How Zalora Is Expanding In Asia

In late 2011, Rocket Internet launched Zalora in the Philippines to sell clothing, shoes and other apparel. In 2014, Zalora's net revenue was 117 million euros while its net losses were 68.1 million. At the same time its gross merchandise value increased 80%, transactions increased 90% and its customers doubled.

Today Zalora operates in Australia, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Taiwan. I met up with Tito Costa, Zalora's Managing Director, to learn more about his projections on how the region will evolve.

What are the major factors driving the region's appeal for you?
Asia contains 60% of the world’s population and Southeast Asia alone has an audience of 600 million, making it a huge market to tap into. Furthermore, the region is poised to be one of the world’s fastest growing markets for e-commerce, with online spending to hit USD 35 billion (SGD 46.3 billion) by 2020. Despite the market landscape being very fragmented and still in its infancy, we cannot ignore the opportunity to convert these traditional shoppers, who buy goods from brick-and-mortar stores, into e-consumers. Furthermore, the economy is constantly growing and markets like Singapore and Hong Kong have proven to be strong economic performers.

Would you be able to share any figures to illustrate how rapidly your e-commerce business in Asia has grown?
When Zalora started, we only had 20 employees and today, we have over 2,000 employees with a presence in nine different markets, making us Asia Pacific’s leading group of online fashion destinations. Our digital presence has grown exponentially as well, having tripled our fan base on Facebook from 2 million in 2013 to almost 6 million last year. In 2014, our mobile application was downloaded close to 5 million times. Last December, we organised “12.12 Online Fever”, Southeast Asia’s biggest cyber sale event, involving 144 partners from 28 industries, and shipped over half a million products to our customers. We’re doing it again this year with old and new partners and it will be bigger than last year’s run.

What would you identify as the major trends right now that are shaping the future of Asia's eCommerce industry?
One of the biggest trends would be mobility. Consumers are starting to demand a more seamless shopping experience across different channels and devices. These transumers are always on their mobile and are making purchasing decisions while commuting from place to place. In order to remain relevant and competitive in this ever-changing landscape, retailers need to be present in all the different touch points, to capture the transumers’ attention.

As an online fashion retailer, we achieve this by partnering with messaging apps like LINE, Viber and WEChat, or by enabling interactive shopping via QR codes displayed in train stations.

But that is not enough. Just as how shoppers are demanding for a seamless shopping experience, they are also becoming more sophisticated with their expectations of an online retailer. Hence, impeccable customer service, characterized by efficiency and ease of use, is also necessary for online businesses to survive.

In our digitised society, the rate at which we consume media is also peaking. Online retailers need to communicate their fashion proposition and establish their authority in curating styles. e-commerce sites are now becoming shoppable magazines with content and visuals that can rival online fashion magazines. And on the other end of the spectrum, print magazines are also going online to stay relevant and monetize their content through partnerships with e-commerce sites.

Tito Costa
Tito Costa. Photo: From file

What are the industry's biggest challenges in Asia going forward, and what steps are you taking to overcome them?
One of the biggest challenges e-commerce businesses face in Asia, compared to the US or Europe, is a lack of logistics and payment infrastructure. We have expanded our in-house fleet to ensure a world-class customer experience - from the first click to when the customer receives the package.

On the payment front, we offer cash on delivery - to allow people who don’t have a credit card or don’t feel yet comfortable paying online.

Secondly, the Asian markets are extremely fragmented, with vastly different tastes, cultures, trends in each country. For Zalora, we believe that if we want to have a significant presence in a market, we had to invest time and effort to better understand local situations and context. And we addressed this by having on-the-ground marketing, warehouse and production teams in each local market, so that we can reach out to as many potential customers as possible.

E-commerce firms are fast becoming Asia's next retail titans. How do you think the current competitive landscape will play out, do you see eventually a few big firms gaining and maintaining dominance in the Asian market? Or what is the most likely scenario you envision?
E-commerce in the region is still in its infancy stage, with so much untapped potential. As the market grows, more capital from local and international investors will flow into the region to capture those opportunities, as we have recently witnessed in a few markets, most notably Indonesia.

We would expect these capital flows to ignite further market growth, wider consumer education around shopping online and faster e-commerce adoption. In our view we are still a few years away from a consolidation wave that will probably be triggered by slower growth rates down the road.

Eventually, internet businesses show strong winner-takes-all dynamics that will favour concentration of most value in few category leaders (one marketplace player, one fashion player, one classifieds player, etc). For now, it appears that regional players have gained a significant first-mover advantage in their respective vertical and underdeveloped logistics infrastructure, low electronic payment adoption and market fragmentation represent meaningful barriers to entry.

In general, what is your outlook for e-commerce in Asia over the next 5-10 years, and what factors are underlying your prediction?
The uniqueness of the Asian landscape is e-commerce’s opportunity to leapfrog traditional retail, especially in second and third tier cities where offline retail infrastructure is less developed, and represent a much larger share of the total retail market than in western markets. Secular demographics and income growth trends will strengthen the shift, as many young shoppers will experience retail first online, probably on their mobile phones.

A second trend that we see is that the experimentation of traditional retailers with online shopping and vice-versa online players are testing pop-up stores and digital showroom concepts, may lead to a convergence towards a new omnichannel digital-first retail, putting together the best of the two worlds for an optimal customer experience. In our view, the lack of pre-existing retail infrastructure in many Asian geographies will make this convergence process faster than it was in Europe or the US.