Editor’s note: This is the second part of a post on Southeast Asian e-commerce by Sheji Ho, for the first part click here. Sheji Ho is the Group Chief Marketing Officer at aCommerce, an end-to-end e-commerce enabler in Southeast Asia. Currently based in Bangkok but having previously worked in China, Sheji writes about e-commerce, tech, the internet, and how Southeast Asia is the next China.
6. Go-Pay will venture outside of Indonesia through Sea, Traveloka, and JD to become the WeChat Pay of Southeast Asia
Indonesia’s e-commerce today is like what China was in 2008—the pace of change is unimaginable. When I visited our office in Jakarta 12 months ago, hardly anyone was using Go-Jek’s mobile payment platform and wallet, Go-Pay. Returning six months later, almost all of my colleagues used Go-Pay to transfer money peer-to-peer and pay for products and services.
In most of emerging Southeast Asia (excl. Singapore and Malaysia), credit card penetration rates are in low single digits and most people don’t even have a bank account.
Unfortunately, few fintech and payment startups in the region have created products to address the lack of credit cards and large unbanked population. Instead, the majority happily build payment gateways and e-wallets that rely on existing and legacy credit card infrastructure like in the US (Apple Pay anyone?). It’s no wonder cash-on-delivery (COD) still makes up over 70% of all processed transactions according to data by ecommerceIQ.
Those that do focus on mobile wallets topped up with cash like Thailand’s True Money struggle to achieve sustainable “core product value” and reach mass.
“Community, Commerce, and Payments are inter-connected in the Digital World. Thus far, all successful mobile payment plays, globally, are centered on the commerce and community axis. PayPal started with eBay, Alipay with Alibaba/TMall/Taobao, WeChat Pay leveraged WeChat/QQ, and Amazon Pay has Amazon. Due to this very reason, standalone payments/wallet business will struggle,” said Gaurav Sharma, founder at Atlantis Capital
Go-Pay addresses these fundamental issues by allowing users to send payments peer-to-peer (P2P) and top up by giving cash to Go-Jek drivers who act like mobile ATM machines.
More importantly, with Go-Jek being part of the Tencent faction, we expect the company to push Go-Pay into other Southeast Asian countries through its community and commerce platforms such as Sea (Garena, Shopee, etc.), Traveloka, and JD.
Following rumors in November, Go-Jek finally announced its acquisition of Kartuku, Mapan, and Midtrans. The latter, being one of Indonesia’s top online payment gateways, will give Go-Pay additional distribution channels and use cases such as Matahari Mall, Tokopedia, and Garuda Indonesia, pushing it beyond the realm of P2P into B2C payments.
A strong contender for the “WeChat of Southeast Asia” is Grab, whose 2.5 million daily rides makes it the largest ride-hailing platform in Southeast Asia. GrabPay, launched this year, is Grab’s effort to move Singapore towards a cashless society, with plans to expand across the region in 2018.
Should Go-Jek be worried? Not really. Singapore is not the ideal test-bed to launch a mobile wallet because the country already has a ubiquitous cashless payment platform called “credit cards.” And GrabPay’s recent partnership in Indonesia with Lippo Group’s Ovo hasn’t garnered much attention or presented wide use cases.
“While it might seem like common wisdom to first test (an idea) in Singapore, and then take it regionally and to the world, with all due respect to the government, I think it doesn’t make sense in today’s world,” said Min-Liang Tan, co-founder and CEO of Razer.
Go-Pay, on the other hand, is adding value to users in a country where only 36% have bank accounts and 2% have credit cards. Emerging markets like Thailand, Vietnam and the Philippines have a similar (lack of) financial infrastructure as Indonesia.
Go-Jek, by being part of the Tencent faction, has access to a much more diversified distribution channel and offers a variety of common day-to-day use cases such as gaming (Garena), shopping (Sea, JD), travel (Traveloka) and pretty much everything else (Go-Jek itself).
