March 2, 2015 11:28 AM
If Tito Costa could offer one tip to Western e-retailers venturing into Asia it would be to spend the time and the money to go local.
“We sell to 600 million consumers in a very fragmented market,” Costa says. “We took a very localized approach from the beginning, with local warehouses and a marketing team in each country. If you are in Vietnam and call customer service, you will be able to speak to someone in Vietnamese. In six months we launched in seven Southeast Asian countries. Europe may be fragmented, but Southeast Asia is 10 times more fragmented.”
Costa is managing director of Rocket Internet AG-backed fashion retailer Zalora.com, which sells to consumers in Singapore, Malaysia, Thailand, Vietnam, the Philippines, Indonesia and Hong Kong, as well as under the brand name The Iconic in Australia. Zalora, which launched in early 2012, today sells items from around 6,000 brands, has more than 2,000 employees and in the first half of 2014 booked $70 million in online sales.
Costa’s “go local” philosophy is echoed by many of the top retailers ranked in the newly released Internet Retailer 2015 Asia 500, which ranks the leading retailers in the region by their web sales. The challenges in selling in Southeast Asia extend throughout the entire Asia-Pacific region where there is no common language, culture, currency or umbrella regulatory body such as the European Union. A social network popular in one country may have a handful of members in another. While Muslim religious attire is popular in Malaysia, it isn’t in Japan. While web penetration is relatively limited throughout much of Southeast Asia, South Korea’s robust and fast Internet infrastructure means consumers shop via their smartphones all day—even when traveling the subway underground. The top-performing retailers in the Asia 500 learn the nuances of each country they sell into and drive sales with country-specific strategies.
Taken as a whole, the Asia-Pacific region offers fertile ground for retailers like Zalora and others to grow web sales. According to research firm eMarketer Inc., Asia-Pacific will become the leading region for e-commerce sales in 2015, representing 33.4% of global online sales, compared with 31.7% in North America and 24.6% in Western Europe. UPS Inc. forecasts Asia-Pacific e-commerce revenue to climb above $1 trillion by 2017. And the 500 merchants in the 2014 Asia 500 grew their combined Asian web sales an estimated 57.1% to reach $139.25 billion in 2014 from $88.66 billion a year earlier.
China is the undisputed web sales giant in the region. Online sales in China reached $450 billion last year, according to China’s National Bureau of Statistics. The 166 China retailers in the Asia 500 grew their sales 82.6% in 2014 from an estimated $55.58 billion in 2013 to an estimated $101.46 billion. Together, these Chinese retailers account for 72.86% of total Asia 500 sales. They were led by the top four Chinese merchants in the Asia 500, who each grew their web sales more than 100%, according to Internet Retailer estimates. Jingdong Mall, or JD.com, grew its web sales 102.1% to $36.73 billion, Suning Appliance Co. Ltd. grew 149.0% to $12.34 billion, Xiaomi Inc. grew 149.0% to $11.85 billion and Vipshop Holdings Ltd. grew 136.0% to $3.85 billion. Those four merchants in that order also rank as the top four retailers in the Asia 500 with the biggest year-over-year growth in dollars.
Web sales are also growing in northern Asia’s next-largest economies, Japan and South Korea. South Korean retail e-commerce sales amounted to $33.11 billion in 2014 and are projected to grow 44.4% to $47.82 billion by 2018, according to eMarketer. Japanese retail e-commerce sales totaled $70.83 billion in 2014 and are projected to reach $106.07 billion by 2018, eMarketer says.
Even in Southeast Asia, where the economies are much smaller and fewer consumers use the Internet, signs point to e-commerce growth. For instance, web penetration will grow from around 32% to 48% within three years, according to a June 2014 report from investment bank UBS Financial Services Inc. (The report analyzed online shopping in Indonesia, Singapore, Philippines, Vietnam, Thailand and Malaysia). And more consumers with web access in the region are using it to visit online retailers, the report notes. Visits to e-retail sites in Southeast Asia outnumber bricks-and-mortar stores visits by 41 to 1, UBS says. The bank forecasts online sales in the region, which now account for only 0.2% of total retail sales, will increase at least fivefold by 2020 to reach $35 billion.
