Lazada Plans to Dominate All SE Asia Markets

Lazada Group CEO Pierre Poignant shares with CNBC Journalist Christine Tan why Lazada has the fundamentals and the right strategy to win every single market in Southeast Asia. 

Christine Tan (CT): As part of the founding team and now CEO of Lazada, do you remember the day Alibaba made the announcement in April 2016 that it was going to buy a controlling stake in a company?

Pierre Poignant (PP): It was a milestone as part of a broader journey. I think our goal is to build the largest e-commerce platform in Southeast Asia. Our dream
goal is to serve 300 million consumers. I think Alibaba coming in as a backer, we could look further and say, hey, we will be able to achieve this.

CT: So, it was another leg of growth for you?

PP: It was another leg of growth for us. It was an access to a massive ecosystem, access to a lot of technology, a lot of resources, which we are still
only starting to capture some of the synergies.

CT: Alibaba has pumped in something like $4 billion into the company. How much have you benefitted from Alibaba’s know-how in e-commerce
and how much have you changed your business model as a result?

PP: A major milestone in terms of synergies and working together was in 2018 when we deployed Alibaba technology. Being on the same platform has enabled
us to tap into the resources of Alibaba in terms of personalization of the platform and the ability to handle consumers’ and sellers’ data. We are now using the
cutting-edge platform in the world. It has also enabled us a much faster pace of innovation because we can just take some of the components from the Alibaba
ecosystem and deploy them in Southeast Asia. Overall, it has also helped us to grow our seller or supply base because a lot of seller brands have been attracted
by the platform and hopped onto the bandwagon.

CT: What else in Alibaba’s arsenal do you want to tap on?

In the future, I think we really work on business synergies. To give you an example – last December, we started to enable our brands to sell into China. During 11/11 and we had a hair care brand Ellips from Indonesia that started to sell into China, getting 40x sales in one day. We also have a lipstick brand called Sunnies Face from the Philippines now selling into Tmall Global – top three in the category of lipsticks in Tmall Global. That’s just an example that showed the huge potential for Southeast Asian brands to tap into new market opportunities – PP

CT: You think having all that access to Alibaba’s e-commerce know-how and knowledge has put Lazada light years ahead of its competitors in the industry in Southeast Asia?

PP: We have the largest consumer base in Southeast Asia. We are also the fastest growing platform. We just closed five quarters of above 100 percent growth. So, we believe we will continue on that trajectory, yes.

CT: What does it mean to be under Alibaba’s control and ownership? I understand at the beginning, Alibaba brought in some Chinese executives to help run some of these markets for Lazada. Were Lazada employees used to the Chinese way of doing things? How difficult was it to integrate two very strong and distinct corporate cultures?

PP: So, I think integration is as you rightly point out about technology, and as I mentioned, people. And then afterwards, through battles and objectives, we get
there together and build the joint culture. So, of course, in that process, there are hiccups. There are tensions sometimes.

CT: What kind of hiccups and what kind of tensions?

PP: You mentioned it yourself, when you have two distinct culture with people with strong ideas, strong minds coming from different background, when they
discuss about strategy, sometimes they disagree. They disagree on what needs to be done. That’s the kind of tension we had.

CT: So, Lazada has over 30 warehouses in 70 cities in Southeast Asia. How much have you leveraged on Alibaba’s expertise when it comes to building your logistics and your supply chain?

Logistics has always been a core asset of Lazada. That was one of the reasons why Alibaba invested. Since the integration, in terms of technology, we’ve leveraged a lot of the tech from Alibaba. We are also leveraging their expertise in design of warehouses. For example, we are building a mega center in Thailand and another one in Malaysia. So, a lot of synergies – PP

CT: You make it a point to own your own supply chain. Why is that?

PP: What is very important in e-commerce is to deliver very good consumer experiences. To do so, being able to control the logistics, being able to control
the parcels, how they flow in the network gives us a very strong competitive advantage.

CT: Isn’t it also more expensive as a result?

PP: If you design the logistics network tied with the platform, we can be more efficient than just relying on third-party players.

CT: A large population of Southeast Asian consumers, they don’t have bank accounts. They still pay a lot of the deliveries by cash and you are trying to solve this problem by offering an e-wallet, a payment system which you’ve merged with Alibaba’s Ant Financial. What’s the progress you have made in shifting consumers from cash to online payments?

Seventy percent of the consumers are underbanked in Southeast Asia. We’ve done this as a big opportunity. We have the largest cash-on-delivery network in the region and that enable 85 percent of the consumers, when they experience Lazada for the first time, buy cash on delivery. But now we’re rolling out a wallet. Today there is around 10 million users, 10 million active buyers on our wallet and we see very fast growth in all of our markets using this technology – PP

CT: How much could you shift online payments in the next few years?

PP: Ultimately, when we look at five, 10 years down the road, we believe more than 80 percent of the payments would be online.

CT: So, after its founding in 2012, Lazada now has 60 million active buyers. What are your revenues like? How fast are you growing?

PP: Today, we are on a trajectory for the five past quarters to grow triple digits across all our markets. In terms of revenue, we don’t disclose this number. We
are focusing on the engagement from consumers and the engagement from our sellers on our platform.

CT: Are you profitable?

PP: When it comes to profitability, what matters is to have a very clear plan and business model, which we are extremely confident of in the future for profitability.Today we’re still investing in this market. Our goal is to grow our consumer base to more than 300 million consumers in Southeast Asia, and that will take time.

CT: Is there a timeframe you look to, to be profitable?

PP: We have clear plans in place to be profitable in the coming years, but we’re also very reactive to the market and the opportunities around us in terms of
growing our consumer base.

