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Here’s what you need to know today.

1. Thailand’s Power Buy will be going omnichannel

Power Buy is an electronics retailer that operates under Thailand’s retail giant, Central Group. The department is a permanent fixture in Central Department store’s offline locations nationwide.

Currently, Power Buy has 86 locations spread across the country, and its new omnichannel strategy will leverage from that.

Power Buy also has an online platform, and management believes the integration of online and offline will lead to an 8% increase of sales for this year.

Power Buy will make it easier and quicker for online consumers to shop on its website, and train its staff to integrate technology touch points in offline stores. Employees will be able to use tablets to check stock lists and look for discounts right away in store, which will lead to better service for customers.

Read the rest of the story here.

 

2. How is Amazon disruption grocery?

There’s no real mystery to why Amazon would be so assertive in grocery: Total 2015 U.S. supermarket sales were $649 billion, according to the Food Marketing Institute.

As a high-frequency purchase, grocery makes a lot of sense for Amazon.“They want that consistent customer back in the fold. Most consumers look at grocery shopping as utilitarian. It’s not passion purchases, so to some degree any time you remove the pain points you win. Grocery is ripe with opportunities,” said Brendan Witcher, Forrester analyst.

“Forget about department stores. Groceries is where retail is going to be won over the next five years.” Cooper Smith, research director at digital insights firm L2.

As Amazon learns the ropes of grocery retailing, that leaves a window open for traditional retailers to move assertively to maintain shopper loyalty. But the window is narrow — and shuttering quickly.

Read the rest of the story here.

 

3. Recommended Reading: How Boohoo is beating the rocky American retail market

The online pure-play brand that quickly churns out trends targeting a Gen Z and millennial audience reported a 145 percent revenue growth in the U.S. in its financial year ending February 28, from $17 million to $43 million.

Boohoo is quickly gaining ground in a market that has proven volatile for retail. Department stores like Macy’s, JCPenney and Sears are closing hundreds of physical locations, while retailers like American Apparel, Wet Seal, Payless, Rue21 and The Limited have filed for bankruptcy.

Boohoo’s focus, meanwhile, on the American market kicked into gear over the past year, including its acquisition of Nasty Gal. While it recognizes the value in a physical retail presence, Boohoo’s biggest competitive strengths play out online.

“Retailers have been able to follow the same playbook for decades, only to have recently had the rug pulled out from under them,” said Drew Ungvarsky, CEO of digital agency Grow.
“Younger, online-born companies have room now to come in with a new relationship between the physical and online space. Ultimately they’re finding a reason for people to go to the store.”
Read the rest of the story here.

Here’s what you should know for today.

1. China’s SF Express is the most valuable company in the stock exchange 

Shares of SF Express Co, China’s largest express delivery company, soared by 10% daily limit for a third time in five trading days since its debut, making it the most valuable company in Shenzhen Stock Exchange.

One month earlier, Maanshan Dingtai Rare Earth & New Materials Co., Ltd. and SF Express completed an asset swap that valued S.F. Express at an estimated $6.8 billion. The combined company now has 4.18 billion shares, and is currently worth S$25.5 billion.

S.F. Express’ IPO comes at a time when Chinese courier companies were hit by a lack of delivery staff and negative news reports revealing that major courier companies are mistreating delivery personnel. Listed companies including YTO Express and STO Express saw their shares plummet as a result during the past few days.

Read the rest of the story here and here.

 

2. China prepares its own digital currency

After assembling a research team in 2014, the People’s Bank of China has done trial runs of its prototype cryptocurrency. That’s taking it a step closer to becoming one of the first major central banks to issue digital money that can be used for anything from buying noodles to purchasing a car.

Chinese people are embracing the online currency-paying for cokes using the QR code on their phones, and even going as far as issuing online money transfers instead of handing out red envelopes during Chinese New Year.

The People’s Bank then, is adopting the attitude “if you can’t beat them, join them.”