Zalora is one Asian online retailer looking beyond the region’s biggest economies. Zalora is part-owned by Germany-based Rocket Internet, an investment firm that specializes in taking stakes in e-retail companies in the developing world. Rocket, which also operates fashion site Jabong in India, grew its Asia online sales an Internet Retailer estimated 54.2% from $185.90 million in 2013 to $286.71 million in 2014. (While Rocket Internet has e-commerce investments around the globe, the Internet Retailer estimate is based on the sales of its Asia-based investments.)
Zalora is opting to get in early on e-commerce in Southeast Asia, while the market isn’t yet crowded. “We are trying to build a brand in an area where there is less e-commerce noise and where there aren’t a lot of other players,” Costa says. He adds more consumers in the region are warming to shopping online because it gives them access to a much larger selection of products than nearby stores. “In emerging markets you have very limited offline retail infrastructure outside of capital cities,” Costa says.
Mobile marketing is an important part of Zalora’s entry strategy, Costa says. The retailer is taking advantage of the growing number of consumers with smartphones in Southeast Asia to increase brand awareness and sales. Sales of smartphones in Q1 2014 in Indonesia, Vietnam and Thailand increased between 45% and 68% compared to year earlier, according to UBS.
Identifying popular mobile and social apps in Southeast Asia has helped Zalora build brand awareness, Costa says. An app called Line, for example, is one of the most popular chat apps in Thailand, with more than 33 million Thai users as of October 2014, according to Tech in Asia, a news service that covers technology and startups in the region. Zalora worked with popular Thai fashion illustrator Kapiz to create a series of virtual stickers consumers using Line called Mr. & Mrs. Z last November to promote the launch of its Line account. By adding Zalora.co.th to their friend list, Line users get access to the Mr. & Mrs. Z stickers and also receive notifications of promotions and new arrivals. Within one week of the sticker promotion, Zalora gained 6 million Thai followers on the mobile messaging app, besting its 5 million Thai Facebook fans in a matter of days. “You have to understand people do everything through these apps, including shopping, and you need to be there,” Costa says.
Zalora has found that providing good service in Southeast Asia is expensive, Costa says. For example, the retailer operates warehouses in each country where it sells to ensure speedy delivery. It has offices on the ground in each market where local employees respond to trends and cultures. Regional buyers select products to sell based on country-specific styles. Muslim Wear is a popular category in Malaysia that includes traditional hijabs, kaftans and jubahs. By contrast, fast-fashion trends—more recently black-and-white striped ensembles—move quickly in the Philippines.
Even with its understanding of the markets it is selling in, Zalora has run into a few bumps and bruises as it has grown.
Building trust with first-time online shoppers is key to building an e-retail brand in the region, Costa says. Zalora learned that the hard way when it first launched and was flooded with more orders than it could handle. That resulted in the retailer failing to live up to its guarantee of delivery in five to seven days.
To speed shipping times, Zalora began operating its own fleet of delivery vehicles, and now offers same-day delivery in some major cities and delivers all orders within three days. Shoppers also can pay with cash on delivery. In some countries, including Vietnam and Thailand, 90% of shoppers choose that option, Costa says. “You have to take the time to set up your operations efficiently,” Costa says. For example when Zalora’s order volume spikes it now shifts employees from returns to packaging and shipping.
In Japan, retailers face a different set of consumer preferences. Japanese consumers are web-savvy—80% of them have web access and 97% of Internet users in the country shop online, according to global e-commerce platform Ekos Global Ltd.—and they want rewards for making purchases, says Seichu Mastada Kobayashi, managing executive officer and director of Japan-based Rakuten Inc., No. 20 in the Asia 500. “Japanese consumers are big fans of loyalty programs, which offer numerous ways to save as you spend, and can influence shopping habits,” he says.
Rakuten Super Points, which launched in 2003, enables shoppers to earn rewards points at the some 42,000 stores on the Rakuten Ichiba online shopping mall, as well as on the various services offered by Rakuten Group. For example, consumers can earn Super Points in bricks-and-mortar stores by using the Rakuten Card credit card and when they pay using Rakuten Edy e-money, an online payment service similar to PayPal.