CT: I understand that e-commerce adoption in Southeast Asia is only a meagre 3 to 4 percent. How much could this grow for you in the next couple of years?

PP: If we look at China for example, we are above 15 percent already. I believe a lot of the fundamentals in Southeast Asia are very similar to what’s happening in China. So, we are confident that we will triple, quadruple this number in the next couple of years.

CT: Where is that growth likely to come from? Which Southeast Asian market?

PP: Today, the fastest growth is coming from Indonesia for us. But we are also seeing countries like Vietnam getting into e-commerce very quickly. These are
our two biggest pillars today.

CT: You’ve got lots of local competition coming from Indonesia especially – Tokopedia, Bukalapak, Sendo in Vietnam, Qoo10 here in Singapore. Do you think Lazada has what it takes to dominate every single market in Southeast Asia?

PP: We believe we have the fundamentals and the right strategy to win Southeast Asia and to win in every single market, yes.

CT: What about Indonesia?

PP: Indonesia is our largest market, fastest growing.

CT: But you are not number one there?

We’ve been present in Indonesia since 2012. We have for example an initiative – an online shopping festival in 2012. Since then, Indonesia has been the largest market for Lazada. Today, it’s our fastest growing market. Today, we’re the largest fashion player in Indonesia, which is our strongest category. We have the largest logistics network in Indonesia – PP

CT: But can you be the number one largest e-commerce player in Indonesia?

PP: We believe we’ll become number one, yes.

CT: After Alibaba bought over Lazada, you went and went you went ahead and acquired online grocery store RedMart. How lucrative is the online supermarket business?

PP: RedMart is a very important part for our offering in Singapore. If you’re live in Singapore, RedMart is a beloved brand with all of the Singaporeans. So, we don’t look at RedMart as a sliver of the business, we look at the Singaporean business alone. What groceries bring is a lot of engagement, a lot of recurring consumers. It helps to build up the basket, build up the wallet share of e-commerce in Singapore. In that, we’ve been extremely successful.

CT: Are you open to acquiring other online grocery stores in some of the other markets in Southeast Asia?

PP: We don’t have anything specific coming up, but we are always open to opportunities in Southeast Asia, yes.

CT: In terms of integration, I understand there were some issues when you tried to integrate RedMart app into your Lazada platform and some users were unhappy as a result. What happened? What went wrong? What were some of the mistakes you made?

PP: RedMart had a very grocery specific experience in terms of technology. Lazada was more general merchandise kind of technology. When we brought RedMart into Lazada, there were actually some user experience issues. We listened to our consumers who provided us very direct feedback. And we incorporated a lot of these changes. I believe we’ve addressed most of the concerns in terms of user experience. We are improving month on month.

CT: So, you’ve got your grocery business. You’ve got your e-commerce business. You’ve got your LazMall which takes care of brands. You’ve got a little bit of a gaming business called LazGames. What other categories do you want to get into next?

PP: What we see very promising today are digital goods, for example, our digital services where we sell services that users can redeem offline afterwards. This is
a very, very fast-growing category for us.

CT: So, Pierre, you’re the third CEO in Lazada eighth year history. You’ve been the startup’s Chief Operating Officer before being appointed CEO in December 2018. How has the management and leadership of the company changed since it was bought over by Alibaba?

PP: I am a founder of this company and I have deep passion for Lazada. In many ways, the way we run the company has not changed that much. What we want is
to achieve our dream. What we want is a build a great company, and that has not changed.

CT: You’re French, graduated from M.I.T., you worked at McKinsey offices in Paris and Singapore before joining the startup as Chief Operating Officer, now the CEO. How would you describe your management style?

The job of a CEO is to run the business, so what matters is setting the direction, making quick decisions and getting results. That’s number one. The other thing that is very important as a CEO is to build your team. The way I work with my team is to basically empower my colleagues a lot in what they want to achieve, and that’s what I really enjoy doing. Last but not least, I think it’s all about the culture. As a founder of the company, I have deep passion for Lazada. I love the company. I want to see the company succeed. That’s what drives me every day when I wake up – PP

CT: You report to Lucy Peng who is the Executive Chairwoman, formerly part Alibaba’s Ant Financial. What’s it like to report to a Chinese ecommerce giant? What’s it like?

PP: Lucy has been the Chairwoman of Lazada for more than two years now. Working with Lucy is very, very interesting. She decides the dream goal for you, and she worries a lot about the people. How do we make sure we build the greatest team? How do we make sure we empower our colleagues? This is what matters a lot to her, and I’ve learnt a lot from her on these aspects.

CT: You talk about a lot of vision and empowerment, but reporting to Alibaba, is it all about numbers as well?

PP: At the end of the day, we run a business, so we need to get the results. So, of course, our shareholders look at that very closely. But Alibaba also knows
what it takes to build a successful e-commerce company. So, it’s not about the quarterly results, it’s not about the sales numbers, the vanity numbers that I can
show every quarter, it’s about do I have the right fundamentals in the platform to be successful in the future in the next three, five, 10 years? That’s what matters to Alibaba.

CT: And finally, as CEO of Lazada, what impact do you want to make?

PP: I mentioned it to you before, I love the company. I founded the company. What gets me going is to make the company successful and have an impact in
our ecosystem in different economies. Ten years from now, I want to turn back and say, “We made a difference in the digital economy of Southeast Asia”. We
are creating new businesses. We created new opportunities, and we changed the way people consume.

(Ed. This is an edited transcript from CNBC’s Managing Asia 13 March 2020, 5.30PM SG/HK episode, provided courtesy of CNBC and Christine Tan.)