Gunjan Soni: This region has always been talked about as a region for potential. It’s not been fully realised but there are many barriers, certainly one of them was breaking old habits. The pandemic forced a wide segment of users to at least experiment with online and there has definitely been a fundamental shift in the adoption rates. If you track the major reports, we are seeing a huge adoption rate, especially for new customers.
Also, these new customers are not predominantly from the main cities. There used to be an old myth that these customers were not digitally savvy. We’re seeing remote areas contribute quite significantly, especially in areas like Indonesia and the Philippines.
If you look at the global evolution, once that primary barrier [to entry] is broken, you can see a large group of people remain. They may change their wallet size [in the future]. Right now, online is commanding more than 60 per cent of the wallet share. It will go backwards, but not all of it. In categories that we operate in — fashion, beauty, kids and lifestyle products — we’ve seen a surge in customers. Of course, our core categories have suffered, like fast fashion, but a different set of categories have benefited.
To me, it’s very clear that there is definitely a surge in adoption. It’s not temporary. The magnitude will reduce, but it will fundamentally shift the industry in favour of digital players.
IR: A lot of retailers have launched global expansion plans into Southeast Asia, but it’s not always successful. Where does it go wrong and what are some of the greatest stereotypes of the region?
GS: There are several misconceptions, but perhaps the biggest is that it’s a homogeneous region. There’s no such thing as Southeast Asia — it’s just a convenient name that people who are not in the region use to describe this set of very different countries, populations and cultures with diverse religious beliefs, practices and behaviours. That’s really the heart of the problem. You think you’re entering one homogenous population that you need to address, but then you come in and realise it’s absolutely not the case. A one-size-fits-all [approach] follows on from this belief, and that’s where people tend to go wrong.
What can you do differently? It’s very important that people understand the differences in the segments and address these as very local efforts. That’s at the heart of how we approach it at Zalora. We treat each market as being very distinct. We try to derive synergies where possible of course, but we’re not making the mistake of treating them as a homogenous mass population. When you’re in the region, you know very well that Australia can’t be compared to Indonesia, which can’t be compared to the Philippines. I’m super passionate about the importance of localisation and it being the key to success. Retailers know it, but they’re making the misstep of not seeing Southeast Asia through that lens and applying that level of rigour.
The second part of the challenge is the physical infrastructure needed to really support a very complex market. The regulations are different and even though the distances aren’t far, you have different tax structures. Like you said, the [e-commerce] adoption rates have been lower [in the past]. You have to build out a complex infrastructure to support a complex market, but because it’s so diverse, you don’t get as many economies of scale and the market hasn’t scaled because of the challenges of the adoption rate. It’s certainly true for e-commerce, but it’s also true for the broad retail community. Our brand partners believe the overall scale in the region still faces those challenges in individual markets not being sufficient enough to support. You have to be more patient and have longer-term investment to see value come out of this region.
IR: This year, Zalora released the inaugural Southeast Asia Trender Report, which details new trends and industry shifts in the sector based on your data. Within the report, Zalora identified a few new customer bases. What are some of those niche consumer groups that go under the radar?
GS: Southeast Asia has one of the largest Muslim populations in the world, but even within that group, there are different preferences on what people like to wear and how. One of the segments we identified by looking at people’s purchase habits is the modern modest user. It’s a unique customer segment to our region.
They’re deeply rooted in their religious and cultural beliefs, but at the same time, they’ve had education and global exposure and they have aspirations to be very important contributors to the economic and cultural activities of the countries in the region. How do you bring those two attitudes together and how does the personality come alive?
The way that you dress reflects your personality. And for these consumer segments, they’re doing it by choosing both modest fashion apparel and sportswear, which allows them to wear their religious beliefs, but doesn’t hinder their day-to-day activities. That has given birth to a modest wear range in sportswear.
We’ve done a lot of work with our brand partners to support them in this journey. In Malaysia every year, we do a fashion show called Zaloraraya to support Hari Raya [a Muslim festival to celebrate the end of fasting during Ramadan]. We work with our ecosystem of designers to help them understand and reach these diverse customer segments by coming up with different offerings. It’s a way that we can localise and adapt to our customer needs, but at the same time, we’re able to nurture the world of fashion and retail. These designers aren’t otherwise getting access to the right platforms. That’s a big pain point for their development in the region, especially in the fashion, beauty and lifestyle [categories]. It’s a big barrier for local talent and brands to shine.
IR: We don’t often hear about the successful brands in Asia, especially compared to major western brands. What are your thoughts on that?
GS: Can you name five modest wear brands? I think people struggle. There is a lack of platforms and players like us are trying to address it, by creating our own brands.
We have three brands just for the modest wear category but even within modest wear, there are different segments. Zalia is targeted at the more mature 35-year-old woman and caters to occasionwear and day wear. It’s slightly more traditional with more elegant, flowy looks. Lubna, on the other hand, is for the young, modern modest consumer.
The first reason [for Asian brands struggling to be recognised globally] is there’s a lack of the understanding of the specific segments, the second is [having] access to them and the third is access to strong supply chains to handle these brands at scale. Most of the smaller brands we work with in this space find it challenging to have access to reliable supply chains that can cater to huge volumes, unlike big, global brands.