Read the rest of the story here

 

3. Recommended Reading: Nasty Gal, once a fashion world darling, is now bankrupt. What went wrong?

By 2011, its annual sales hit $24 million, an 11,200% jump from three years earlier, the company said publicly. Sales leap-frogged again in 2012 to nearly $100 million.

But it wasn’t long before sales started dropping — to $85 million in 2014, and then $77 million in 2015, according to bankruptcy documents.

Analysts said that Nasty Gal’s rapid growth was fueled by heavy spending in advertising and marketing. It’s a strategy that many start-ups use, but one that only pays off in the long-run if one-time buyers become loyal shoppers.

Read the rest of the story here.

Here are today’s top tech and ecommerce news.

1. WeChat launches mini programs to kill off apps

WeChat is today rolling out “mini programs,” embedded apps which require no download or install. These mini programs are deliberately meant to be discovered socially through friends or in the real world by scanning QR codes. There is no official app store for mini programs.

These ‘programs’ will allow users to browse cinema screenings and buy tickets. WeChat instant apps are essentially an evolution of its brand accounts, which allow for online shopping and a wide range of other services.

Read the rest of the story here.

 

2. Singapore Power rolls out global startup accelerator

Singapore Power (SP) has rolled out a global accelerator program to support startups developing solutions in areas such as clean energy, energy efficiency and mobility, digitization, and on-demand customer services.

Read the rest of the story here.

 

3. Boohoo is getting close to acquiring bankrupt Nasty Gal’s assets for $20 million

British online fashion retailer boohoo.com is a step closer to acquiring the brand and customer database of US fashion retailer Nasty Gal, which filed for chapter 11 bankruptcy protection back in November.

Boohoo, which was also founded in 2006 and has focused on selling own brand, affordable fast fashion to millennials, said it sees the Nasty Gal brand as “an ideal next step in inspiring an ever-growing range of young customers internationally.”

Read the rest of the story here.

Here’s some key headlines to round up the day.

 

1. Lippo’s retail arm Matahari Department Store dives into ecommerce

According to Christian Kurnia, Director of Marketing & Merchandising, Matahari has a loyal customer base of 3.5 million registered under its loyalty card programme. By going online, the retailer can reach many more, though Christian did not say how many they were targeting.

Read the rest of the story here

 

2.How Southeast Asia’s ecommerce companies should brace for Singles Day

Partner up, automatic on-boarding, sync stocks and more.

Read the rest of the story here

 

3. Online fashion retailer Nasty Gal will file for bankruptcy

The decade-old company is reportedly preparing to file for Chapter 11 bankruptcy as it restructures. Additionally, founder Sophia Amoruso is resigning as executive chairwoman.

Read the rest of the story here

Why We’re Heading Towards a Bloodbath and 4 Strategies to Avoid it

Being the new kid on the block means that ecommerce ventures in Southeast Asia have the luxury to learn from the mistakes of others from mature ecommerce markets like the US and China. It has been over 20 years since Amazon (1994) and eBay (1995) were founded, Jack Ma started Alibaba in his Hangzhou apartment in 1999, right before the Internet 1.0 bubble burst.

A lot has happened in global ecommerce since then, including the slow but steady march of Amazon, the quick rise and fall of daily deals and flash sale sites, and Alibaba’s blockbuster IPO in 2015. What’s next? This historical review creates the two frameworks, the Ecommerce Lifecycle and Ecommerce 1.0/2.0, to help predict the future opportunity of ecommerce in Southeast Asia.

1. The Ecommerce Lifecycle – How Ecommerce Models Evolve Over Time

There is a distinct pattern that has emerged from the more mature ecommerce markets’ evolution that offers a degree of prescience for ecommerce in Southeast Asia. This follows the trajectory of Classifieds and C2C to B2C to eventually Brand.com. The US went from Craigslist, eBay and Amazon to brand sites like Nike, J.Crew and Gap. China went from Taobao, Tmall and JD to the many standalone and marketplace brand sites, like Estée Lauder, Burberry and Coach.

