Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on March 20 - 26, 2017.

 

FOR a view of how Malaysia’s e-commerce scene has grown and changed, take a look through the eyes of popular online shopping site Lazada, which is intent on being the dominant player in Southeast Asia.

As e-commerce grows rapidly in markets such as the US and China, attention is quickly turning to the next frontier — Southeast Asia’s 560 million-strong consumer base.

It is because of this promise that China’s internet giant, Alibaba, paid US$1 billion last April for a controlling stake in the Lazada Group, valuing it at US$1.5 billion. Apart from Malaysia, Lazada has operations in Indonesia, Singapore, the Philippines, Thailand and Vietnam.

While Malaysia’s population of 31 million may be small compared with Indonesia’s 250 million and Thailand’s 68 million, it is the fastest growing e-commerce market among the six in Southeast Asia where Lazada has a presence, according to Lazada Malaysia CEO Hans-Peter Ressel.

Lazada Group CEO Max Bittner recently announced that Lazada Malaysia’s gross merchandise volume grew 110% year on year.

“We are showing triple-digit percentage growth every year … This is just accelerating,” Ressel says.

While he is encouraged by the growth rates, Ressel is not ready to pat himself on the back just yet. In fact, he thinks Malaysia’s e-commerce story is still in the nascent stages.

“Today, it is still a very underdeveloped market. This market is about to explode. In five years, it’s going to be a completely different story,” a confident Ressel says.

And why not? Malaysia has a large enough addressable market and a well-developed logistics and payments infrastructure. Its population has a relatively high disposable income and the internet penetration rate is considerable.

What’s more, e-commerce’s share of total sales volume is still minute compared with China and the US, which are the world’s largest online sales markets with 25% and 10% respectively of retail sales done online.

Based on CLSA Research’s analysis, online business to consumer (B2C) and consumer-to-consumer (C2C) sales as a percentage of total retail sales in Malaysia was around 2.3% and 2.5% in 2014 and 2015 respectively.

“China is huge. Do we think it will happen here in Malaysia? Of course,” Ressel says.

Lazada Malaysia’s growth comes amid ongoing weakness in consumer sentiment over the last two years, especially given the introduction of the Goods and Services Tax, a weakening ringgit and higher cost of living.

What Lazada noticed is that people did not stop spending, they were just spending differently.

“Maybe they weren’t buying 70” TVs for RM4,000, but they were buying 32” TVs for RM600. They were not making huge purchases but they were coming back more often, which we actually prefer,” Ressel says.

Online, he says, Lazada noticed that people were buying products in different categories and this spurred the company to develop more categories, particularly in fashion and fast-moving consumer goods.

“The beauty of online is that we get the data almost instantly. We see what our customers are browsing and what they are buying … Our role is not to create demand, it is to fulfil demand”.

Lazada Malaysia’s platform today is vastly different from when it first started as an online electronics store.

“The crowd then was predominantly male — college students, very tech-savvy, buying gadgets and accessories. Then, there was a complete demographic shift.”

Today, Lazada Malaysia’s “crowd” is older, mostly aged 30 to 35, and over 60% female. Popular product categories include fashion, groceries, diapers, homeware and furniture.

This shift may have been surprising to most people, but not Lazada. In fact, it was part of the plan all along.

Lazada Malaysia deliberately added a wide assortment of non-electronic items, ramping up its volume and assortment of goods to over 10 million stock keeping units across 16 major categories.

“Some of these categories, such as diapers and groceries, have a high repurchase rate. If your baby needs diapers, you will definitely be buying them every month,” Ressel says.

The other major shift in consumer behaviour that Lazada saw was a move away from bargain hunters to more brand-conscious online shoppers.

“Now, people shop brands. They don’t say ‘I want to buy a cheap T-shirt for less than RM10.’ They say ‘I want Puma sneakers’ or ‘I want an Adidas shirt’.

“It is less impulse buying and becoming much more curated and educated decisions based on information and peer reviews that are available online,” Ressel says.

This is why Lazada Malaysia spent the last two years working with brands that wanted to roll out an online sales and engagement strategy as well. They include brands including Samsung, L'Oréal, Nestlé, Levi’s, Tesco, Sen Heng, Focus Point and Watsons.

“A lot of the brands we work with are offline retailers. But they understand that online is another channel for them, not just to sell but to engage with their customers,” Ressel says.

In many ways, the focus on brands seems to have helped Lazada grow especially outside of Kuala Lumpur.

Although shoppers in Kuala Lumpur were early adopters, the capital city now only accounts for about 20% of total sales done via Lazada. Sales contribution from other parts of the country now stands at 80% with the east coast region, Sabah and Sarawak showing very strong growth, albeit from a low base.

Sabah and Sarawak now account for about 15% to 20% of Lazada sales from around 5% a year ago, says Ressel.

He declines to reveal the number of registered and active users on Lazada Malaysia, citing business sensitivities. But he notes that around four million users in Malaysia have downloaded Lazada’s mobile app. The amount of sales done on mobile has risen to almost 70% from about 20% two years ago, he adds.

“The availability of cheaper smartphones and the internet really allowed people in, say, Kota Baru to start buying products that they did not have access to before,” he says.

Central to Lazada’s growth strategy is logistics, which is the backbone of e-commerce. Simply put, there is no point in having a vast array of goods at competitive prices if buyers cannot get the products fast.

Lazada not only works with logistics partners but has invested in its own delivery fleet and two warehouses — one in Subang Jaya, Selangor, and one in Kuching, Sarawak.

This is also why Lazada operates on two models — a hybrid B2C, as well as managed marketplace model — which accounts for about 85% of total sales.

“It is sometimes easier to control the supply chain. Some of the items that are in high demand, selling by the thousands every day, we want to have very close by so we can ship them out fast. Some products, people just want to have fast, otherwise they just go to the mall on the weekend and buy it,” Ressel says.

Nevertheless, Lazada’s key challenge in Malaysia remains logistics and it knows that it cannot do it all itself. Lazada has been collaborating with local logistics players to see how their operations can be expanded to support the needs of e-commerce.

“We work closely with our logistics partners … to encourage them to expand their operations, or a year from now, the logistics industry in Malaysia won’t be able to deliver all the daily items that are being ordered at Lazada,” he says.

Apart from logistics, Lazada Malaysia’s big focus is not just to acquire more customers but to build the e-commerce shopping habit among Malaysian consumers.

This hinges on a good customer experience and fulfilment as well as a bigger assortment of goods that are available to purchase online.

“If we double or triple our assortment and add new categories, there will always be something new to explore. The key for us is to engage with customers again and again, make it a habit [for them],” he says.

If Lazada succeeds in changing consumer behaviour in a big way, it stands to reap all the gains.

 

 

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