The rhetoric about a financially struggling Zalora and its supposed retreat from Southeast Asia has gotten very heated over the past year. Though it’s not entirely true.
In the Philippines, at least, Zalora is doubling down on investments and has been “fully profitable in terms of variable margin” as of 2016, says Paulo Campos III, CEO of Zalora’s Philippine branch.
That means the online fashion store has turned in profits after costs such as that of goods sold, deliveries, and marketing – which tend to be greater when a business is engaged in high-volume transactions such as ecommerce.
Zalora remains unprofitable on account of total overheads – which typically include fixed costs like salaries, asset depreciation, and insurance – but it expects to post a turnaround “soon,” Paulo tells Tech in Asia.
The store, which last month sold a portion of its operations to Filipino conglomerate Ayala Group, expects the new alliance to give it a boost not just in terms of funding for growing its user base, but also co-marketing and other partnerships.
The brand operates in five other Southeast Asian countries.
Seeing growth, Zalora intends to stay in the Philippines, contrary to what some reports have suggested.
Paulo clarifies that its parent, Rocket Internet-backed Global Fashion Group, didn’t sell any of its own stake. What it sold Ayala were new shares.
“There was no buyout that happened,” he stresses. “All the money would go into the business.”
Ayala’s investment was more of a vote of confidence, he adds. The group could have pushed for control or at least an equal stake, but it decided to defer to the current management. “They’re happy with the current strategy and direction. But of course, they will be very active at the board level to steer the direction of the company.”
Zalora sees several synergies with its new investor, especially in giving more people access to the site through Ayala’s telco subsidiary, Globe Telecom. Plus it’ll explore more innovation in the payments space through banking subsidiary BPI, and bring more retailers online via mall spin-off Ayala Land. Ayala will also help in Zalora promotions.
The fresh funds will be spent acquiring more inventory from fashion brands, creating more exclusive brands, increasing online as well as offline marketing, and expanding logistics.
Zalora has a central warehouse in the Philippine capital where it keeps all of its inventory, plus 12 last-mile delivery hubs spread nationwide. It has over 400 motorcycle riders fulfilling deliveries day-to-day in busy areas, and a handful of third-party logistics providers doing piecemeal deliveries in others. Having its own fleet was a decision the company made from the beginning after third-party providers wouldn’t service cash-on-delivery purchases – which make up nearly 70 percent of Zalora transactions.
Paulo says it’s adding more riders to keep up with growing sales. They might also acquire warehouses adjacent to their current one or move to a new, bigger warehouse to improve capacity.
Zalora will put a greater focus on improving the selection of brands on the site, explains Paulo, calling it the “lifeblood” that will enable the store to achieve sustainable profits.
“It’s not just about growing and growing. We want to be able to grow but do so profitably. Profitability is more impressive than topline growth.”
It’s easy to raise topline – “just give out a 50 percent voucher to everyone that enters the store and we’re gonna grow crazy” – yet it’s not Zalora’s plan.
The discounts would attract low-quality customers who would buy once and disappear, he points out. “What we now look at is customer lifetime value – multiple transactions over multiple years.”
He adds: “At the end of the day, what matters to customers is they find something they want to buy in Zalora.”
While the Global Fashion Group has sold off its Zalora stakes in other Southeast Asian markets, the Philippines remains one of its strongest – with over a hundred million population. In terms of site traffic, Zalora ranks number one in its category in the archipelago.
The nation’s online shopping market was worth US$500 million in 2015, rising at an estimated average yearly rate of 34 percent to US$9.7 billion by 2025. That’s second only to Indonesia’s 39 percent.
Across Southeast Asia, ecommerce hit US$5.5 billion in 2015 and is projected to climb to US$87.8 billion by 2025.
“It’ll be hard to replicate last year’s growth this year cause we’d be coming from a high base, but we’ll try to grow at the same pace as the market in the coming years,” concludes Paulo.