Lazada is in its infancy. Can Alibaba’s investment help Lazada to challenge Amazon?
By Isabel Yeo, edited by Francesca Ross
Online e-commerce giant Lazada seems to be on track to becoming the Amazon of Southeast Asia.
The Chinese retail group, Alibaba, has invested US$2 billion into the platform last year. This bodes well for the Lazada Group who had been struggling to attain profitability.
Revenue grew 54% year on year from 2013 to 2015. Losses grew much faster – 64% year on year during the same period. Growth of losses could be explained by expensive user acquisition.
Salvation appeared for the Lazada management team in April 2016. Decision-makers from the China-based e-commerce giant Alibaba chose to inject US$1 billion into Lazada. Another US$1 billion followed a year later. This brought Alibaba’s share of the company up from 51% to 83%.
“That [valuation] is quite a significant uptick and overall that reflects the great performance and traction that Lazada has seen. It also reflects that Alibaba continues to be extremely positive about this region, doubling down on Southeast Asia and seeing the potential,” said Lazada CEO Max Bittner.
Lazada has amended and expanded its business model
Lazada moved from a B2C (business to consumer) model to a B2B2C (business to business to consumer) model. This means third-party sellers can get direct access to consumers via the Lazada Marketplace function.
This helps accommodate rising interests in e-commerce by SMEs, distributors and brands. These business owners want to tap into existing online platforms for their established customer base and e-commerce services.
Lazada has also expanded to bring Taobao items to Southeast Asia. Taobao is a Chinese online shopping website owned by Alibaba that mostly carries mass-market products. This expansion has provided Lazada’s consumers with a greater variety of products at a lower prices.
Lazada has also acquired Singapore grocery start-up Redmart and announced a partnership with Unilever. The partnership with Unilever will see mutual improvements to the supply chain processes, data management and marketing strategies of both companies. This will be done by studying data collected from online purchases to map emerging trends in e-commerce.
“The goal is to find better ways to address the exploding middle class across Southeast Asia and communicate directly with them,”
The e-commerce market is bursting with platforms
|Popular C2C/P2P Apps
|Popular B2C/B2B2C Apps
|Lazada, Ezbuy, Qoo10
E-commerce businesses in Southeast Asia face a tough fight for market share. An expanding middle class makes the region the new frontier for shopping online. Southeast Asia’s young, tech-savvy population is driving this boom.
“The e-commerce markets in the region are still relatively untapped and we see a very positive upward trajectory ahead of us,” Alibaba’s CEO Zhang stated. E-commerce platforms that are able to establish a presence in Southeast Asia now will be able to capitalise on the market’s projected growth later.
Qoo10, an online platform for individual merchants, is one popular regional player. The service’s largest markets are in Singapore and Japan but there are also operations in Malaysia and Indonesia. The fact that Lazada now sells Taobao products should cut Qoo10’s competitive advantage of cheaper products.
Shopee and Carousell are also gaining ground as C2C (customer to customer) sites where users can buy and sell merchandise to other users. Ezbuy is also popular. This is a platform that functions as a middle man for purchasing and shipping items that are unavailable locally.
International player eBay also has a foothold in the Southeast Asian region. Its biggest consumer market is Thailand, despite Singapore’s higher per capita spending. This could be because other e-commerce websites have based themselves in Singapore and advertise aggressively there.
Inanc Balci, CEO of Lazada Philippines, said he viewed competition as a good thing. “It is always better for the market to have competition to keep you on your toes. We believe that for the market to grow much faster, we need better, healthier competition,” he added.
Lazada’s management team is in an advantageous position vis-à-vis its competitors thanks to Alibaba’s deep pockets and e-commerce experience. Even when Amazon finally arrives in the region, Lazada would have had a four-year head start in establishing a customer base.
E-commerce will eventually flourish in Southeast Asia
Online sales currently account for just 2.5% of all sales in the Southeast Asian region. This is because the challenges of logistics and infrastructure hinder greater growth of the market. For example, only 7% of consumers in Southeast Asia (excluding Singapore and Malaysia) own a credit card, limiting the number of consumers able to make e-payments.
Existing logistical infrastructure, such as delivery services, are also largely underdeveloped.
A report from the consultancy firm Frost and Sullivan highlighted this was “hampering the growth of e-commerce in Southeast Asia, especially in areas with complex geographies such as Indonesia and the Philippines.”
Some attempts have been made to overcome these challenges. Most companies offer “Cash on Delivery” options which allow those with no access to e-payment to still make purchases. Investments in transport and delivery networks are also underway. The problem is that e-commerce businesses cannot overcome these problems alone. Fixing them is often dependent on the individual countries’ economic development.
The online retail market for consumer goods in the Southeast Asian region is projected to reach US$25 billion by 2020. This is because the number of potential customers will increase as the size of the region’s middle class doubles by 2020.
Still, companies will have to resolve the aforementioned challenges of e-commerce in order to capitalise on the increased number of potential customers. Having already established themselves in the region, Lazada’s teams have a head start on making e-commerce work in Southeast Asia.