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EXCLUSIVE INTERVIEW with ZALORA on e-commerce growth in Southeast Asia

ZALORA-RostinJavadi

Amid the constantly evolving backdrop of COVID-19, retailers in Southeast Asia have not only had to adapt to changing consumer needs and demands, but also work through operational challenges.

Supply chain disruptions have further complicated an already convoluted logistics landscape, with industry-wide air cargo capacity declining by 23.3 percent YoY in 2020, driven by the decrease in bellyhold capacity of passenger flights. Retailers, especially in the fashion industry, have also had to pivot from the traditionally strong apparel category to emerging categories such as athleisure and loungewear.

On top of this, companies making the shift online may not have the necessary infrastructures in place to meet the needs of such a diverse and deconcentrated region. Places like the Philippines and Indonesia, for example, are spread across thousands of islands, and with differences in custom regulations and practices between each country, businesses will need to localise efforts, and be supported by a comprehensive logistics network to navigate these markets effectively.

Endeavouring to help businesses better understand such nuances, ZALORA leveraged its culture of data and innovation to empower its brand partners through its scaled up B2B services.

Retail in Asia had the pleasure to interview Rostin Javadi, COO of ZALORA on how the brand has become an e-commerce enabler driving Southeast Asia’s e-commerce growth.

Rostin is in charged of overseeing operational excellence across the Group, managing ZALORA’s operations ranging from warehousing and logistics, to customer service, payment security and content production for the website.

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RiA: The past two years have been quite positive for e-commerce. What has been the biggest development for the area you cover?

Rostin: We have certainly seen an unprecedented spike in e-commerce adoption among consumers in Southeast Asia; many turned to online shopping out of pandemic necessity in the first instance but they are now likely to retain their online habits for years to come. Google, Temasek and Bain & Company reported 40 million new users in 2020, and at ZALORA, we are seeing the growth firsthand too — with a 23.9 percent uptick year-on-year in Active Customers driving a sharp 41.4 percent rise in Net Merchandise Value in Q1 this year.

The fast-growing online audience is a force to be reckoned with in Southeast Asia. Brands and businesses have to rapidly scale up their efforts to engage them, and this has driven a milestone development for ZALORA as we strategically pivot towards offering platform services that help brands build a successful online channel strategy in Southeast Asia. Beyond being a retail channel, we are partnering with brands and businesses like H&M to catalyse their own digital entry into the region and ride on the e-commerce momentum.

Operationally, this means delivering even greater value through our industry-leading fulfilment solutions and robust logistics network. We have seen strong uptake of our One Stock Solution (1SS), which taps on our operational strength and capabilities in providing a best-in-class experience on deliveries and returns. This “Fulfilment as a Service” solution, including comprehensive warehousing and last-mile delivery, has helped brands like Mango and Leapro navigate the current landscape with agility and improve their operational scalability online.

Our aim with this is to capture as much value across the supply chain; this year, we are working towards achieving a Net Merchandise Value of US$35 million. We are envisioning a process whereby all distribution services across Southeast Asia are fulfilled by ZALORA, further cementing our position as the number one fashion and lifestyle specialist not just from a demand perspective, but also a supply-side perspective.

Source: Zalora

This is especially significant for us because it shows that nearly a decade’s worth of investment and innovation that we have put into building world-class operational capabilities — from a robust logistics infrastructure, dedicated in-house fleets, to strong priority relationships with customs offices and 3PLs — are now helping to fuel the industry’s growth at large in Southeast Asia.

RiA: What are the new tools at brands’ disposal through the marketplace in terms of digital marketing and ways of engaging consumers?

Rostin: As more consumers embrace online shopping, one of the most critical resources that brands stand to harness would be data — to derive genuine insights about consumers’ needs so they can better anticipate shopping behaviour and curate more effective engagement strategies, design processes, and even demand projections. One of the platform services we have launched as part of our strategic pivot is TRENDER, a data-solutions service, to help brand partners access valuable data on geo segmentation, buying behaviour, design intelligence, assortment and pricing insights.

Amid the pandemic, we also released COVID-19 Sales Dashboard on TRENDER as a tool to help brands see and analyse the shift in retail trends, as well as customer shopping behaviour pre- and post-COVID-19. This allows brands to quickly ‘metabolise’ data into actionable insights despite any volatility in the market.

Consumers are also increasingly looking for personalised content that resonates with their lifestyles, especially as they turn to social media for inspiration and entertainment. Tools like live-streaming bridge the gap between online and offline shopping, and allow brands to bring the warm, personalised interactions provided by the brick and mortar experience. Live-streaming adds a strong emotional connection, with real people and experts showing the products, answering queries and viewers interacting with the host.

