Lazada Group, the Southeast Asian e-commerce arm of Alibaba Group Holding, expects to see less competition in the once hotly contested region as the market adapts to a slowdown now that the worst of COVID has passed, according to CEO James Dong.
How might competitors like the much larger Sea lose ground?
“The biggest differentiation and long-term entry barrier [for e-commerce platforms] is technology,” Dong told Nikkei Asia in a recent interview. “Second, of course, is funding.”
Dong’s comments follow a fresh cash injection by Lazada’s Chinese parent company. According to recent regulatory filings in Singapore, Alibaba in late August invested USD 912.5 million in the platform, bringing the total this year to almost USD 1.3 billion. Alibaba had also made an investment in May.
The massive funding gives Lazada a “very big advantage” over its regional e-commerce peers, Dong stressed, allowing it to “stay in this game for much, much longer.”
Lazada’s newfound financial muscle contrasts with the condition of other Southeast Asian e-commerce players, which are fighting through atrophying demand, significant market valuation losses and market uncertainty as economies reopen from the pandemic and Russia’s war in Ukraine creates new shortages, sends prices higher and weakens consumers’ buying power.
Most notably, Sea has been forced to downsize its business. Growth—once spurred on by pandemic-induced demand for home shopping and other services—is weakening, putting Sea, backed by Alibaba rival Tencent Holdings, in a bind made all the tighter by the company’s expensive marketing efforts.
For the first half of this year, the operator of e-commerce platform Shopee posted a net loss of USD 1.51 billion, wider than the USD 855 million net loss a year earlier.
Since its debut on the New York Stock Exchange in 2017, Sea has invested heavily in marketing—from the signing of soccer star Cristiano Ronaldo as brand ambassador to providing generous discounts on its platform—all made possible by the abundant capital it raised from its listing.
Shopee has overtaken Lazada as Southeast Asia’s biggest e-commerce platform. For fiscal 2021, Shopee’s gross merchandise value was USD 62.5 billion, up 76.8%. Lazada’s GMV was USD 21 billion for the year through September 2021.
But amid a global tech sell-off and investor focus on profitability, Sea has shed over USD 170 billion, or 86%, of its market value, since its peak last October, making it harder for the company to raise additional cash.
“Now after the pandemic, and with the whole market slowdown, it is obviously a tough time for all the players,” Dong said, noting that online demand is “normalizing quite a lot.”
“It will last for another few quarters, at least,” he added.
Shopee this year has exited multiple major European and Latin American markets. The company has been reducing head counts in its Southeast Asian markets, on top of top management cutting their own salaries and tightening company expense policies.
Dong differentiated his company from Sea by saying Lazada has “always been operating in a relatively sustainable way. … We’ve been here for more than 10 years.”
Still, Lazada is also being pulled by the changing tides. Alibaba’s international retail revenue—which includes Lazada’s business and other overseas operations—has slowed dramatically this year.
After Alibaba’s international retail revenue grew by double digits for each quarter of 2021, it slowed to USD 1.56 billion for the three months through March this year. That was still up 4% from the year-earlier period, but the April-June figure came in at USD 1.57 billion, almost flat compared to the previous quarter and down 3% year-on-year.
Dong, a former consultant who headed Lazada’s Vietnam and Thailand businesses until he was appointed to head the group in June, is leading Alibaba’s most cherished overseas business at a challenging time.
Lazada now has 150 million users in six Southeast Asian markets and intends to double the number by 2030.
One way the company intends to expand is by forming partnerships with traditional retailers, Dong said.
“We plug [our technology] into their system,” he said, “and [partners] plug into our ecosystem to provide service to our joint customer.”
In Vietnam, Lazada partnered with the Masan Group conglomerate, following a USD 400 million investment in The CrownX, Masan’s integrated consumer retail arm, through a consortium led by Alibaba and Baring Private Equity Asia.
Dong is also betting Lazada can bring in more customers by upgrading the user experience and technology. In this regard, it has been investing in livestream shopping and tailoring its apps to local markets.
“Consumers will switch platforms to get more benefits [like discounts] for sure,” Dong said. “But if everything is equal, they try to stick to the platform that they like.”
Despite reports that Lazada is eyeing European markets, Dong stressed the company “will continuously focus” on its six Southeast Asian markets, at least for the time being.
Dong declined to comment on how long Alibaba will keep funding Lazada but stressed the Southeast Asian e-tailer is “on a very good path to profitability.”
While the fund injections from the parent company help Lazada stay on its feet, learning how to sustain its business will be crucial if the platform does indeed covet European markets.