Online commerce or e-commerce has changed the way people shop all around the world. In what ways has Covid-19 played the role of an inflection point in this business and what are some of the most important trends you are seeing when compared with pre-Covid times?
E-commerce has always shown great promise in Southeast Asia. Not only is it home to a large population of young and digital-natives (~200 million), Southeast Asia is also one of the most connected regions in the world, with consumers who are amongst the most engaged mobile internet users globally. Bolstered by such a conducive environment for e-commerce to thrive, it is no wonder that the internet economy reached a peak of $100 billion for the first time in 2019, and is expected to grow to $300 billion by 2025, according to a 2019 study by Google and Temasek.
However, e-commerce penetration levels have been low at a 5-7% range vs. US at 25% and China at >30%. The COVID-19 crisis is accelerating this adoption across categories and in the span of just a few months, an unprecedented number of consumers have begun trying and adopting digital. Recent reports have emerged highlighting shifts in consumer behaviour – for instance, Facebook and Bain’s report showed that 85% of survey respondents in Southeast Asia have tried new digital apps, such as e-commerce and digital payment platforms during Q1 of this year, while a report by Unicommerce illustrated a 53% year-on-year growth in e-commerce adoption in Tier 3 markets in India since the pandemic began.
This is similarly reflected in our business as well, with more than two million users downloading the ZALORA app in Q2, and the share of new consumer contribution to revenues increasing by more than 100%, highlighting an encouraging trend of new customer adoption.
The demand and consumption patterns for product categories have also shifted dramatically. For example, we are now seeing an increase in consumers seeking more value-for-money items, and are pivoting their needs towards personal wellbeing and essential products. Within the Lifestyle segment, we are seeing a bigger demand towards the sports and wellness, loungewear, beauty and kids categories. In fact, these categories at ZALORA have grown by 70%-100% as people continue to stay home due to social distancing measures. On the other hand, occasion wear products have seen a decline as compared to pre-COVID-19 levels. Also, contrary to popular belief, Luxury items are still selling well, although value-for-money and classic pieces are what consumers are investing in.
Another interesting trend is that consumers have become more aware of the impact of their shopping habits on the environment. This was reflected in a study by Accenture, where 62% of consumers said they had become more aware of climate change and more conscious of their actions on the planet. Hence, I expect sustainable fashion to gain more traction in the future.
Given the shifts in consumer behaviour and the increasing reception towards online shopping, I do think that there are a lot of opportunities in e-commerce for businesses to capture. However, this requires businesses to be nimble and agile, especially when it comes to building and sustaining supply and fulfillment infrastructures. This has been a big stumbling block for a lot of brands now seeking to go digital or seeing a much higher-than-planned traffic on their e-commerce platforms. Hence, ZALORA recently launched a service where we can fulfill brands’ e-commerce orders from a single stock pool maintained in our warehouses, so that they can benefit from our pan-SEA logistics infrastructure.
All in all, this crisis will definitely help digital business adoption to go up.
Ananth Narayanan, CEO, Jabong and Myntra and your former colleague had once said — “Gunjan is an outstanding leader at Myntra and Jabong. Her insights and deep understanding of the digital consumer have helped us turn the business around at Jabong.” From McKinsey to Star India to Flipkart and now to Zalora, how do you think the digital consumer has evolved during your professional stint and what are some of the learnings from India and Southeast Asia that you would want to cross-pollinate in the sector?
Digital consumers have always been fast evolving and a lot has changed since the early 2000s. The number of online consumers itself has risen dramatically within India with internet penetration increasing year on year. In fact, in 2017, there were just 446 million people online, but this number is expected to go as high as 829 million by 2021, as a result of easier and more affordable data access. The story is the same in Southeast Asia, and now with the impact of the ongoing pandemic, we will probably see a decade’s worth of action within the next few months alone!
Here are some of the shifts that I have witnessed and some that I foresee:
Rise of programmatic: Marketing has evolved immensely, from baby steps on digital to programmatic, automated and digital spends now becoming large and significant at over 20-30% at even non-digital native companies. Content and media consumption has been evolving and so have platforms of choice for young early adopters – from Facebook and Instagram to Tik Tok. Text also gave way to more images which are now giving way to video consumption and other variations of short-form content.
Rise and rise of the ‘influencers’: Influencers have always played a big role in shaping demand and preferences – but who an influencer is has evolved dramatically from the 2000s, when only big celebrities could be influencers, to now when social media, YouTube and Tik Tok stars have their own huge followings. Social media has given normal people an opportunity to build their own brand through stimulating content and engagement. These new influencers are more relatable than traditional celebrities. About 71% of consumers are more likely to make a product or service purchase online based on social media referrals. It is then not surprising that as an industry, influencer marketing has expanded exponentially over the past two years. Worth just $2 billion in 2017, the industry is set to reach $10 billion by this year. ZALORA too has worked with influencers across our markets to localise our reach and create locally relevant content for us and our brand partners.
An even higher pace of consumer tech innovations to serve demanding Gen Z & Gen X consumers: As technology has evolved, so have consumers and their demands. To share an example, online fashion size and fit has been the biggest barrier to adoption. Hence, companies started with Cash on Delivery (COD) and easy returns as one evolution. Then the rise of data and Artificial Intelligence (AI) capabilities made way for better size suggestions being available – and soon, shifts in Augmented Reality (AR) and Virtual Reality (VR) technologies will enable an even better execution of virtual trials, which are not only immersive, but highly engaging.