In June 2021, we introduced ZALORA’s very own live-stream platform, Z-Live, to provide a way for our brands, ambassadors and fans to interact in real time. We are developing high quality shows together with brands, curated specially for the Southeast Asia consumer. Users can access this library of curated content at their leisure as well.

Source: Zalora

Aside from Z-Live, we have been constantly looking for ways to deliver appealing digital content to engage with the new consumer pool, and we channel our digital marketing expertise towards powering our partner brands’ growth. This is an important pillar of our pivot towards platform services as well, above and beyond being a retail channel.

We deliver high-quality 360-degree regional and local campaign executions coordinated through a single touchpoint. These executions include influencer marketing and offline events activation, running programmatic and social ads, and social media placements. Our team also provides creative services to fashion brands, such as producing style series videos, exclusive localised campaigns for global brands and brand storytelling through digital and visual assets.

One of the more recent campaigns we have done with brands is Nike’s Modestwear Campaign with Abby Asma, which served to cater to the diverse preferences of consumers in our Muslim-majority markets. In the Philippines, we have launched editorial productions like ZALORA’s very own /covers, an e-magazine dedicated to providing fashion and lifestyle inspiration and showcasing brand stories.

RiA: What are the trends regarding new categories landing on marketplaces?

Rostin: Lifestyle categories such as sports, loungewear and kids have seen an increase in demand, as people’s lifestyles remain homebound. Demand has also pivoted towards wellness categories, as people continue to prioritise their health and wellbeing during this period. Southeast Asia registered a retail growth rate of 8 percent in vitamins and dietary supplements from 2019 to 2020. This is why we pivoted our business quickly to help address such consumer demand.

In addition, fashion-adjacent categories that we have introduced, such as Beauty, Luxury and Home & Lifestyle, are having triple digit growth since their launch, showing that they are not only meeting the demands of existing customers but also drawing new ones to shop on our platform.

Notably, the luxury goods category has remained resilient as customers see the value in investing in classic pieces. According to our internal data, the number of unique customers shopping for luxury goods was 172 percent higher in July 2020, compared to March 2020. Our Luxury category saw a 23 percent increase week-on-week after its launch in September 2020, and triple-digit growth with our luxury offerings from our 10.10 sales campaign. This suggests that quality now reigns over quantity for consumers.

Another emerging category that is important for us is ‘Earth Edit’. We introduced this curated assortment to showcase products that meet our carefully defined sustainability criteria, such as using sustainable materials, fair production, and community engagement. Nearly 90 percent of customers we have surveyed recently indicated an interest in shopping for sustainable products, so we expect this category to continue gaining momentum.

Source: Zalora

RiA: In which markets have you seen major digital transformation peaks?

Rostin: Some markets in Southeast Asia are evidently further along than others in their digitisation journey. Of course, each market in the region is unique, but what is clear is that the momentum for digitisation benefits from intra-regional exchanges and growth.

Philippines and Indonesia, for instance, are both mobile-first markets with huge potential. Smartphone penetration rates in these two economies are at over 72 percent and 67 percent respectively as of 2020, with room for even further growth, so there are immense opportunities for social and mobile commerce. Malaysia, too, has been accelerating its digitisation drive, with the concerted push to grow the digital economy to 22.6 percent of country’s GDP by 2025. The government’s aim to catalyse the growth of 5,000 start-ups across the ecosystem in Malaysia would also pave the way to the next level of transformation.

This is incredibly exciting for us as a pioneering e-commerce leader whose operations truly span the entire region; we have grown and thrived over the past decade by being an active player in the digital transformation journey of markets as diverse as Indonesia, Malaysia and the Philippines. By now, it has been well documented that as an economic powerhouse in its own right, Southeast Asia will see its internet economy grow to US$300 billion by 2025.

I think one distinct transformation peak would be the evolution of logistics in overcoming the region’s geographical barriers to accommodate the massive e-commerce demand. Over the years, across both Malaysia and the Philippines, we have invested substantially in establishing best-in-class e-fulfilment centres that set the benchmark for logistical efficiency. Our 470,000 sq. ft. facility in Malaysia integrates automation to serve our markets across the region, and in the Philippines, we have developed the country’s biggest e-fulfilment centre dedicated to fashion e-commerce. At its final phase, it will have 7.2 million item storage capacity to support our growth plan for the next 10 years.

Source: Zalora

Another transformation peak would be the rise in digital payments across Southeast Asia. According to an HSBC Global Research report, digital payments in the region are expected to triple to US$1.5 trillion by 2030, with consumer-to-business payments expected to rise to about two-thirds, up from 35 percent in 2019. This is why convenient payment options are an important part of the seamless consumer experience, and in addition to cash-on-delivery, ZALORA offers popular digital payment options such as GrabPay, as well as ‘Buy-Now-Pay-Later’ services in partnership with Atome and Rely.

