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Here’s How Lazada is Keeping its Lead Over Emerging E-Commerce Rivals

The leading online shopping platform in the country is celebrating its sixth anniversary with a birthday sale this month

By Paul John Caña
Apr 25, 2018

“You always have at least three scenarios: base case, moderate case and best case,” Balci says. “When I look at Lazada today, I think compared to our first forecast we are doing better than our best case."

There is reason to celebrate Lazada’s sixth anniversary. It is currently the most popular e-commerce platform in the country, attracting over 60 million unique visitors monthly, placing it in the top 10 most visited websites and number one by far among online shopping sites.


Inanc Balci, CEO of Lazada Philippines, has been with the company since it was launched in the country in 2012

 

 

 

For three days starting April 25, online retail giant Lazada is holding a massive sale to celebrate its sixth “birthday.” The country’s leading e-commerce company promises deals of up to 90 percent off the retail price on some of its most popular products—everything from electronic gadgets and travel necessities to fashion items and personal care products

 

It might initially seem like bad business sense to sell merchandise practically for free, but Lazada’s big-event sales like this one and its “Online Revolution” that happens during the last quarter of the year actually serve a strategic purpose—to get more people hooked on shopping online.

 

“Over a thousand merchants come together (at this sale event),” says Lazada Philippines CEO Inanc Balci. “We explain to them that these events are for the Philippines to increase its e-commerce penetration, so that new people can try e-commerce for the first time and become lifelong users. That’s why we make investments into these discounts. E-commerce is nothing in the PH today. We are looking ahead 10 years. This is how we are able to offer discounts of up to 80 to 90 percent.”

 

Balci has been with the company from the beginning and, for years, he has trumpeted the enormous potential of e-commerce in the Philippines. To be sure, e-commerce is still in its nascent stage in the country. Online sales account for only 0.9 percent of total retail sales here, according to the market research firm eMarketer. Compare this with Taiwan, where e-commerce accounts for about 10 percent of total retail sales.

 

 

Related story: PH E-commerce Revenue to Hit $1.2 Billion in 2017 

 

 

PHOTO: John Catalan

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Under Balci's leadership, Lazada has grown to become the Philippines' number one e-commerce platform

 

 

 

There is reason to celebrate Lazada’s sixth anniversary. It is currently the most popular e-commerce platform in the country, attracting over 60 million unique visitors monthly and placing it in the top 10 most visited websites and number one by far among online shopping sites. Based on a report by the iPrice group, the company is leading in terms of search interest and social media presence. It also has the biggest social media community out of all the other local e-commerce companies.

 

 

Related story: What are the Most Popular E-commerce Platforms in the Philippines?

 

 

For Balci, all this is well beyond their wildest expectations for the company when they were starting out just six years ago.

 

“When you do the business model and the forecast, you always have at least three scenarios: base case, moderate case and best case,” Balci says. “When I look at Lazada today, I think compared to our first forecast we are doing better than our best case, so we are significantly doing better than what we had envisioned.”

 

In terms of market share, Balci says that back then, they could have only dreamed of the market share that Lazada is enjoying today. Although he declined to mention actual numbers, various reports peg Lazada’s slice of the local e-commerce market at a commanding 91 percent as of the first quarter of last year.

 

One other signifier of Lazada’s favorable prospects is Alibaba’s investment of $1 billion in 2016. In mid-March this year, the Chinese e-commerce giant announced that Alibaba was investing an additional $2 billion into Lazada, which would increase its stake in the company from 83 percent to an undisclosed but certainly bigger slice.

 

Balci says the plan is to spend the money in three key areas. The first is logistics infrastructure, which means key investments to beef up their logistics and delivery arm, Lazada Express.

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Lazada Philippines now has about 3,000 employees and will soon add a new warehouse in Davao to its two existing warehouses in Manila and Cebu 

 

 

The second is technology. “As you can imagine, we pivoted the company several times, and it’s very difficult for the infrastructure to follow,” he says. “It’s a combination of different tools. We have been working on this project called Voyager over the last six months and it ended (in late March). Alibaba completely rewrote the whole Lazada infrastructure, and now we are starting to add additional features on top of that.”