Shift towards sustainable consumption: Consumer sentiment is also shifting rapidly, and according to the 2019 Report by First Insight, 62% of Generation Z prefer to buy from sustainable brands, and a majority (54%) state that they are willing to even spend an incremental 10 percent or more on sustainable products. These figures are telling; they reveal to us that the future demands a fresh perspective on fashion and how we consume it. ZALORA’s access to the entire fashion ecosystem allows us to work with various partners to introduce more sustainable ways of embracing fashion. Earlier this year, we launched our Sustainability Strategy and gave ourselves targets to achieve in the next five years in order to create a more sustainable fashion eco-system in Southeast Asia. In the last few months we have launched our “Pre-loved” category promoting circular fashion starting first with luxury, we also started our Sustainable tagging on our website and app, giving consumers the right to choose and buy products that use sustainable materials and/or has gone through sustainable production, and we also launched a successful capsule collection with Tencel, our first collection made entirely of sustainable materials, which was well received by our shoppers.
On your other question, having worked in India, I think agility, innovation and the ability to localise offerings are key to e-commerce success. Similar to India and its diverse regions, Southeast Asia is incredibly expansive and diverse, so any lapse between identifying shifts in trends, and addressing those can make the difference between success and failure. Fashion and lifestyle have always mimicked cultural preferences and evolution, as it is a vehicle for self-expression.
The world today is awash with data. How is the ZALORA group using data tools to navigate the changes brought on by the pandemic? Specifically, what are some of the key technologies the group is investing into?
Having data in today’s world for any digital business is a given – and what I believe gives us an edge is leveraging it for actionable insights and data-powered decisioning tools.
We have our own Data Sciences Innovations Lab, which not just processes huge amounts of data for enabling daily operations and live dashboards, but builds innovative tools using cutting-edge technology especially machine learning and AI. For example, two such tools that are very powerful in our kind of business are ‘Buying manager’, which powers our inventory buying decisions, and ‘Campaign manager’, that automates targeted campaigns for relevant customer segments.
We are also leveraging this strength of ours to help our brand partners, especially now when COVID-19 is changing consumer buying patterns dramatically and brands need insights to change their production plans and supply chains. This is why we launched TRENDER in April this year, a data-solutions service that aims to help brands do away with the guesswork for their marketing, merchandising and designing-related decisions. We help them by giving them easy and digestible access to trends and insights, along with benchmarks at geography and category/sub-category levels for various consumer segments and related purchasing behaviour.
For example, tapping on our data pool of a decade’s worth of fashion insights, we are able to pinpoint trending colours, materials and styles to work into the next season’s collection for designers, and margins and risk identification to help merchandisers better understand who their customers are, as well as their purchase drivers and retention factors. In view of the pandemic, we also released a specific COVID-19 Dashboard to help brands better understand the movements in retail trends during this period. For example, with this dashboard, brands can gain insights into changing shopping behaviour pre- and post-pandemic by age, group, category, price points and discount propensity.
You just hired a chief people officer in the form of Louise Pender. Does this mean that the Zalora group is getting ready for “expansion” mode and hiring more people in technology, research or other divisions? What seems to be the long-term strategy here?
We have always been hiring as needed, and we will continue to do so. During a pandemic like this when a lot of people are losing jobs, we are in a fortunate position to be a growth business, thanks to the resilience and agility the team has shown. This means we definitely look to support the reinvigoration of the region’s economy and job creation, as well as to drive our various innovations and initiatives. In fact, we are focused on making ZALORA one of the “most desired places to work”, and creating a workplace where people feel valued and appreciated. In particular we are expanding our share in Kids apparel and footwear, Beauty, Luxury and Home & living segments and working on new consumer technology features to help unlock further adoption. All of these keep our hiring teams quite busy indeed!
With governments now looking to unlock economies with change in lockdown protocols, fiscal packages, and targeted campaigns (PENJANA’s Micro and SME’s E-commerce campaign), how will the shopping behaviour change both in terms of physical or online retail in the long run? Is “phy-digital” the way forward and what will this do to payment technologies?
Following the onset of COVID-19, retail businesses are beginning to realise that digital can no longer be optional in their strategy, and many have started adopting an omni-channel approach. This includes investing in and making the move to e-commerce, in order to secure long-term business success and secure customer retention.
As online shopping is here to stay, we are encouraged by the emergence of targeted e-commerce campaigns that help to boost the industry’s growth. For instance, we are supporting the accelerated shift towards e-commerce platforms by adding more brands to our portfolio, and expanding our product categories to meet changing consumer needs and demands. We are also working with the Malaysian government to help drive business digitalisation amidst the current shift to e-commerce, under the PENJANA Economic Recovery Plan’s “Micro and SMEs E-commerce Campaign”. As part of this collaboration, we have launched the ‘Shop Malaysia Online’ campaign on our website to help local companies expand their consumer reach in Malaysia and beyond.
Looking ahead, I do believe that the line between digital commerce and physical retail stores will begin to blur as more companies look to create an omnichannel ecosystem that integrates both their digital and brick-and-mortar presence. With consumers becoming more comfortable with online shopping and the convenience that comes with it, they will also continue to be on the lookout for engaging and seamless omnichannel experiences even after the pandemic has stabilised. This includes more immersive shopping experiences that will be demanded both in physical stores and in the online space, where AR and VR tools will become key in the future. Incidentally, this is also an area where we, at ZALORA, are investing a lot in.
All of this is already impacting the payments ecosystem and this will continue to evolve. With digital payments increasingly being offered by non-banks or technology companies, and digital banking beginning to take flight in Southeast Asia, a lot of innovation in this space can be expected.