In October 2014, Rakuten launched the R-Point Card Service in Japan, an offline extension of the Rakuten Super Points program, which allows members to use their Rakuten Super Points for purchases in physical stores throughout Japan. When fully rolled out, the service will be available at approximately 12,600 stores nationwide, Kobayashi says.
Numbers illustrate how the loyalty play has helped Rakuten grow its web sales in Japan over the past decade, but they also show that its growth may be tapering. Rakuten grew its Asian web sales an estimated 1.6% to reach $758.64 million in 2014 compared with $746.82 million a year earlier. A major reason for the tepid growth could be that the company already accounts for one-third of e-commerce transactions in its home market of Japan, the retailer says. To drive more growth, Rakuten is expanding its marketplace into new Asian countries like Thailand, which it entered in 2009, Indonesia (2011), Malaysia (2012) and Singapore (at the start of last year).
Rakuten, also has recently bought several e-commerce-related companies, says Yaz Iida, CEO of Rakuten Marketing. For instance, in February 2014 it purchased the Viber app for $900 million, paying $1 per user for its 900 million users across the globe. Viber is a mobile messaging app similar to WhatsApp and is strong in Europe, Asia and Israel, Iida says.
Iida sees a “whole range of scenarios” for incorporating Viber into other parts of Rakuten’s ecosystem. “The key is we have access to millions and millions of mobile users,” he says. “In some countries people don’t even use a PC. We can reach more consumers via this messaging app—where they are coming online first.”
Indeed, mobile traffic is a big part of Rakuten’s business in some countries. In Taiwan, for example, half of Rakuten Taiwan Ichiba’s web site traffic came from mobile devices as of March 2014.
South Korean marketplace and e-retailer Coupang, meanwhile, aims to exploit the country’s speedy Internet service—including its mobile networks—to sell via its own mobile site and app. “In Korea, people are streaming HD video on the subway,” says Coupang founder Bom Kim, “So people’s expectations for mobile are high.”
South Korea is a prime location for an online seller—especially one focused on mobile shoppers. The country’s mobile web speed is the fastest in the world—clocking in on average at 18.2 megabits per second as of the third quarter of last year. That’s nearly 171% faster than Japan’s, which has the third-fastest mobile Internet speed at 6.7 megabits per second, according to content delivery network Akamai Technologies Inc. What’s more, South Korea’s average mobile Internet speed is faster than Japan’s traditional Internet speed: 15.0 megabits per second.
From its launch four years ago, Coupang has focused on mobile devices more than desktop computers and it offers a rich mobile site and app that is designed to be easy to use and fast to respond. Today, 70% of Coupang’s sales and 80% of traffic comes from mobile devices—mainly through Coupang’s app, Kim says. The Coupang app has been downloaded 19 million times, which in a country of 51 million people, suggests more than one out of every three South Koreans in the country of 51 million may have tried the app. And many of them are buying. Coupang booked $1 billion in mobile gross merchandise volume over the past year. Coupang did $6 million in online sales in its first year. Just a few months ago, on a typical weekday for online sales in the country, Coupang raked in more $12 million. Today, the annual value of goods sold via Coupang is nearly $2.2 billion, Kim says.
Zalora also is aiming to reach Southeast Asia shoppers in places they already frequent—stores. To introduce its brand to consumers in Southeast Asia, many of whom have likely not yet made a purchase online, Zalora recently launched pop-up shops in Singapore, in Jakarta, Indonesia, and in Penang, Malaysia. In the shops, consumers can try on products and a store associate will show her how to find and purchase her selection online. The aim is to familiarize her with shopping Zalora’s e-commerce site so she will come back and buy again.
“We are testing out the model,” Costa says. “We are planning to keep each store open a few months, and we are using it as a way to penetrate new cities.” While he won’t share specific results he says the cost to acquire new customers at a pop-up shop so far is much lower than the cost to gain a new shopper via online marketing.