Today’s Southeast Asia is following a similar pattern but at a much faster pace due to “1 to n,” horizontal progress and the resulting leapfrogging behavior. In our region, we have Classifieds (OLX), C2C (Tarad, Tokopedia, Shopee), B2C (Lazada, Zalora, MatahariMall) and Brand.com (L’Oreal, Estée Lauder, Adidas) all happening at once within a very short time frame.

The Evolution of Ecommerce Business Models in Southeast Asia

Figure 1: Ecommerce Lifecycle Model

LIMITATIONS TO THE MODEL

Local nuances give rise to unique ecommerce business models

eBay could only have been invented in the US because of its auction-driven model in a consumerist culture characterized by excess goods and plenty of hobbyists (think baseball cards and Pez dispensers). eBay didn’t work in China for many reasons, one being the auction model was not appealing to Chinese users who preferred to buy first-hand goods and to negotiate person-to-person via chat.

Tmall’s B2B2C model originated in China because of the bazaar-like, hustle and bustle shopping environments that many Chinese were used to in their offline world.

HOW SOUTHEAST ASIA ECOMMERCE IS DIFFERENT

Southeast Asia is a hybrid between the US and China

Lazada, the dominant ecommerce platform in Southeast Asia, is both an Amazon and a Tmall. Founded in 2011 by Rocket Internet as the “Amazon of Southeast Asia”, Lazada today gets 70% of its GMV from third-party, marketplace transactions, with the remaining 30% generated through “traditional” Amazon-style direct retail. Post-Alibaba acquisition, it’s likely that Lazada will follow the Tmall model and move towards a 100% marketplace with all the model’s inherent scaling benefits.

Compare this to Amazon, which traditionally used to be 100% direct retail but has been moving towards a marketplace model. Today, Amazon gets 59% of its GMV from B2B2C.

B2C, B2B2C and Brand.com all happening at the same time

In China, brands progressed from selling via Tmall as a stepping stone towards operating their own brand.com site. A case in point is Uniqlo, which started selling through a Tmall flagship store and then later added their own brand.com webstore.

In Southeast Asia, we see brands doing both at the same time, selling via Lazada as well as their brand.com stores, in addition through distributing through e-tailors like Central Online and MAP. This is driven by technology making it much easier to sell through different channels but also necessitated by the high degree of fragmentation in the ecommerce market. Consolidation is expected to happen soon.

Southeast Asia is mobile-first, C2C ecommerce is jumping straight into mobile marketplaces

Whereas in mature ecommerce markets desktop C2C still plays a pivotal role, in Southeast Asia the leapfrogging towards mobile is disrupting traditional, desktop-first marketplaces. Mobile-only C2C marketplaces like Carousell and Garena-backed Shopee are making aggressive moves against their older desktop counterparts like Tarad in Thailand and Tokopedia in Indonesia. With an estimated 85% and 79% of online shopping outside of the major metro areas in Thailand and Indonesia happening on mobile, it’s not surprising that companies like Facebook are also betting on mobile C2C. The ad giant recently launching mobile payments in Thailand where an estimated 50% of C2C transactions are happening on social networks.

2. Ecommerce 1.0 to Ecommerce 2.0: 4 Strategies to Avoid the Imminent Ecommerce Bloodbath in Southeast Asia

Southeast Asia is the next ecommerce gold rush. For this very reason, it’s also quickly becoming the next ecommerce bloodbath. We’ve already seen many casualties, especially in the B2C space of selling third-party brands. As we previously predicted, Rocket Internet’s Zalora had to sell their Thailand and Vietnam businesses for chump change to local retailer Central Group. This same year, Cdiscount Thailand, part of French retail conglomerate Groupe Casino, was sold for $31.5 million (28 million EUR) to TCC, a local Thai company that also owns the popular Chang beer brand. 

Ecommerce 1.0: Selling other people’s stuff to the masses at low margins

Ecommerce guru Andy Dunn adopted a strategy that allowed his business to stand a fighting chance in the Amazon bloodbath of the US.

