who has the expertise and we’ll roll out quickly.’ It is unique and we are being used as an example [internally] for markets where e-commerce has not been rolled out yet,” he says.

Other postal carriers around the world have worked with retailers to make more of the opportunities afforded by e-commerce – for instance by providing services for customers to collect items purchased online in-store – but these collaborations rarely go as far as SingPost’s.

Last year e-commerce in southeast Asia generated about $6bn in sales, according to consultancy AT Kearney. That may seem small when compared with China, which generated about $100bn. But southeast Asia, with a population of more than 600m mostly spread across Indonesia, Thailand, Malaysia, Vietnam and the Philippines, is growing at 25-30 per cent every year compared with traditional, bricks-and-mortar retail.

Such economies, on Singapore’s doorstep, are increasingly propelled by domestic demand from young consumers under 30. They are rapidly embracing mobile technology in order to buy goods online – typically fashion apparel and electronics.

The company has also been investing in its delivery infrastructure. Since 2009, SingPost has spent S$200m ($161m) on 11 acquisitions to build out its presence in fulfilment and warehousing in the region, including taking stakes in a Vietnamese freight forwarding company, a Malaysian express delivery logistics company and, in February, a 62.5 per cent stake in Famous Holdings, a Singapore-based sea freight company with offices in Japan, Australia, China and the US.

“With the boom in e-commerce, Singapore is set to be an Asian e-commerce hub. This puts SingPost in a good position to enable others access to southeast Asia through our postal network and warehousing infrastructure,” says Mr Baier.

But he acknowledges that it is a “very difficult business”. While SingPost’s domestic letter volume continues to decline, revenues for the overall mail segment are increasing based on the international e-commerce parcel business.

Yet that is a relatively low-margin business. While SingPost has doubled revenues from regional warehousing and delivery-related business since 2009, the company revealed last week that expenses had grown faster than revenues in the second quarter of this year as it continued to diversify into lower-margin businesses. Net profit rose 8.5 per cent to S$35.6m but operating profit was flat.

The sector is also fiercely competitive. DHL, the express delivery group, is planning to double its size in southeast Asia by 2015 by investing €140m to open seven new warehousing, transport and IT facilities.

In addition, some retailers have been trying to retain more of the value of e-commerce transactions by fulfilling deliveries themselves – in effect disintermediating postal services.

To tackle these threats, SingPost is using longstanding ties with other postal services in Asia to save costs and act as a “low-cost carrier” in e-commerce.

Mr Baier acknowledges that SingPost must move quickly to offset the decline in its core business. Other e-commerce players are muscling in on the region, includingRakuten of Japan.

Recently Lazada, an e-commerce retailer set up by Berlin-based Rocket Internet, which bills itself as “the Amazon of Asia”, raised US$100m to expand in southeast Asia.

Mr Baier may need to keep drawing on his Austrian postal heritage to ensure SingPost stays ahead. “When you look at the [postal] industry it is really battling for survival. Our particular advantage in southeast Asia is that we understand the markets well,” he says. “But more established e-commerce players do have an edge, so we need to move as fast as we can.”