What is also encouraging is that governments across the region have been pushing for greater digital adoption and e-commerce among Small and Medium Enterprises. Malaysia launched its Micro and Small and Medium-sized Enterprises (MSMEs) e-commerce campaign. Singapore also rolled out its new standard on e-commerce transactions to help businesses improve their online retail processes and policies, and E-Commerce Booster Package to help local retailers and heartland enterprises take their business online. ZALORA continues to support such initiatives as a dedicated e-commerce partner.

RiA: In the past two years, we have seen quite a few problems in terms of logistics and supply chain. Can you explain how you coped with that? And what do you foresee in the future?

Rostin: Southeast Asia definitely presents unique geographical challenges to e-commerce businesses, as consumers in markets like the Philippines and Indonesia are spread across thousands of islands. There are also different custom regulations and practices in each country. In the face of the demand boom from online shoppers, businesses are also having to face a supply problem, given the impact that COVID-19 has had on logistics – particularly for mid- and last-mile routes.

Over the past year and a half since the beginning of the pandemic we have seen a very dynamic situation with closure of some logistics routes, some with less than 24h notice, and emergence of new services such as “contactless delivery” to reduce the interaction during a parcel handover. At ZALORA we were well-positioned due to the substantial network of partners with which we have integrations, and the agile approach we use to manage the complexity that exists by default in the region. With this we were able to make changes to our routes in real time and allocate distribution volumes based on the situation in each micro-region and with each delivery partner.

This is where our deep roots and understanding of the region really set us apart — on the warehousing side, our Regional Distribution Centre in Malaysia serves as a central fulfilment centre for markets like Singapore, Malaysia, Indonesia and the Philippines.

ZALORA Malaysia is also the first and only fashion e-commerce retailer in the country to obtain the authorised economic operator (AEO) status that gives our Regional e-Fulfilment Hub a form of express lane at customs, making 24/7 cross border movements seamless.There is an additional 40,000 sqm in the Philippines and 45,000 sqm in Indonesia of floor space in ZALORA’s fulfilment centres, to complement the Regional e-fulfilment Hub in Malaysia. All three fulfilment centres had their best productivity performance in January 2021 versus any month in 2020. Specifically, outbound keeps trending upwards, with an improvement of 10-20 percent than the best month in 2020.

Moving forward, we are also working on even more operational innovations like adding new drop shipping routes for products and brands from across the region to reach more consumers. We recently launched routes between Malaysia to Philippines and Singapore to Philippines, offering brands from source countries a wider reach and customers from the Philippines a wider assortment to choose from.

Source: Zalora

RiA: The discussion on sustainability is quite active. In which way can the marketplace contribute to this discussion?

Rostin: The last year has shown us, more than ever, the connection between people, communities and the planet. We fully appreciate that the fashion industry has a significant impact on the environment, and committing to sustainability has become even more pertinent. As we work with over 3,000 brands and serve millions of customers, we see ourselves not just as a marketplace, but an ecosystem enabler with the scale, capacity and responsibility to inspire more conscious and ethical consumerism through every aspect of our operations.

I am happy to share that our parent company, the Global Fashion Group (GFG), is the first major e-commerce fashion and lifestyle retailer to announce carbon neutrality and the use of 100 percent renewable energy across its fulfilment centres. This makes ZALORA the first e-commerce retailer in Southeast Asia to announce carbon neutrality across our own operations as well.

To contribute meaningfully, we have to start by keeping ourselves accountable, and this is why we recently published our inaugural Sustainability Report tracking our 2020 progress. Last year, we made significant strides towards achieving some of our sustainability targets. We have been able to recycle 86 percent of our warehouse waste instead of sending them to landfills. We also reduced our consumption of plastic by replacing 80 percent of virgin material used in delivery flyers with recycled plastic. This brings our packaging made of sustainable materials up to 68 percent.

Additionally, 100 percent of our Tier 1 private label factories are now published on ZALORA’s website for full transparency and they are all required to undergo recurring audit and training programs on social and ethical responsibility.

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What is also important is that we engage our customers actively to move towards circular fashion. The pandemic itself has triggered renewed consciousness towards responsible consumption, so introducing the right products and making the process of buying sustainably easier are critical.

We partnered with luxury marketplace reseller StyleTribute to give consumers in Singapore and Malaysia access to an extensive range of pre-loved fashion luxury items. We also launched a capsule collection of 44 styles under our ZALORA Basics label in partnership with TENCEL™.

I think if we can enlist just 15 percent of active customers to participate in such Sustainable Fashion initiatives, as we hope to do by 2022, we can start to drive a real Force for Good.