Zalora is an agile and growing startup testing the waters with innovations like pop-up stores. However, even behemoths like Wal-Mart Asia., ranked eighth in the Asia 500 with $2.348 billion in 2014 web sales in the region, realize the importance of understanding and adapting to local shopping trends in Asia. To meet a rising appetite for online food shopping in Japan, Wal-Mart announced late last year it will expand the fulfillment capacity and invest in e-commerce initiatives for Seiyu GK, a Japanese grocery chain and web merchant it acquired in 2008.
Seiyu, founded in 1946 and now one of Japan’s oldest grocery and general merchandise retail chains, says it will expand its online grocery operation at Seiyu.com over the next three years.
Seiyu, which operates a network of 373 stores across Japan, also expects to offer online grocery delivery throughout the sprawling Tokyo metropolitan area by 2017.
The move comes amid growing demand for online grocery home delivery in the greater Tokyo area. In addition to Seiyu, such other major retail chains as Ito-Yokado Co., Aeon Co., The Maruetsu Inc., Tokyu Store Corp., Kinokuniya Co., Summit Inc. and Izumiya Co. also are offering online food shopping and delivery services, according to the Japan Ministry of Economy, Trade and Industry.
Japanese shoppers can also purchase food and beverages online from Amazon.com Inc., the fourth-largest e-retailer in the Asia 500, and Rakuten. As of 2012, online food sales in Japan totaled about $5.32 billion, and those sales have been growing at an annual rate of about 22% in recent years, according to a March 2014 report on Japanese e-commerce from the U.S. Department of Agriculture Foreign Agricultural Service (USDA FAS).
Nebraska-born e-commerce entrepreneur Jason Morgan, who calls himself The Meat Guy, says he’s seen firsthand the rise in online grocery shopping in Japan. Morgan operates TheMeatGuy.co.jp, which sells specialty meat online—think juicy, thick slabs of steaks and pork ribs, BBQ and specialties like Irish sausage. Between 85% and 90% of his sales are direct to consumer, mostly to wealthy Japanese men between 40 and 60 years old. The rest of his revenue comes from wholesale transactions. Sales have been growing 25% to 30% annually for the last three years, he says. The company ships about 300 packages per day on average, with peak days brushing 1,000. The Meat Guy sells via its own web site as well as on such storefronts as Amazon, Rakuten and Yahoo Shopping in Japan.
Online grocery sales are growing in Japan for a few reasons, Morgan says. The web gives Japanese shoppers access to a wider variety of products in quantities that are difficult to get at local stores and may be difficult to carry home in crowded cities where consumers are frequently on foot. And delivery of perishable goods in Japan is fast and inexpensive, he says. The nationwide network of low-cost delivery services in Japan can typically ship packages anywhere in the country (except Okinawa) within a day at controlled temperatures (such as chilled or frozen), according to the USDA FAS. The two courier services The Meat Guys uses pick up frozen meat daily in refrigerated trucks from his warehouse freezers and about 80% of orders reach shoppers the next day. The rest are delivered within two days. Delivery prices for such perishable goods are modest, Morgan says, costing about $8 for up to 15 kilos (30 pounds) of product.
After 18 years in the business, Morgan has observed how Japanese consumers like to shop. For example, he says Japanese rely heavily on word of mouth and reviews. According to a 2013 government survey, 39.1% of Japanese consumers count on online reviews or word of mouth for information when shopping online, ahead of search engine results (32.6%) and product suppliers’ web sites (32.2%).
Morgan adds that while many U.S. consumers shop online because it is faster and offers the lowest prices, Japanese shoppers want to be romanced.
On that note, The Meat Guy strives to tell a story about its products. When shoppers buy a steak from The Meat Guy they know if it came all the way from Nebraska. They can view images of the family ranch that raised the animal and read about how the ranch manages its herd.
Iida of Rakuten agrees. “U.S. consumers prefer efficiencies,” he says. “If you go to Amazon.com and you know what you want you can buy it very easily. Japanese shoppers want the story behind the product and to discover the product, even if it’s toothpaste.” Hence Rakuten’s tagline: Shopping is Entertainment.
From wooing the Japanese, to identifying the most popular mobile apps in Thailand to building consumer trust through pop-up stores in Malaysia—e-retailers successfully selling into Asia apply unique sales and marketing strategies to each country. Asia is a continent of widely varying cultures, and when it comes to selling online, the local route is the best option.