“If you’re selling other people’s brands, you are competing not via a local group of competitors but with everyone. In this type of market, you might imagine having one large national winner. You might imagine that winner is ruthless about scale and cost, and is run by a visionary leader who with an extreme long-term focus. Such a company might not make real money for a long time — but when it does — it will be incredibly powerful.”

With Alibaba coming into the region through the $1 billion Lazada acquisition, it increasingly looks like ‘Alizada’ is becoming the big threat for other retailers in the market, both in the pure-play and omni-channel space. Expect the bloodbath to intensify and more consolidation to happen over the next few years.

Today, none of the B2C / Ecommerce 1.0 players in ASEAN have dominant market share yet.

Granted, Lazada has a headstart with an alleged 20% market share (2014) but this number pales in comparison with Amazon’s 60% in the US, Tmall’s 50.6%, and JD’s 51.9% (direct retail B2C market) in China.

ecommerce 1.0, The Evolution of Ecommerce Business Models in Southeast Asia

The Ecommerce 1.0 Goliaths

Over the next 5-6 years, Southeast Asia B2C will go through further consolidation to end up in a 1-2 player game

There is no better way to visualize the ongoing consolidation in Ecommerce 1.0 than with ‘search interest’ data from Google Trends. The graph for Thailand shows the rise and fall of desktop C2C and daily deals, the fragmentation in B2C, and the rapid ascension of Lazada.

google trends, The Evolution of Ecommerce Business Models in Southeast Asia

Figure 3: Google Search Interest Showing Ongoing Consolidation in Ecommerce 1.0

This is where things start to get interesting. Whereas Ecommerce 1.0 is a game of brute force and strength, Ecommerce 2.0 exploits 1.0 loopholes in many creative ways in order to avoid the zero-sum game against the likes of ‘Alizada’.

“This next generation of ecommerce companies is as much about what you exclude as what you include. It is a paradox that excluding some things takes more time than including everything. The new models are fundamentally — whether the merchandise is proprietary or not — about merchandising.” — Andy Dunn on Ecommerce 2.0

The Evolution of Ecommerce Business Models in Southeast Asia

Figure 4: Ecommerce 2.0 – Four Strategies for Avoiding the Bloodbath

Gilt, the posterchild of Ecommerce 2.0, rose from the ashes of the 2008 financial crisis with a unique business model that offered high-end luxury goods at a fraction of their original price through time-sensitive flash sales. One of New York City’s first unicorns at a point in time, Gilt later struggled as the economy recovered and brands no longer needed a distribution channel for clearance stock.

While Gilt played the pricing angle, others like Birchbox and Rent the Runway innovated on the product side by offering a unique shopping experience. Birchbox started the monthly beauty subscription commerce craze and inspired countless “Birchbox for X” clones. Rent the Runway is basically fashion on-demand by providing users rental access to high-end, designer fashion.

Ecommerce 2.0 in Southeast Asia: A glimpse of hope for aspiring ecommerce entrepreneurs?

With the Ecommerce 1.0 bloodbath in Southeast Asia still ongoing as we speak, a few entrepreneurs have realized that it’s futile to compete against the Lazada’s and MatahariMall’s of the region without deep pockets or any other strategic moat. Instead, they are focusing on emerging opportunities in Ecommerce 2.0 by positioning themselves in a unique way.

Proprietary Merchandise

Pomelo Fashion

Founded by the ex-Thailand Lazada founding team, Pomelo Fashion is one of the first Ecommerce 2.0 companies in Southeast Asia. Rather than selling other brands’ products with low margins, Pomelo Fashion has taken a M2C/D2C (Manufacture / Direct-to-Consumer) approach, focusing on building its own fashion brand and vertically integrating its supply chain, going as far as manufacturing its own clothing and apparel.

