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Lazada CEO: The secret sauce that will help us win Southeast Asia

Lazada CEO: The secret sauce that will help us win Southeast Asia

Lazada CEO: The secret sauce that will help us win Southeast Asia
November 09
01:06 2017

Lazada boss Max Bittner feels no pressure from parent Alibaba to become profitable. The aim now is to grow the opportunity. “Southeast Asia, for them, is hugely exciting. They see as big an opportunity as China and my mandate is to win the market,” said the CEO during a fireside chat at Tech in Asia Jakarta 2017.

Winning involves having massive ammunition in the ecommerce war that has seen players spend huge sums to lure customers to their sites and gain market share. Thanks to Alibaba’s deep pockets, “we match [our competitors] a lot because we can,” Bittner said.

Shopee – Lazada’s closest rival and part of publicly-listed Sea – “will have a harder time continuously raising money,” he argued. “At some point public market investors expect improvements in profitability. The luxury of being us is we’re not exposed to that scrutiny.”

But more than the spending power, he believes their ability to differentiate themselves from competitors is crucial. Lazada is doing this by building out its infrastructure.

The store started out doing direct sales to consumers from its own warehouses – thus, the moniker “the Amazon of Southeast Asia”. In 2013, it added a marketplace for merchants, using its assets to offer merchants fulfillment, which includes things like warehousing, packaging, and shipping. The marketplace has grown to account for a significant part of spending on Lazada.

Lazada has 15 warehouses across Southeast Asia where it’s trying to put a vast array of products, according to Bittner. Of those, three are located in Indonesia, and two more will be launched in the 250 million-strong market by the end of the year. Bittner says the firm is also expanding its last-mile delivery services as “we really believe in the integrated value chain.”

Photo credit: Lazada.

Bittner is angling for what he calls the three Cs. “Capacity – it’s how much volume you push through the system at any given time. Cost – we want to make it cheaper. And capability – which is really the distinguishing factor.”

“Not everyone wants the same things. Some people are okay to wait, some people want it very fast, some people want a certain delivery window like what we do in Singapore with Redmart […] Whether it’s bulky like a fridge that you need delivered or a small thing that’s cheap, it’s about building that whole portfolio of capability,” he explained.

Clashing models

Shopee does things differently. Sea president Nick Nash believes that creating a marketplace purely for merchants not only requires lower costs, it is ideally suited to the rather basic level of logistics development in Southeast Asia.

“Our sellers are highly distributed and decentralized across the region, rather than having to rely on one or a small number of mega-warehouses in larger cities […] The very practical result is a more efficient path from seller to buyer as opposed to the potentially longer transit times under a hub-and-spoke model.”

In industry jargon, it’s the battle between “asset-light” (Shopee) and “asset-heavy” (Lazada) models.

Moreover, Nash contends the asset-heavy approach makes it harder to achieve remarkable product breadth. “The supply chain management alone on the inbound side [from the factory] is almost impossible to manage,” he said on stage at Tech in Asia Jakarta 2017.

Nash views the mix of direct retailing and marketplace as a conflict of interest. “If you’re asset-heavy, your job is to buy wholesale, put it in your warehouse, and then sell one package at a time in great bulk” – putting you at odds with sellers.

Nick Nash (L), group president of Sea. Photo credit: Tech in Asia.

Following Alibaba

Bittner thinks the industry’s biggest challenge lies not in growing merchandise volumes – “we see everyone growing nicely at some point” – but in addressing the region’s overall logistics issues.

“We see logistics as a massive bottleneck […] It’s important that as the market matures, you have a dependable system,” he stated.

In Indonesia, Lazada’s former country boss Magnus Ekbom previously lamented that third-party logistics providers couldn’t keep up with Lazada’s growth. “Indonesia is pretty much running out of logistics capacity,” he said.

The company has relied on logistics companies for its deliveries into customers’ hands – from Ninjavan in Singapore to Go-Jek in Indonesia. In order to better cope with demand, it began investing heavily in its own delivery network. In Indonesia, Lazada now handles the bulk of those deliveries itself.

This investment in infrastructure is something that Alibaba – known for its asset-light Taobao and Tmall marketplaces – has fully embraced.

In September, Alibaba’s logistics unit, Cainiao, pledged to spend US$15 billion over five years to build out a global logistics network. Alibaba is also venturing into new types of retail. Much like Amazon, it’s begun selling groceries online, setting up cold-storage distribution centers across China. It’s also moving into offline retail, investing in electronics and department stores. It’s opened a supermarket chain called Hema, which allows customers to shop, dine, and order groceries for delivery from their mobile phones.

“I think when you are young, tiny, a light model is good. When you are strong, big – think about it – you need heavy things,” Alibaba founder and billionaire Jack Ma said recently. “There is no heavy is good, or light is good. A mix is good. To be efficient, you need to connect light and heavy models together. But with Alibaba’s size today, you should not leave the heavy model to others, it’s something you have to do […] you have to invest.”

Photo credit: Lazada.

A formidable backer

Aside from Shopee, Lazada is competing with the likes of Bukalapak, JD, Qoo10, and new entrant Amazon across Southeast Asia. Another rival, Tokopedia, has recently sold a stake to Alibaba.

Asked how he thinks the competition will evolve, Bittner said “to be honest, I don’t know.”

What’s certain is that “Alibaba [is] here to stay. We’re here to stay. [We’ll focus] on what distinguishes us and we’ll match whatever we can match.”

Lazada is taking stock of many lessons from Alibaba’s playbook.

The duo is working closely to make use of big data to match consumers with the right products, as well as technologies to prevent fraudulent sales on their sites.

“We’re the only platform in the region which actually limits the amount of orders you can do per item. So on Lazada, you can’t just order one item 20 times in one order, you have to come back and order again. That’s how our systems keep track if this is fraudulent behavior,” explained Bittner. “Alibaba has a huge amount of experience in avoiding this kind of behavior.”

The Lazada CEO is also weighing up the possibility of opening a mall in Indonesia, taking cue from Alibaba’s move into supermarkets.

“We’ve got the firepower we need and we have the backing of one of the most profitable companies ever, we’ll do whatever it takes and really win as much as you can,” Bittner concluded.

This is part of the coverage of Tech in Asia Jakarta 2017, our conference that took place November 1 and 2.

source : techinasia

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