Zalora Soars, Overcoming SE Asian Fashion E-Tailing Hurdles
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Zalora soars, overcoming SE Asian fashion e-tailing hurdles asiacargobuzz.com/2019/06/21/zalora-excels-overcoming-se-asian-hurdles-of-fashion-e-tailing/ Donald Urquhart June 21, 2019 In 2012 when Kinnevik AB and Rocket Internet took online fashion retailer, Zalora, live in six Southeast Asian markets along with Hong Kong and Taiwan – the sceptics were rife. Who in most of these countries would buy online, what about supply chains, Customs issues? The sceptics’ questions were manifold and yes, largely valid. Fast forward to today, and while some sceptics remain – particularly given that the company, like many in the e-commerce space, has yet to turn a profit – the Zalora Group has clearly shown that in the incredible diversity that is Southeast Asia, there is also incredible opportunity if you can come to grips with the unique challenges of the region. Clearly Zalora has gotten a grip on this, with business growing at a rapid pace and all- important investors continuing to back the enterprise. In fact, the growth has led the company to expand its facilities, earlier this year inaugurating its new Regional e-Fulfillment Hub located in Selangor, Malaysia, just outside of Kuala Lumpur. Covering a total area of 43,660 sqm – approximately the size of nine FIFA football fields – and split across five levels, the e-Fulfillment Hub serves as the sole fulfillment centre for Singapore, Malaysia, Brunei, Hong Kong, Macau and Taiwan and at the same time 1/13 provides stock support for the Philippines and Indonesia markets. “Zalora is gearing up for step-change in growth across its key markets including Malaysia over next three years with 40-60 per cent expected annual growth rate. Our fulfilment centre in Malaysia plays a significant role in enabling this leadership,” says Gunjan Soni, CEO of Zalora. Gunjan Soni, CEO of Zalora. Just how confident ZALORA is of that growth can be seen by the fact it has an option on an adjoining warehouse space through its partnership with Singapore logistics company YCH Group, that would double the new hub’s space. All that is needed to expand, is a simple green light. And make no mistake, that green light is coming sooner, than later. Other changes have also taken place along the way as well. Zalora is now part of the Global Fashion Group (GFG) – registered in Luxembourg, and headquartered in Singapore and London – from September 2014. The GFG comprises fashion e-commerce platforms across 24 countries including Lamoda, Dafiti, Namshi, Jabong and of course Zalora. Through its five regional companies, GFG currently operates across 24 markets with over one billion population, serving a fashion market estimated to be worth over EUR 350 billion. Overcoming SE Asian challenges But when it comes to Asia, what Zalora has done, is proved the sceptics wrong on not just the potential of the region, but its own ability to overcome the shear number of challenges the region presents. 2/13 Let’s not forget, when Zalora first appeared on the scene, preceded by its e-commerce sibling Lazada – in which the Alibaba Group has since, in April 2016 bought a controlling interest – e-commerce, at least in this part of the world, was but a mere infant. While every e-commerce market has its unique challenges, Southeast Asia must certainly rank amongst the most diverse and challenging. Even simple movement is complicated by geography. Two island nations for example – the Philippines and Indonesia – together comprise a staggering 24,600 islands many of which only have rudimentary transport connecting them. The region is also marked by sharp cultural, linguistic and religious differences, not to mention varying levels of economic and social development. And then there is the vastly contrasting political cultures which give rise to unique Customs regulations and practices, including varying and often substantial levels of corruption in a number of the states. But despite all the challenges, the e-commerce potential is clear. A population of more than 661.4 million whose average age is under 30, this is a young and rapidly growing region, not only in population, but economic prosperity too. The e-commerce market in Southeast Asia was estimated to be worth USD 10.9 billion in 2017, a figure that will leap nearly eight times by 2025 when it will be worth USD 88.1 billion, according to a report from Google and Singapore’s state investment company, Temasek Holdings. When it comes to demographics, things are pretty straight forward for Zalora. Its core customer profile tends towards the 25-35 age bracket with 70 per cent being female. Beyond that, things get more complicated. A Taiwanese or Singaporean customer, for instance, is more likely to gravitate towards Japanese or Korean fashion, but in Indonesia or Malaysia, the bulk of the customers are Muslim women, which means fashion tastes trend towards ‘modest wear’. Inbound supply chain One would think this would also mean a fairly diverse sourcing model and hence inbound supply chain. “From an upstream standpoint looking at the way Zalora is set up, we work with thousands of suppliers and we have quite an extensive network of brands that we work with – it’s huge,” Rostin Javadi, chief operations officer, Zalora Group tells AsiaCargoBuzz.com in Kuala Lumpur. 