Six years later: Inanc Balci on Lazada Philippines’ past, present, and future KC Calpo May 16, 2018 Features The word “sale” triggers two specific reactions in Filipino consumers. The first would be sheer excitement over the prospect of scoring extreme bargains. The other reaction? Dread, particularly if your odds of being stuck in traffic during mall chains’ massive sale weekends are high. Lazada Philippines co-founder and CEO Inanc Balci played on this second reaction during our brief conversation back in April, two days before the company’s equally massive sixth birthday sale. Buying online is the preferred option these days: “You save money and time, both of which you can spend with your family… it’s a no-brainer for anyone living in the Philippines,” he said. Inanc Balci, CEO, Lazada Philippines The way he talked about it would make you believe it really is, to use his favorite words, a no-brainer—along with making Lazada the biggest online retail company in the country. But all that took six years of hard work, improvements, and lessons that anyone looking to get into startups and/or online commerce should remember. The summarized timeline Lazada was founded as an e-commerce venture by German company Rocket Internet SE in 2012. Its operations began in five Southeast Asian countries: Indonesia, Malaysia, Philippines, Thailand, and Vietnam. While sister company Zalora focused on fashion, Lazada became known for selling and delivering electronics to consumers at reasonable prices. But it took Lazada only a year to expand its horizons. From electronics, the company ventured into selling “home appliances, home and living, fashion, mother and baby, fast-moving consumer goods (FMCG), health and beauty, etc.,” Balci recalled. By 2014, Lazada was also doing brisk sales in Singapore; and switched tactics from doing retail e-commerce to providing a marketplace platform. Balci likened it to going from running a department store to an entire shopping mall. “Most of the stores you see [in malls] are already on Lazada,” he said, adding that the company caters to small businesses and chains like SM and Robinson’s. More recently, Lazada has gone into cross-border trade, helped along by its 83% acquisition by the Alibaba Group in 2016. Lazada’s current platform brings together local businesses and international sellers (from countries like China, Hong Kong, and Korea), all of whom can offer and ship their products directly to consumers. Last year’s addition to Lazada’s extensive catalog, Alibaba’s Taobao Collection, was welcomed warmly by buyers. TL;DR #1: Don’t be afraid to change course or expand your horizons. But do it quickly! It also helps if you have strong corporate backing. Three major challenges Of course, six years of doing business here comes with its own set of challenges, all of which require fast response and adaptation. This gave us the title of being “the most difficult country in Southeast Asia” for e-commerce. Logistics was the first problem Lazada had to face. Think about it: it’s never easy to do that in a country with more than 7,000 islands. Add to that the cost of delivering items to far-flung or isolated places, and what Balci described as third-party logistics’ need to go beyond e-commerce logistics, and it became clear that an in-house solution was direly needed. Lazada Express was formed and made responsible for the company’s last-mile deliveries. Balci described Lazada Express as the second-largest delivery company in the Philippines, serving 80% of Lazada orders (with 20% going to third-party companies for areas they can’t cover), requiring an initial investment of over US$100 million, and comprising of “two large warehouses, one sorting center, 45 distribution locations, and 2,000 people.” “Any e-commerce company that doesn’t run its own logistics cannot grow, do well, or deliver items on time, and will not be successful,” he said. The second challenge concerns payments. According to the Bangko Sentral ng Pilipinas, 86% of our population remains unbanked. Lazada first introduced its E-Wallet—which enables customers to pay for their purchases within 24 hours at partner banks, convenience stores, and remittance centers—to address this payment concern. But Balci admitted that its subsequent introduction of cash-on-delivery payment is what’s responsible for its more than 70% market share. “Our customers are very happy; more than 80% of our orders in the Philippines are cash-on-delivery,” he noted. The last challenge is the bane of every consumer: connectivity. Most Filipinos use prepaid SIM cards, and not everyone has the money to buy computers or spend for monthly internet plans. “But what is amazing is that people leapfrog the laptop, buy very cheap, affordable smartphones, and become internet users for the first time through their smartphones,” Balci observed. So aside from maximizing Facebook’s Free Data offering, Lazada partnered up with Freenet so Smart customers can access its marketplace for free, and so that it could “focus on our mobile ecosystem… and try to have a very good service on our mobile platform,” he said. TL;DR #2: Turn the challenges you face into growth opportunities. And sometimes, you need to create your own long-term solutions, which will be dictated by your market. Sale away! Over the years, Lazada has implemented multiple changes that continually benefit consumers. Same-day or express deliveries are now available, in exchange for a small fee. The Official Store Badge is another welcome change—coupled with store ratings and reviews, this provides solid assurance that consumers are dealing with legitimate brand owners and registered businesses. It also means product warranties will be honored. Product exclusivity has also been a reliable draw; the ASUS ZenPower 10050mAh Power Bank being made available first at Lazada back in 2015 is one of the earliest examples we can remember. The combination of quick expansion, creating its own solutions, and adapting to market demands has made Lazada the most dominant player in local m-commerce. Balci emphasized that it now has over 50 million products available online, with one million heavily discounted during its sixth birthday sale last April 25-27. While he declined to provide figures from past birthday sales, he said that their targets and sales numbers go “significantly higher” after their two annual sale events (the other one being Online Revolution, set for November-December). Another change in Lazada came with Alibaba’s investment, and was implemented during the Birthday Sale: customers could avail of special deals and discounts whenever they shook their phones while using the Lazada app. This increases customer engagement–something companies rarely offer. Every customer gets a limited number of tries per session, however. TL;DR #3: Official stores and legit merchants + broad product catalog with exclusives + highly anticipated sale events with increased mobile engagement = ka-ching! On 2018 and beyond Alibaba’s involvement also makes it possible for Lazada to enact its other plans for the future. Aside from Alibaba making Lazada’s systems “future-proof” and prepared for future tech products, Balci said that Lazada will continue investing in its logistics infrastructure “to serve more customers at lower prices and have faster deliveries.” Lazada also aims to put consumers in touch with merchants and brands directly via its platform. A Chat service is now available for use by all parties, but “we’re looking at better ways to create interaction between [them],” Balci said. For now, it goes only one way; customers can follow brands. But eventually, “brands will soon be able to communicate with you” through Lazada. And, of course, we can all expect an increase in its online catalog, along with better prices. “It’s only over 50 million now; why not make it much bigger, right?” Did you know? According to Lazada Philippines CEO Inanc Balci, most of Lazada’s orders come from outside Metro Manila. “The prices in provinces are normally higher, or the people are not able to find the latest products there… Lazada is a great opportunity for these people to [get] the latest products at proper market prices.” Lazada considers itself a mobile commerce or m-commerce company, given that “more than 50% of our orders are coming from the mobile ecosystem”. And m-commerce isn’t the end game: Balci foresees another shift from m-commerce to social commerce (s-commerce), where “customers, brands, merchants and third parties are able to communicate with each other, not just [via] chat… the customer can follow brands, and brands can extend special deals to customers.” Lazada customers often complain about multiple orders being delivered individually. So, we asked: will we see consolidated deliveries in the future? The answer’s no… for now. Order consolidation can result in longer delivery times and higher prices and requires additional investments. “We’d rather get [your products to you] as soon as possible,” Balci said. Regarding returns and refunds, Balci was firm in his statement. “If the customer doesn’t receive the item as advertised, if it’s not genuine or brand-new, if it’s not up to quality standards, it’s immediately refunded. In certain cases, we don’t even ask the customer to send it back.” What about errant merchants? Balci insisted that Lazada’s strict on them, too. These bad actors will be kicked out of and banned from the Lazada platform.