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Lazada foresees fewer players in rapidly growing e-commerce sector

Florian Holm (Courtesy of Florian Holm)Southeast Asia e-commerce platform Lazada, taken over by Chinese giant Alibaba Group earlier this year, has operated in Indonesia for four years with growth rates of 2

Dylan Amirio (The Jakarta Post)
Mon, November 28, 2016

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Lazada foresees fewer players in rapidly growing e-commerce sector



Florian Holm (Courtesy of Florian Holm)

Southeast Asia e-commerce platform Lazada, taken over by Chinese giant Alibaba Group earlier this year, has operated in Indonesia for four years with growth rates of 2.5 times per year in terms of orders. Lazada Indonesia’s co-CEO Florian Holm sat down with The Jakarta Post’s Dylan Amirio to talk about the state of the country’s e-commerce industry, which recently received government support in an economic stimulus package. Holm expressed optimism about the future of the sector, although fewer players will be seen in the competitive market. Here is an edited excerpt of the interview.

Question: E-commerce transactions in Indonesia are expected to reach US$24.6 billion this year, tripling the value three years ago in 2013. How has that translated into Lazada’s growth in transactions?

Answer: Acceleration of growth comes from areas outside of Jakarta. Growth was seen when we began to extend our free shipping outside of Greater Jakarta. When we started e-commerce there was a great concentration in that area. Why, because shipping outside that gets expensive. If you want to send an item that isn’t a smartphone, like a pullover, or whatever, the shipping costs will be overwhelmingly expensive.

Our logistics arm Lazada EX is roughly 2 to 3 years old and we are serving over 20 hubs, covering 80 percent of total population base. We introduced free shipping to about 30 cities outside Greater Jakarta where we subsidize shipping costs but also have the advantage of having quite a low base on shipping costs because we have our own service. And from there we saw a lot of growth.

At the same time, we also introduced a scheme that makes our merchants happier, offering them 0 percent commission. Another point is that we extended our cash on delivery (COD) payment option. It is an important method, especially outside Greater Jakarta. At the same time, we have small initiatives such as focus on social commerce.

Do you think that the amount of transactions on Lazada is beginning to disrupt traditional brick-and-mortar retail sales?


We are too small right now to make the big retail chains feel it. Now what’s important is the matter of growth and size. E-commerce penetration is now around 1 percent in Indonesia, as reported in that Google-Temasek report. The important point is that it’s growing very fast, but some readings for e-commerce are getting lower and lower. For one, shipping costs are decreasing. But maybe the effects will be felt in two or three years?

It’s like Amazon [in the USA]. In the first two, three years they were okay, but in five years, bookstores actually started closing. It took Amazon 15 years to do that. It is hard to see Lazada in the span of four years to have a major impact on the sales of big companies. Time will tell, but Lazada will reach that point and I am confident about that in Indonesia.

What about your market share in Indonesia?

What we know is that we are the leader judging by some brand studies. It’s like running a marathon. We have run the first 700 meters, I don’t care for now if I’m only ahead by a little. What’s important is that the foundation is set to be the leader in the future and grow in the future. Honestly, it’s not bad to be neck and neck with your competition. That inspires you.

What is your overall outlook on Indonesia’s e-commerce industry?


I think it’s very positive, but I also think that like in every other market, there will be consolidation. There will be fewer players as time goes by. E-commerce will grow, but there will be fewer players.

Players need to be attractive to merchants and customers in order to survive. If they cannot be both, they will not survive. You need a long-term strategy on how to reach customers, particularly on the shipping side. You need to be cheap, reliable and fast. If you take 10 days to ship, customers might go to other platforms even though shipping costs more.

Then on the customer side, you got to make the customer happy, you need to be engaging. You also want to convince the entrepreneurs selling on the site that you are a good platform for them.

What are the challenges in operating in Indonesia?

I think logistics is the biggest challenge; everything else comes afterward. Logistics is not discussed much because it’s a long-term game. I invest heavily in it. I also want to have an interface that is very engaging with the customer. You’d want your customer to go there to discover items. Usually discovery happens through Instagram, but I also want part of that discovery coming from our site.

What about Alibaba’s role in Indonesian operations?

There are no direct day to day effects following the Alibaba investment, so there’s no one telling us how to run the business. What we get from Alibaba is first, know-how. A lot of the growth phases we are going through right now, they have gone through it before. One of the things they helped us with was our seller center. They helped us rebuild that and make it better.

People have this idea that we received this “doping” pill as a result of Alibaba investment. And I tell them that their know-how means a lot to me. But it’s helping me a lot because e-commerce is a lot of trial and error. And of course every market is different. To get this knowledge and inspiration on what is working and what isn’t.

Lazada has been leading in Indonesia, and obviously Alibaba saw that and chose to invest. It’s not the other way around. You can say that their role is as guide and adviser. In terms of money, it’s a fixed sum that they gave us. In terms of time, we’re getting more than we’re trying to get.

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