Let me preface this by saying that I truly believe that at least half of success in business can be attributed to luck, with the other half being execution. Although it is fruitless to try and document something as idiosyncratic as luck, I will discuss what I believe were the key principles that allowed us to scale our business to where it is today.
As a quick primer, Althea.kr is a Korean Beauty ecommerce business. We were founded in Malaysia in July 2015 and in the past year have expanded our operations to Singapore, Philippines, Indonesia, and Thailand. Within one year, we were recognized by Forbes as the largest Korean Beauty website in Southeast Asia with an annualized revenue run rate of $10 million.
Luck aside, I think we can attribute our ability to grow so quickly to three principles – focus, localization, and financial discipline.
What differentiates Althea from many ecommerce businesses is that we exclusively focus on one niche – Korean Beauty (K-Beauty). In the past 10 years, the K-Beauty industry has experienced CAGR of 33.8% and a significant amount of that demand comes from Southeast Asia.
We estimate that the addressable market for K-Beauty in the region alone will be $8 billion by 2020.
Side note on why K-Beauty is popular
To understand why K-Beauty is so popular, it helps to understand the unique dynamics of the Korean market. It comes down to the fact that Korea is a small country with a condensed, demanding and fickle population.
Companies are constantly under pressure to innovate and create new products in order to meet the differing demands of consumers and to stay relevant. In traditional beauty companies, it takes approximately two years to create a new product, whereas Korean companies do so within months. One of the best examples of this hyper innovation is highlighted in the unique ingredients used in K-Beauty products ranging from snail mucus, horse oil to egg whites.
Despite the high demand for K-Beauty, it is extremely difficult for consumers to purchase K-Beauty products in most parts of Southeast Asia. The first challenge is the limited selection – there are over 10,000 K-Beauty brands in Korea but less than 100 of them are available in Southeast Asia.
This is because the demand in Southeast Asia, although growing, is still small relative to Korea’s domestic market and their main export market, China. On top of this, the available brands usually only offers a limited selection of their top sellers, not the whole product line.
The second challenge is pricing. In other parts of the world, K-Beauty is known as a value for money product, but because of distribution agreements and import duties in Southeast Asia, customers often pay up to 100% more for the same product.
For example, Laneige sells its Water Sleeping Mask for 28,000 KRW in Korea but it costs approximately 35,000 KRW if a consumer purchases the same product in Singapore.
At Althea, we saw that the vast price discrepancy represented an untapped opportunity. By hiring a specialized team of K-Beauty experts in Seoul to work with brand owners and distributors to build our assortment and negotiate pricing, we have scaled our assortment from 300 SKUs to 3,000+ SKUs. For brands that we have direct relationships with, they see Althea as an easy way to enter five different markets that have diverse languages, culture and regulations.
Our pricing is comparable to what customers would pay in Korea, and we can generally deliver across the region to most areas within five working days. This has established us as an authority on K-Beauty, which has two main benefits:
1. The majority of Althea traffic and transactions come from unpaid channels (Direct and Organic Search results)
2. It significantly improves cost per order (CPO) – in our more mature markets, we are getting marketing spend ROIs in excess of 25x
Even though K-Beauty is considered a universal product, it is still important for us to localize our service and offerings. We localize every consumer facing aspect of our business and operate a different website for each of our specific markets. From changing web addresses to suit local domains such as my.althea.kr for Malaysia and th.althea.kr for Thailand to having website content in the local language.
For our marketing campaigns, we engage 150-200 top beauty influencers in each country to act as local brand ambassadors. We benchmark our pricing by market to ensure we have the cheapest prices in each country we operate in.
Payments has always been a hurdle in ecommerce, we cover most major options ranging from credit card, local bank transfer, over the counter, and cash on delivery, which is crucial to success in Southeast Asia, due to low credit card penetration.
Our logistics operations work with 15 local last mile couriers and five local return centers to facilitate ease of deliveries and returns and we’ve adopted our customer service operations to offer social network support in each market.
Althea’s localization efforts:
- 5 websites
- 4 languages
- 750+ beauty influencers
- 70+ payment options
- 15 local last mile couriers
- 5 local return centers
3. FINANCIAL DISCIPLINE
We are fortunate enough to be a part of the beauty industry, one of the only industries that has maintained its margins for 100+ years. Our product margins are multiples higher than a typical ecommerce business. Combined with the inherent stickiness of the products and a highly engaged customer base (18-34 year old females), our customer LTV is attractive.
These factors mean that we can afford to be aggressive with our customer acquisition cost (CAC) and other customer centric costs. While we invest aggressively in marketing and customer service, we practice strict financial discipline in all other aspects of our business. This means that while we do business in six countries, we only operate two offices and one central fulfillment center. We have one office in Seoul, which has 10 full time equivalents (FTE), and is responsible for sourcing, logistics, HR, and legal.
Our second office in Kuala Lumpur has 20 FTEs that handle development, marketing, finance, and customer support. This asset light model has allowed us to enter a new market once every three months since launching.
We generate significant savings by not duplicating functions across local offices, and in turn we re-invest those savings into growing our business.
By adhering to these three core principles – focusing on a niche category that we can execute well, localizing all customer facing aspects of our business, being efficient with our capital and a little bit of luck, of course, we were able to enter five markets and build a $10 million a year business within one year. Looking forward, we hope to expand our business to the rest of Southeast Asia as well as the greater APAC region.