The Evolution of Ecommerce Business Models in Southeast Asia

Glazziq and Franc Nobel

Inspired by Warby Parker’s success in the US, Glazziq and Franc Nobel are applying the proprietary merchandise model in the eyewear space in Thailand and Indonesia, respectively. Glazziq adds a local spin by positioning itself as prescription eyewear for Asians.

The Evolution of Ecommerce Business Models in Southeast Asia

Sale Stock

In Indonesia, another startup has taken a cue from the Facebook and Instagram seller playbook, and scaled it 10x. Sale Stock, a fast-fashion startup based in Jakarta has taken a similar path to Pomelo Fashion, with vertical integration of design, manufacturing, and supply chain.

Proprietary Selection

Motif Official

Motif Official is a fashion retailer based in Bangkok focusing on proprietary merchandise and selection. Their ‘Motif Official’ label is designed and manufactured in-house. For their ‘Motif Select’ range, they select and curate minimalist brands from across the world. Motif’s ecommerce strategy eerily resembles that of Nasty Gal in the US, where founder Sophia Amoruso started the business in 2006 by curating vintage clothing sourced from second hand stores.

The Evolution of Ecommerce Business Models in Southeast Asia

“We are an online concept store specializing in women’s apparels and accessories; from our own in-house label ‘Motif Official’ to our ‘Motif Select’ range, where we curate the best pieces from brands all around the world to your everyday wardrobe. We believe in the concept of minimalism, with attention to details, shapes and silhouettes.”

Motif proves that you can still compete with the big retailers by focusing on a niche and dominating a category through curation. Many of the premium brands on Motif would never sell on Lazada, let alone Zalora.

Following pure play ecommerce companies in the US like Warby Parker and Birchbox who went offline to augment their brand, Motif also operates physical stores in Central World and Siam Discovery in the heart of Bangkok.

 

The Evolution of Ecommerce Business Models in Southeast Asia

Figure 5: Ecommerce 2.0, Global vs SEA Comparison and Opportunities

The Future of Ecommerce in Southeast Asia

Applying either the Ecommerce Lifecycle or Ecommerce 1.0/2.0 framework makes it easy to see where ecommerce in Southeast Asia is headed.

The B2C war will continue to wage for the next 4-5 years until some run out of money and throw in the towel. In China, this process took almost a decade with Tmall going from 0% to 50.6% market share from 2008-2014. In the direct retail B2C space, JD went from 15% to 51.9%. In the same period, previous leaders like Dangdang (16.2%) and Amazon China (15.4%) faded into irrelevance with 4% and 3.5% market share remaining as of 2014.

During this time, we will also see more startups and venture capital going into the Ecommerce 2.0 space. Ecommerce 2.0 isn’t new to Southeast Asia— many have tried to bring the Birchbox model into the region but failed due to the immature market. However, the next few years may be a fertile time as evidenced from the traction that companies like Pomelo Fashion, Sale Stock, and Motif are getting.

Does this mean we can go ahead and copy something like Gilt into Southeast Asia? It really depends. A model like Gilt needs access to old inventory of premium brands which in markets like Thailand and Indonesia are controlled by 1-2 distributors such as Central and MAP. This is the same issue that caused the downfall of Zalora in the same markets. Any Ecommerce 2.0 model launched in Southeast Asia will need to be customized for the local market.

Ecommerce in Southeast Asia is still relatively young, with only 1% of total retail GMV being generated online compared to 7.1% and 15.9% in the US and China. However, the region is already widely being touted as the next frontier of ecommerce opportunity, or the next ecommerce gold rush and recent research predicting the market to grow 32% year-on-year to reach $88 billion by 2025 (6.4% penetration), up from today’s $5.5 billion (0.8% penetration). As shown in our analysis, there are plenty of opportunities in ecommerce for those with deep pockets as well as those who adopt unique and local strategies.

“Don’t always go through the tiny little door that everyone is trying to rush through… maybe go around the corner and go through the vast gate that no one’s taking.” — Peter Thiel

By Sheji Ho

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