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‘Lazada and Alibaba partnership will bring significant synergies’
Interview with Riccardo Basile, Chief Commercial Officer of Lazada Group
June 6, 2016: Lazada is Southeast Asia's undisputed retail giant. However, data by Rocket Internet, the Germany-based company behind Lazada, reveals that despite strong revenues, the e-commerce giant has struggled to generate profit. The company’s latest financial results show €275 million in revenue during 2015, up 78.2% on the previous year, which is unquestionably a tremendous growth, but if one looks closer at the cost side, growth came at a staggering cost of €296.5 million. Therefore, the recent $1 billion investment by Alibaba for a majority stake in Lazada gave a boost to the company’s finances.
The deal puts Alibaba, the world’s largest e-commerce company, in a very strong position to consolidate its aim of expansion in ASEAN, a market which offers plenty of opportunities, compared to a saturated market like China. To better understand the synergies between the two companies and to grasp what the deal means for the e-commerce market in the region, IFM spoke to Riccardo Basile, former CEO of Lazada Thailand and current Chief Commercial Officer of the group.
What’s the current state of the e-commerce market in Southeast Asia and what are the main challenges ahead for a company which aims to become ‘the Amazon of Southeast Asia’?
Lazada's goal is to become the number one shopping and selling destination in Southeast Asia.
The company currently operates e-commerce platforms in Thailand, Indonesia, Malaysia, the Philippines, Singapore and Vietnam. These six countries combined have a population of approximately 560 million and an estimated Internet user base of 200 million, according to Internet Live Stats. With only 3% of the region’s total retail sales conducted online, Southeast Asia is expected to offer tremendous growth potential as internet penetration continues to rise.
There are two key challenges of operating in Southeast Asia: logistics infrastructure and consumer expectations. We believe that the best approach to tackle the supply chain and fulfillment challenges in Southeast Asia is to build our own logistics and technology capabilities while deepening partnerships with third-party vendors. Our fulfillment network included 10 fulfillment centres across SEA; and our last mile unit, Lazada Express, reached more than 65% of our customers covering over 250 cities and districts with 84 last-mile distribution hubs, six sortation centres and a fleet of over 2,000 vehicles by the end of 2015.
e-commerce is a very young industry. Yet, expectations from customers are very high. To make our customers happy, we keep pushing ourselves through offering a wide assortment of local, international and exclusive products; and, secure payment methods, including cash-on-delivery.
Do you expect more M&A deals in the region and in the local e-commerce industry?
We will not speculate on this.
How strategically important is to have a heavyweight such as Alibaba on board to face growing competition from established and new players and to maintaining and possibly increase the company’s market share?
The partnership between Lazada and Alibaba will bring significant synergies that will enhance the online experience for both our buyers and sellers. It will bring more products from around the world to Lazada that will result in consumers having the best in terms of choice, service, convenience and value. With Alibaba's e-commerce knowhow, systems and processes, Lazada will also be better able to help our sellers, particularly local small enterprises, to grow their businesses. In short, we will be better placed to continue to lead in e-commerce in Southeast Asia post this deal.
Is Alibaba’s investment going to change the group’s strategic plan and direction? If yes, how?
Alibaba’s investment reflects the huge potential of e-commerce in Southeast Asia and the important role that Lazada plays. It validates the strategic choices Lazada has made in building the e-commerce ecosystem in the past four years. It is also an endorsement of Lazada's position as the leading e-commerce player in the region, and of our unique one-stop platform connecting brands and distributors around the world to 560 million consumers in Southeast Asia, consistent with Alibaba's globalisation strategy.
Lazada will continue to operate independently and execute the strategy for the region, taking local market conditions into consideration. At the same time, we will be working closely with and learning from Alibaba, to leverage their knowhow, systems and processes to enhance the online experience for our buyers and sellers.
Can we expect further changes in the company’s ownership structure, such as Alibaba increasing its controlling stake or landing new investors?
We have nothing further to announce on this front.
Can you tell us about the launch of a Tech Hub in Bangkok and why you see Thailand as a hub for mobile innovation?
Lazada Group has opened a tech hub in Bangkok, Thailand to focus on the design and engineering of Lazada’s mobile shopping and selling sites and apps for Southeast Asia. Based on our experience operating several regional functions as well as a Lazada online business in Thailand, we believe Thailand attracts a highly-skilled talent pool critical to designing products and solutions that are not only intuitive but improve the quality of experience and life for our consumers and sellers.
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