7. New mobile-first fashion and beauty marketplaces will fill void left by Zalora
Zalora, Rocket Internet’s once star fashion e-commerce venture, has struggled in Southeast Asia since launching in 2012. Zalora Thailand and Vietnam were picked up by Thai retail conglomerate Central Group for pennies on the dollar while the Philippines entity was partially sold off to the Ayala real estate group. There were even rumors of Zalora Indonesia exiting to local retailer MAP, which were swiftly denied.
A few factors contributed to the company’s difficulties: one was price and product variety competition with merchants selling on Facebook, Instagram and LINE, while the second one was control of brands by one or two retail conglomerates like Central in Thailand, MAP in Indonesia, and SSI Group in the Philippines. These two factors made it difficult for Zalora to pivot to an ASOS-style premium brand marketplace.
A shell of its former self, Zalora’s challenges left a void that is increasingly being filled by more nimble, mobile-first fashion marketplaces that see an opportunity in a space dominated by mass-market, general e-commerce platforms like Lazada and Shopee.
As evident from Amazon’s struggle to court premium fashion brands in the US, luxury brands don’t like to sell on mass platforms, where merchandise shows up beside detergent and washing machines.
“After purchasing Whole Foods, Amazon now has access to the wealthiest refrigerators in the country but they still can’t get into our closets because the aspirational beauty and fashion brands don’t want to distribute on their platform. Why? Because they don’t have their heads up their ass and realize that Amazon partners with brands the way a virus partners with its host,” said L2 founder and NYU Stern Professor Scott Galloway.
Over in China, both Tmall and JD had to exert a Herculean effort to attract fashion brands. In October, JD launched TopLife, a standalone online luxury platform to provide a high-end experience that high-end brands promise. Alibaba also launched Luxury Pavilion, a section within Tmall tailored to luxury brands like Burberry and Hugo Boss.
Spearheading a new wave of mobile-centric Southeast Asian fashion marketplaces are Zilingo, fresh off an $18 million Series B financing round, and Goxip, a Hong Kong-based startup that recently completed a $5 million Series A round with plans to enter Thailand. In Indonesia, there’s LYKE, ironically founded by the ex-Zalora CMO.
With the benefits of hindsight and understanding of the importance of social commerce on driving fashion, these emerging players will offer elements like chat, content and an influencer network to offset some of the customer acquisition cost challenges inherent in scaling e-commerce.
8. Marketplaces will grow up and clean up ‘grey market’ for blue-chip and luxury brands
Over the last six years, most of the region’s initial e-commerce growth was focused on driving GMV by tapping into any merchant and brand willing to sell online. In 2018, marketplaces like Lazada and Shopee will continue to attempt to onboard bigger global brands but their success will require them to control grey market sellers and counterfeit goods in order to cultivate an environment in which blue-chip brands will feel comfortable selling. Alibaba went through the same process in China when discussions surrounding counterfeits and grey market goods on Tmall and Taobao peaked around the company’s IPO in 2014.
Based on data provided by marketplace analytics platform BrandIQ, 80% of SKUs from consumer product giants like Unilever, Samsung, and L’Oreal on average are sold by unauthorized, grey market resellers. These grey market SKUs are sold at a price 30% lower than official flagship stores and authorized resellers.
Why all the fuss? Because grey market sales impact the image of brands selling in official stores.
“Lately, the explosion of third-party sellers on the site has led to authentic goods from companies such as Nike, Chanel, The North Face, Patagonia and Urban Decay being sold on Amazon even though they don’t authorize the sales, undercutting their grip on pricing and distribution,” Wall Street Journal reported.
Nike, for example, refused to sell directly to Amazon for a long time, fearing it would undermine its brand. But by not selling on marketplace creates space that will be quickly filled by grey market, unauthorized third-party resellers looking for arbitrage opportunities as seen from the previous BrandIQ data.
Customers buying from these grey market resellers perceive this as buying from the brand itself and, when having a poor customer experience, end up blaming the brand rather than the unauthorized reseller. BrandIQ data shows that the average rating for grey market SKUs is 24% lower than reviews for similar products sold through the official shop-in-shop or flagship store.