3/13 Rostin Javadi, chief operations officer, Zalora. But despite the breadth of suppliers, Zalora’s geographic spread of suppliers is fairly concentrated. “China is of course a very big one where we have her own private label we also have some other brands that come from China.” In fact, nearly 20 per cent of Zalora’s merchandise falls under its own label, with another 20-30 per cent localised products, such as the ‘modest wear’ portion and the remainder are key international brands. Because of proximity, the China inbound is consolidated in the Pearl River Delta’s Guangzhou and shipped by sea freight direct to Malaysia’s Port Klang before moving to Zalora’s distribution centre on the outskirts Kuala Lumpur. This is handled end-to-end solely by APL Logistics. “Then on the other side we have another big piece of the assortment that comes from Europe which is a combination of sea and air where the majority comes by air because we are in fashion and speed is definitely of the essence,” Javadi says. A dip in lead time of more than a couple of weeks, is a dip in terms of potential sales, he adds. “So we need to be extremely efficient terms of speed from Europe,” adding that Zalora’s main European sourcing locations are Spain and to a lesser extent, the UK. “We recently opened up from the States, so we’re also getting goods from North America, but that is definitely a smaller piece,” he adds. In order for this all come together smoothly, Zalora partners with a handful of different freight forwarders, but at least for now, the company is not of a size or scale where it would be blocking its own capacity, especially in terms of ocean freight. 4/13 Covering a total area of 43,660 sqm – approximately the size of nine FIFA football fields – and split across five levels, the Malaysian e-Fulfillment Hub serves as the sole fulfillment centre for Singapore, Malaysia, Brunei, Hong Kong, Macau and Taiwan and at the same time provides stock support for the Philippines and Indonesia markets. When it comes to air freight Javadi says there are a couple of routes under consideration in terms of booking capacity, but adds no decisions have been made on that as yet. The Group works with a network of 4-5 forwarding partners from APL logistics, to Panalpina, DHL Global Forwarding, etc, which gives it the flexibility it needs. 5/13 “We try to work in a way that is quite flexible, so if we need to open up new inbound routes it’s very easy for us to do that because we need to be quite flexible on the supply chain front. Things are changing very fast,” he adds, highlighting the example of Brexit. For that particular problem Javadi is comfortable with the contingencies in place amongst Zalora’s forwarding partners. This inbound supply chain model is essentially repeated, albeit on a smaller scale for two of Zalora’s key markets: Indonesia and Philippines. Because of the two markets’ geographic complexity and size among other factors, the two markets each have their own fulfillment centres, smaller in scale than the Malaysian facility. These are supplied locally through partnerships with local suppliers and internationally from China by sea and Europe and elsewhere by air. Last mile fullfillment Again the model the varies with the market. The Regional e-Fulfillment Hub in Malaysia supplies the Taiwan, Hong Kong, Macau and Brunei markets by air which is handled by Zalora’s logistics partners. Malaysia is split between the Klang Valley (Greater Kuala Lumpur area) and the rest of the country. In the Klang Valley area most of the deliveries are done by Zalora’s own motorcycle couriers, while in Singapore its about 80 per cent Zalora. Outside of the Klang Valley, the rest of Malaysia is through courier partners with an added air component depending where in the country the order is destined. For Singapore, all orders are trucked, leaving the hub at around midnight and reaching Singapore for delivery the next morning. To manage this, Zalora has a 6pm cut-off time for next day delivery. For an annual fee – for example SGD14.90 in Singapore – customers in Malaysia, Singapore, Hong Kong and Taiwan can enroll in ‘ZALORA Now’ and get free, guaranteed next-day delivery for one year, with no minimum order and a later cut-off time of 9pm, among other perks.