 

He mentions a new chat feature that links brands and sellers within the Lazada ecosystem. “It’s not groundbreaking but it’s something that we wanted to try,” Balci says.

 

The third area is Lazada’s marketplace, the company’s main business.

 

“We will continue investing in the marketplace and find ways to enable our merchants better and give them the best tools and the best services so they can increase their services on Lazada.”

 

 

From a department store to a shopping mall

Because Balci has been with the team that built the company from the ground up, he is well aware of the precise steps they took in order to grow Lazada to what it is today. He recalls the initial plan to try and replicate the successes of European and American-modeled e-commerce companies in the Philippines, but they had to adapt after realizing the infrastructure and cultural landscape in the country was markedly different than what they had experienced before in the US and in Europe.

 

He cited three specific considerations that the company immediately addressed—logistics, payments and connectivity.

 

“Very quickly, we transformed the company and the idea into a different version of e-commerce,” he says. “First, rather than using local third-party logistics companies (TPLC), we started our own, Lazada Express. Second, rather than accepting credit cards or Paypal, we focused heavily on building the first nationwide cash-on-delivery network. And third, rather than relying on a desktop website, we focused very heavily on the mobile ecosystem.”

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Initially focusing on electronics, the company naturally evolved to becoming a general retail e-commerce company and, eventually, into a marketplace platform.

 

“The change is similar to turning a department store into a shopping mall,” he says.

 

Later on, Lazada added cross-border trade, or offering products from outside the Philippines.

 

 

PHOTO: John Catalan

Balci says Lazada's next big project is an on-demand grocery delivery platform that they are planning to launch in about a year's time 

 

 

“You tend to create some band-aid solutions when you have day-to-day problems, but in our second and third years, we realized the mistakes that we have made. We had to address these problems, not for the next day or the next two or three months, but for the next year and the next five years. We heavily relied on automation and scalable solutions of the changes that we did in the market.”

 

For all of Lazada’s broad triumphs, Balci declines to reveal the company’s revenue reports, except to say that e-commerce in the Philippines is a multi-billion dollar industry and that Lazada, being the leader, has a “significant market share in this industry.”

 

 

Welcoming challengers

What’s next for Lazada? Balci has already announced plans to launch a grocery business by the end of the year but certain logistical issues might push this plan back another year. Unlike concierge-like services such as Honestbee, Pushkart.ph and PhilGrocer, where someone goes out to buy the grocery items on customers’ behalf, Lazada’s model envisions direct orders and delivery.

 

 

Related story: Lazada to Launch Online Grocery Line in PH Towards End-Year

 

 

“What we’ll do is something similar to (what we’re doing with Lazada), which is warehouse fulfillment and then having it delivered to you,” Balci explains. “The current players, you order, then someone goes to the supermarket and buys it for you, like a concierge. So there’s no one else doing what we plan to do, which is the only scalable way of doing this.”

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But the CEO acknowledges the inherent difficulties of delivering highly perishable food items, which will take some time to iron out.

 

“We need to build cold storage locations all around, starting in Metro Manila,” he says. “We want to roll this out with 100-percent technology and infrastructure so we can provide something scalable for the customers. It would be a mistake to do this very quickly and then try to fix the problem while doing it, because it may alienate some customers.”

 

Because of the vast potential of e-commerce in the country—Statista estimates compounded average growth rate of 15.1 percent and a market volume of $2.6 billion by 2022—competition to get a slice of the pie is fiercer than ever. Although Balci encourages a robust and dynamic e-commerce playing field, he doesn’t seem too concerned that there would be a serious challenger to Lazada’s throne anytime soon.

 

“There aren’t players in the market not because the companies are not trying but because it’s very difficult: logistics, payments and other issues,” he says. “We’re grateful that there are other companies that are spending a lot of money that are helping us grow the market, but on the other hand we believe that they cannot be scalable if you don’t have your logistics network like Lazada does. If you want to create another e-commerce company, how are you going to deliver your orders?

 

“When a niche e-commerce company starts, focusing on beauty or fashion or something, you can reach a certain size, but after that, making the leap into the big league, it’s impossible. You would have to spend over $100 million on logistics alone.”

 

 

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Paul John Caña is the managing editor of Entrepreneur PH

 

 

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