We’ll see a push from the marketplace and brands to address grey market sales in Southeast Asia in 2018. Marketplaces will employ a tighter grip on third-party resellers in order to attract better brands, while brands will set up an official presence on marketplaces as a way to pro-actively manage the customer experience and brand image.
9. Marketplaces and e-tailers will introduce its own private label products and alienate brands
As the e-commerce market in Southeast Asia matures and consolidates, marketplaces, e-tailers, and e-commerce startups will be increasingly scrutinized for margin growth. Gone are the days of aggressive top-line growth and market share grabs at all cost.
With Lazada post-Alibaba acquisition and Shopee post-IPO (as part of Sea), what other value-added services will these companies tap into for sustainable revenue growth? In this instance, companies in Southeast Asia have taken a cue from the China playbook. Lazada launched a Lazada Marketing Solutions unit to monetize its 23 million active annual customers through advertising similar to how Tmall and Taobao charge for ads in China.
Today, Lazada offers display ads and programmatic promoted product ads to its customers but is expected to launch pay-per-click search ads in 2018 competing with Google, Facebook and similar networks out there. Across the region, Shopee has already launched per-per-click search ads.
Beyond advertising, we can expect more marketplaces and e-tailers to follow Amazon’s foray into private label brands to boost margins. With the data collected from selling third-party brands, these e-commerce platforms know exactly what kind of products sell best, to whom, at what time and where.
Flipkart, one of India’s top marketplaces competing with Amazon, recently announced its aim for 20-22% sales contribution from private labels in the next five years.
“When we first decided to foray into private labels in mid-2016, a ‘Tiger Team,’ for private labels was created internally to research 50-odd retailers around the world, including Europe, the US, China and India, to envisage what the private label landscape would look like for Flipkart over the next few years. Research revealed that private labels can contribute 10-20 percent of the company’s business. For instance, US-based Costco Wholesale’s private label brand Kirkland contributes 20-25 percent of its business,” said Adarsh Menon, Flipkart’s Head of Private Labels in an interview with The Hindu.
Launching private label brands in Southeast Asia isn’t something new. Zalora launched its own fashion label called EZRA as early as 2013 followed by Lazada’s LZD Premium Collection in 2014. With the focus on top line growth in the period of 2013-2016, private label brands have taken a backseat as seen from the limited number of them listed today on Zalora and Lazada.
Althea, a Korean beauty e-retailer that recently raised a $7 million in Series B round of financing, specifically said to be using the new funds to launch more private label products.
“Based on the vast amount of user data that we have gathered… we are now able to understand the specific needs of our customers in each market, garner feedback almost instantly through our online platforms, and quickly turn that into a product within a month or two,” said Althea co-founder and CEO Frank Kang. “We have deep insights into our customer base that traditional brands simply cannot match.”
In light of all this, it’s not surprising Zalora has expressed renewed interest in pushing its own private labels, “Something Borrowed” and “Zalora”, for the new year.
10. B2B e-commerce to disrupt offline distributors, blurring lines between online and offline distribution
Despite the rosy outlook for e-commerce in Southeast Asia, the reality is that B2C e-commerce today is still in the low single digit percentages. Given aggressive growth targets, brands, marketplaces, and e-tailers will increasingly look toward non-B2C channels such as B2B and B2E (Business-to-Employee) channels for revenue.
Zilingo, the Sequoia-backed fashion marketplace, launched its Zilingo Asia Mall B2B marketplace to allow fashion buyers in the US and Europe buy Zilingo merchandise at wholesale prices, effectively creating an “Alibaba” for fashion. Shopee launched a wholesale feature earlier this year, allowing merchants to set lower unit prices for larger order quantities.
aCommerce, Southeast Asia’s e-commerce enabler and e-distributor, fresh off a $65 million Series B round from KKR-backed Emerald Media, coined a new term for all this—“B2A” or Business-to-All. The company is behind the B2B and B2E initiatives for brands like Samsung and L’Oreal. According to the company, B2B e-commerce now contributes to 30% of total revenues at aCommerce, up from 10% a year earlier (disclaimer: I work here).
Opinions expressed are solely my own and do not express the views or opinions of my employer.