How Lazada built a mall on the internet

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(Source: Manila Standard Today | By Roderick T. dela Cruz, Darwin G. Amojelar | May. 16, 2015 )

Inanc Balci, a banker from Turkey, was only 26 years old when he first came to the Philippines in 2012 to establish a startup company selling goods online. That company has quickly thrived on the expanding market of tech-savvy Filipinos and turned into a giant shopping site, which now employs 1,700 individuals and sells hundreds of thousands of items every month.

Balci is the chief executive of Lazada Philippines, the largest electronic commerce website or online shopping mall in the Philippines and Southeast Asia, a feat it has achieved it less than three years.  He calls Lazada a one-stop online shopping destination, available on computers and smart phones.

To build an online mall, Lazada has teamed up with vendors, telecommunication companies and banks.  Supported by foreign investors, Lazada also formed its own express delivery service. For promotion, it became one of the largest advertisers on Facebook.

“I am now 29. I also started Lazada in India.  But I was doing investment banking in London before,” Balci says, in introducing himself to journalists who attended a regional partnership between Lazada and Alcatel OneTouch at Seda Hotel in Fort Bonifacio, Taguig City.

Lazada sells mobile phones, cameras, gadgets, consumer electronics, household appliances, kitchenware, baby essentials, toys, fashion and sports equipment, with multiple payment methods including cash on delivery, extensive warranty commitments and free returns.

“Yes, we are the largest [e-commerce site]. You can check that.  We have the significant market share,” Balci says, during the launch of the exclusive partnership with Alcatel OneTouch for the sale of Flash Plus smartphone.  Flash Plus, which boasts of a 13-megapixel rear camera and 8-MP front camera, is sold at Lazada for P6,490.

Lei Zhang, country manager of Alcatel OneTouch Philippines, says he expects to sell 500,000 units of the new phone through the Lazada platform in six Asean countries where it operates, including the Philippines, Indonesia, Malaysia, Vietnam, Thailand and Singapore.

Balci says the Philippines is one of Lazada’s biggest markets in the region.  In Southeast Asia, Lazada employs 3,000 in the six countries. The company gets more than two million daily visits to its websites and has a following of over nine million in the region.

“We picked Lazada as an exclusive partner because of their reach across Southeast Asia, making it easy for us to have one partner to connect to approximately 550 million consumers,” Zhang says.

Lazada, backed by the Rocket Internet Group of Germany, has changed the Philippine retail market, engaging Filipinos to buy items online, instead of going to shopping malls.  Balci says a Filipino living on the most remote island can now buy any product he wants through a smart phone and have the product delivered to his door.

“Rocket Internet is one of our investors. We have several other investors based in the US, Europe and Asia,” Balci says.  Rocket Internet AG, which is 8-percent owned by Philippine Long Distance Telephone Co., also has stakes in other Philippine startups such as Zalora, Lamudi, Carmudi, FoodPanda and Easy Taxi.

“Over 50 percent of our mobile traffic is already coming from the mobile platform.  We want to offer our customers the best mobile technology, the best mobile devices. That is why we partnered with Alcatel, which is a very strong brand all over the world.  Our customers are looking for the best products,” says Balci.

Balci says the Philippines saw the rapid growth of e-commerce over the past couple of years.

“It is growing very fast, not just e-commerce, but also m-commerce [mobile commerce]. When we first came here, the numbers are not really high.  What intrigued us is that the number was increasing very fast. So that was very exciting for us and the growth over the last three years has been double-digit month-on-month, which already reflects the growth of Lazada,” he says.

Balci says the Philippines is a market with a huge growth momentum.  “The smart phone penetration in the Philippines is not really high, which is another opportunity for us,” he says.

He says Lazada is open to more partnerships with vendors, banks and telecom companies to widen the offerings for Filipino consumers.  “We are open to all partnerships that make sense for us, that make sense for our customers.  We had previous collaborations with Alcatel, but this is the first exclusive regional partnership with Alcatel. So far, it is going very well, with a very good momentum,” he says.

Balci says Lazada operates on three pillars, including largest assortment of products, lowest price and best customer service.  “We want to have all products available on the market on Lazada,” he says. He says Lazada is the first e-commerce company to have a nationwide coverage in the Philippines.

“We have nationwide coverage.  We have nationwide cash on delivery network.  We deliver for free products with at least P1,000.  For those less than P1,000, there is a small charge, but we are the first company to offer this. Even if you live on the remotest island, we deliver the product at your doorstep and you can pay cash for it. And if you don’t want the product, just say ‘I don’t want it’, then return it and there is no charge,” he says.

Balci says despite the zero cost for returned items, “our return rate is less than 1 percent.”

Lazada’s top three selling categories are toys and products for kids and babies as well as home and living and fashion items, according to Balci.

“In terms of revenue, electronics category is bigger than the other categories.  After electronics, we have home appliances,” he says.

Lazada has a main office in Makati, a main warehouse in Muntinlupa City and eight distribution centers, including those in Metro Manila, North Luzon, Batangas, Cebu and Mindanao.

“By the end of the year, we will have 20 distribution centers. We have our own delivery company, which is called Lazada Express,” he says.

Lazada employs 1,700 individuals in the Philippines.  “By the end of the year, we expect to have more than 2,000 employees.  Majority of them are in operations, but almost all our teams are expanding,” he says.

Lazada, he says, expects to sustain its rapid expansion in the coming months, as sales continue to increase.  “Our overall orders or transactions are several hundreds of thousands every month.  The growth is double-digit month-on-month,” he says.

“We expect to continue our double-digit month-on-month growth.  Year-on-year, it is several times growth, since we started.  The second year, we had several times growth. This year, we want to be higher. We do everything we can, with partnerships with banks, telcos,” he says.

Balci says Lazada has two business models, including retail and market sales.  The company earns commissions from the sale of goods, with the rate depending on the category of the products.

“We set the commissions, depending on the category, between 2 percent and 15 percent. For mobile phones, for example, it is a 2-percent commission, which is quite lower than our competitors,” he says.

E-commerce in the Philippines has a large room to grow, he says.  “We forecast this number [e-commerce penetration rate] to be between 0.5 percent and 1 percent of retail,” he says.

Driving the growth of e-commerce in the Philippines is the growing economy, according to Balci.

“The growth rate here is amazing. There are several things that affect our revenues. First, the economy is growing. On top of that, the consumption or spending is growing. On top of that, retail is growing and on top of that, Internet is growing. So everything is contributing to e-commerce growth.  That is why we are growing double-digit month over month,” he says.

Balci says Lazada is not afraid of competition.  “In the Philippines, the majority of the competitors are daily deal websites. It is healthy competition. We will be more than happy to have more competition because more competition means the market is getting bigger,” he says.