Go local. If Tito Costa had one tip on building an e-retail business in Southeast Asia, that would be it.
Costa is managing director of Rocket Internet-backed fashion retailer Zalora.com. The footwear and apparel retailer, which launched in early 2012, sells to consumers in Singapore, Malaysia, Thailand, Vietnam, the Philippines, Indonesia and Hong Kong. It sells items from around 6,000 local and national brands, has more than 2,000 employees and in the first half of 2014 booked $70 million in sales.
But it’s entry into Southeast Asia is requiring significant local investments in each country, and there have been a few bumps and bruises along the way.
“We sell to 600 million consumers in a very fragmented market,” Costa tells Internet Retailer from his office in Singapore. “We took a very localized approach from the beginning, with local warehouses and a marketing team in each country. If you are in Vietnam and call customer service, you will be able to speak to someone in Vietnamese. In six months we launched in all seven Southeast Asia countries. Europe may be fragmented, but Southeast Asia is 10 times more fragmented.”
Costa deems the investment worth it. Zalora, he says, is getting in on the ground floor of a region poised for strong e-commerce growth. While Southeast Asia’s web penetration stands at around 32% now, that percentage will increase to 48% within three years, according to a June 2014 report from investment bank UBS. And more consumers with web access are using it to visit online retailers, the report notes. Visits to e-retail sites in the region outnumber bricks-and-mortar store visits by 41 to 1, according to UBS. The bank forecasts online sales in the region, which now account for only .2% of total retail sales, will increase at least fivefold by 2020 to reach $35 billion.
“We are trying to build a brand in an area where there is less (e-commerce) noise and where there aren’t a lot of other players to compete against,” Costa says. He adds more shoppers in the region are warming to shopping online because it gives them access to a much larger selection of products than nearby stores. “In emerging markets you have very limited offline retail infrastructure outside capital cities,” Costa says. While the potential payoff might be compelling, selling to into seven countries across Southeast Asia means Zalora has to contend with local languages and cultures. Nor is there an umbrella entity such as the European Union to streamline currency and customs rules and duties across countries. And then there is the fact online shopping is just beginning to pick up speed. That means many consumers don’t trust inputting payment information online and many countries lack a reliable logistics framework.
Building trust with first-time online shoppers is key to building an e-retail brand in the region, Costa says. Zalora learned the hard way when it first launched and was flooded with more orders than it could handle. That resulted in the retailer failing to live up to its guarantee to consumers of delivery in five to seven days.
To speed shipping times, Zalora began operating its own fleet of delivery vehicles and now offers same-day delivery in some major cities and delivers all orders within three days. Shoppers also can pay with cash on delivery. In some countries including Vietnam and Thailand, 90% of shoppers choose that option, Costa says. It also ships from local warehouses it operates in each country. “You have to take the time to set up your operations efficiently,” Costa says. For example when Zalora’s order volume spikes it now allocates more employees to packing and shipping orders out immediately than it does employees processing returns.
While it sells items from popular global brands such as U.K.-based River Island and Spain’s Mango, Zalora also sells local fashions, making selections according to the culture and trends in each country. For example, Muslim Wear is a popular category in Malaysia that includes traditional hijabs, kaftans and jubahs. By contrast, fast-fashion trends—more recently black-and-white striped ensembles—move quickly in the Philippines.
To introduce its brand to consumers in the region, many of whom have likely not yet made a purchase online, Zalora has recently launched pop-up shops in Singapore; Jakarta, Indonesia, and in Penang, Malaysia. Here, shoppers can try on products and a store associate will show her how to find and purchase her selection online, an attempt to familiarize her with shopping Zalora’s e-commerce site so she will come back and buy again.
“We are testing out the model,” Costa says. “We are planning to keep each store open a few months, and we are using it as a way to penetrate new cities.” While he won’t share specific results he says the cost to acquire new customers at a pop-up shop so far is much lower than the cost to gain a new shopper via online marketing.
To raise awareness of online shopping, Zalora also on Dec. 12 spearheaded an e-commerce festival called Online Fever in Southeast Asia along with 140 other companies, ranging from banks to telecom companies to online travel agencies. Zalora and such others participants as Philippine telecom operator Smart Communications and Rocket Internet-backed taxi booking app EasyTaxi and online food ordering service FoodPanda offered deep discounts and promotions on the day, which was modeled after big retail sales day like Black Friday in the U.S. or Singles’ Day in China. Participating businesses displayed landing pages on their respective web sites that included all the deals from participating companies.
Zalora says it attracted more than two million unique visitors on the e-commerce holiday, and shoppers placed an order every two seconds, generating a 600% increase in orders on the holiday compared to a typical shopping day.
Zalora is also taking advantage of the growing number of consumers with smartphones to increase brand awareness and sales. According to UBS, smartphone sales in Q1 2014 in Indonesia, Vietnam and Thailand increased between 45% and 68% compared to year earlier.
Local knowledge is also key when it comes using mobile and social marketing to reach the growing number of smartphone owners in Southeast Asia, Costa says. An app called Line, for example, is one of the most popular chat apps in Thailand, with more than 33 million Thai users as of October, according to statistics portal Statista. Thai consumers frequently give virtual stickers to their friends via the app for fun. Within Line, brands can design and offer what are called sticker sets with branded stickers that Line users can give to one another.
Zalora launched a sticker set called Mr & Mrs Z designed by popular local Thai artist Kapiz and within one week Zalora gained 6 million Thai followers on the mobile messaging app, besting its five million Thai Facebook fans in a matter of days. Zalora also offers deals and promotions through Line’s mobile commerce shopping service, called Line Hot Deals.
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