There is also a lot to achieve in Southeast Asia. The population sizes in each of these markets is huge. It’s positive, but it becomes a barrier to global ambition. China’s a good example, where there are so many brands at scale, but not global and often because there’s so much to do in your own geography. We’re starting to see it in Indonesia, where a few local brands are growing, but they are targeting their local population first. It’s a positive thing that there are large populations to go after in our region, but it then acts as a dampener to global ambitions, because you want to do your local market justice.
Where I see a huge opportunity for brands is going cross-border within the region, which we’re passionate about at Zalora. If a brand in Indonesia is struggling to have infrastructure in Malaysia, we can offer cross-border logistics and listing at Zalora, which is something we’re working to launch this year across our markets. We do it for brands in Malaysia, which can list themselves in Indonesia, from Hong Kong into Singapore and into the Philippines. This creates pan-regional opportunities for brands, so they can test out their products in these diverse markets. You have to adapt yourself in order to cater to a Singaporean or Australian market, but once you do that, you have a better ability to crack a European or US market, because you’re catering to very different markets and understanding them. These two or three things end up being a big part of the barrier to local brands going global.
IR: What are your plans for Zalora this year?
GS: There are plenty! We’re very excited about the possibilities for the industry and Zalora last year.
Last year was perhaps a wake up call for a lot of brand partners. E-commerce is no longer optional. It is a must-have, strategic part of the journey. It’s no longer about if or when we should do it, it’s really about how we should do it. The industry is really trying to reinvent itself and work towards establishing a meaningful presence.
Brands are feeling the challenges of how to deliver and fulfil, because they haven’t seen volumes like this in the online world before. Of course, we offer a solution called Single Stock, where we can help them manage their supply and their own online platform.
The second thing I’m seeing at the industry level is perhaps a much stronger desire to really understand the Southeast Asian markets, including Australia and New Zealand, because the consumer patterns have shifted quite a lot. The region is not well understood, so as people are trying to establish a deeper presence here, they’re struggling and they don’t have the insights. That was the primary reason for the launch of the Trender report and platform, so we can support the ecosystem in being able to understand the consumers, what they prefer and how to cater to them.
In this landscape, what are some of the opportunities for Zalora and what will we focus on?
Obviously we want to continue to both benefit but also drive the momentum of e-commerce. Even now with the adoption rate, while it’s improving, it’s substantially lower compared to the 30 per cent in the US or 30-40 per cent in China. That’s still the number one priority. We’re looking forward to onboarding more and more customers in an exciting way.
There’s a lot of opportunity in newer categories where we expect to see a lot of growth.
I can’t talk about all the plans, but we’re excited about some groundbreaking ways in which we want to support these categories, especially luxury and beauty, along with kids.
We want to continue to actively support our brand partners, through data insights and Trender. In two quarters, 900 brands have subscribed and are actually paying for Trender Basic. That tells you about their hunger for more insights about the customer and how misunderstood they are. We have big global names like Under Armour and Nike using the more evolved offering of Trender Pro, which gives you many more things like dashboards and so on to help you understand the landscape even better.
The second thing we’re doing to work with our brand partners is the fulfillment solution. As they build their own e-commerce presence, how can we take the pain away for them? That will be a big part of our continued offering for them.
I think immersive commerce technologies will start to become a reality between 2021 and 2022. Consumers are more digitally savvy and the bandwidth is improving a lot in some of the target markets. It’s creating unique opportunities. We’re seeing retailers experiment with live videos and shopping experiences and I expect to see a greater increase in that. We’re working on some pilots under the radar at the moment.
IR: What are some of the interesting trends that you’re noticing?
GS: Influencer-led content and social commerce will be the new way to tap into young people and grow in that sector in the years to come. We have a new feature called Shop the Look. It’s a bit like Pinterest meets Instagram meets e-commerce. You’ll have an Insta-like feed, which is filterable, but the interesting twist is that they are shoppable looks. It’s a small pilot, but we’re looking to scale it up. It’s very unique and rooted in a lot of research we’ve done in how consumers really want to shop and it taps into the energy of influencers. Our influencers are the ones posting these looks on Zalora. It’s an example of what the industry will see in the future.
Among all the diversity in the region, one of the things we have in common is our young population is affluent and far more digitally savvy than people realise. I think we’re home to countries that are undoubtedly some of the social media capitals of the world, with consumers spending four to five hours a day on these platforms. How do retailers leverage this ecosystem of friends, family, influencers and tap into that energy?
I think Covid has been a wake up call for being kind to the earth. In our Trender report, we found that more than 50 per cent of active customers are willing to pay a small premium for sustainable products. That’s in apparel. It goes up to 60 per cent for beauty. We’ll see a lot of that action here at Zalora.
We collaborated [with Vestiaire Collective] and launched what we call the circular fashion movement in our region, which is about reducing the impact of these products, but also increasing their lifecycles. We started with the luxury and when we launched, we had close to 5000 pre-loved products [on the site]. Given the diversity of affluence levels in our region, there’s a lot of aspiration. People want branded products, but can’t always afford them. [Circular fashion] creates a win-win solution to solve a commercial problem but also does good for the environment.
This article was originally published in the February edition of Inside Retail Asia’s quarterly print magazine.