Lazada quietly confident amid rumoured Amazon Southeast Asia entry

Southeast Asian e-commerce operator seems unfazed over Amazon's reported plans to enter the Singapore market, pointing to its focus on customer engagement and logistics network.
Written by Eileen Yu, Senior Contributing Editor

Lazada remains seemingly unfazed despite Amazon's impending entry into Southeast Asia, as it bets on its existing ecosystem of partners, merchants, and infrastructure to provide a competitive advantage.

The Singapore-headquartered e-commerce operator operated in six Asian markets including Malaysia, Thailand, the Philippines, Indonesia, and Vietnam, serving some 8 million customers. In 2015, its GMV (Gross Merchandise Value) crossed US$1 billion.

The company operated 12 fulfillment centres, 92 distribution hubs, and a network of 5,000 vehicles serving last-mile delivery. It had more than 100 third-party logistics partners across the region.

Last month, it announced plans to acquire Singapore online grocer RedMart in a move to expand its service offerings. The deal was finalised this week.

Lazada, however, would soon face US e-commerce giant Amazon, which reportedly was finally looking to establish its presence in Southeast Asia, with a Singapore launch scheduled for the first quarter of 2017.

Speaking to ZDNet on the sidelines of a media briefing Thursday, Lazada Singapore CEO Alexis Lanternier suggested that the company's established footprint in the region would stand in good stead when, and if, Amazon made its foray.

Pointing to his company's built-out ecosystem, Lanternier said: "Our key focus is on customers, not on the competition. E-commerce is very simple [in concept], but it is difficult to execute [so it would] be about the execution."

He said succeeding in this space required several key factors, including offering products at the best price-points, customer experience, rapid shipping, and accountability.

He further noted that the market was big enough to welcome new entrants, noting that e-commerce still was significantly untapped in Singapore, accounting for just a small fraction of overall sales.

According to a study by Google and Temasek Holdings, Singapore's e-commerce market contributed 2.1 percent of total retail sales last year. Across Southeast Asia, e-commerce accounted for between 2 and 4 percent of overall retail sales, which paled in comparison to China's 14 percent in 2015.

This, though, was projected to change, with Southeast Asian e-commerce market to grow at 32 percent a year. By 2025, the region's internet economy would be worth more than US$200 billion, driven primarily by e-commerce, as well as online advertising and gaming, and leisure travel.

Asked about the current resurgence of e-commerce, Lanternier again underscored the importance of customer experience, which he said had driven customers away during the initial days of e-commerce. With better service delivery, including free shipping and guaranteed product returns, customer confidence would grow and drive the market, he said.

To ensure robust last-mile delivery coverage, he explained that Lazada worked with six to seven delivery partners in Singapore so it would not be dependent on just one provider. It tracked the performance of these partners and, based on the data collected, would allocate more business to those that achieved higher delivery results.

This served as an incentive for the players to offer optimal performance, hence, providing better delivery services for Lazada customers, Lanternier said. SingPost, too, was held to the same standards, despite sharing strong links to Alibaba, he noted. Lazada in April sold a controlling stake to the Chinese e-commerce giant in a deal worth US$1 billion, while Alibaba also made sizeable investments in the Singapore postal service provider.

Tapping offline to improve customer experience

Its ties to an established player such as Alibaba also had provided much confidence and allowed Lazada to address its markets with more conviction, said Lazada Group CEO Maximilian Bittner.

It also helped the company sidestep errors it would otherwise had made, especially in an industry that was fraught with potential pitfalls, Bittner said. In the months after inking its deal with Alibaba, he revealed that some 100 of his employees spent time at the Chinese partner's campus in Hangzhou, where the Lazada staffers picked up best practices from their Alibaba counterparts.

The partnership also provided Taobao merchants access to six Southeast Asian markets, he said, adding that Lazada had taken over some transactions on the Alibaba e-commerce site, handling the last-mile delivery service.

Like Alibaba, Lazada also shared its data insights with partnering merchants to help identify top-selling products and improve their sales strategy.

Lanternier said the company employed a team of data scientists that analysed its data to help "match" relevant products to potential buyers, but declined to say how many--most of whom were based in Singapore--there were.

ZDNet asked if Lazada would emulate Alibaba's recent focus on bridging the online and offline realms, Bittner noted the difference in maturity and significant scale of China's e-commerce market, compared to the Southeast Asian region.

He highlighted, however, the potential of tapping both offline and online to improve consumer experience. For example, online videos could show customers how to select the right beauty product for their skin tone or brands could use their online presence to push in-store promotions.

The objective here was to encourage both brands and consumers to view Lazada as more than a retail channel, and tap the platform as a way to communicate, Bittner said. "I look at offline-online as a way to better engage with consumers," he said, adding that this encompassed other key components in the ecosystem including logistics. Not all customers today, for instance, would want their purchases delivered to their homes and would want the option of picking up packages at a gas station or convenience store.

Above all, the driving advantage e-commerce offered was unlimited shelf space, he noted.

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