The growth of e-commerce sales has been accelerated in the wake of the COVID-19 pandemic, as brick-and-mortar retail outlets were temporarily shut down during the stay-at-home period, with 70% of Southeast Asian consumers, about 310 million people, consuming online by the end of 2020, according to a research report conducted by Facebook and Bain & Co.
Thailand-based digital fashion startup Pomelo is among the e-commerce players that have reaped some benefits from the pandemic crisis. “Our offline business was closed for eight weeks, which prevented people from going to the physical stores, and that accounted for about 30% of our sales. Fortunately, the e-commerce business really took off. The month after COVID-19 and the lockdown started, our e-commerce business grew by 250%. We were able to maintain that through the lockdowns, and even after the lockdowns,” David Jou, co-founder and CEO of Pomelo, told KrASIA.
Jou, also co-founder and former managing director of Lazada Thailand, a top e-commerce platform in the region with more than 50 million yearly active users, founded Pomelo in 2013 when he noticed the gap between the general e-commerce marketplace and vertical e-commerce platforms with one specific focus.
Since its launch, Pomelo has leveraged its online commerce platform and offline presence, allowing customers to narrow down their choices online and send the desired pieces to brick-and-mortar stores to then try on. In September 2019, Pomelo raised USD 52 million in its Series C round, bringing the total funds to USD 83 million.
KrASIA recently spoke with Jou on how the fashion e-commerce industry could capitalize on the explosive sales growth after the pandemic, and about the next big trends in the region’s e-commerce sector.
The following interview was edited for brevity and clarity.
KrASIA (Kr): Online shopping always seems fast and easy to the eyes of consumers, however, what are the pain points of online shopping for platforms like yours? What is Pomelo doing to address them?
David Jou (DJ): The signature experience of Pomelo is ‘tap, try, buy’. You can order anything just by tapping the product online, then you go to different offline locations to try it on, and walk out with the things that you like. The process is very fast. The reason that it has been so successful is that it’s really convenient. You get a personalized experience and rarely have sold-out sizes or colors. All of it, hopefully, can be tried on at a location that’s within half an hour away from where you work or live. That’s really our value proposition, compared to other fashion e-commerce sites. If you have the option of buying from Pomelo, Lazada, or Shopee, it’s a no brainer, as you can try everything risk-free at Pomelo.
Kr: How does Pomelo continue to innovate to make online shopping a more enjoyable experience?
DJ: We are the first company in Southeast Asia to tap into the exact same machine learning, personalization tools, and infrastructure that Amazon has built for Amazon.com, and we apply it to provide a personalized experience to our customers. The personalization platform considers preferences like brand, price, size, and color for each customer, so as to produce a fully personalized [online shopping] experience.
One of the biggest challenges is demand forecasting, meaning how can a business predict what styles are going to sell well or through what channels. We have an in-house machine learning model to predict the quantity of any given new style and how many units are going to be sold. Also, we can predict the sales curves, sizing distribution, among others, allowing us to be more accurate in terms of inventory management.
Kr: What’s next for Pomelo to sustain growth?
DJ: One of the biggest drivers of our growth has been opening more physical try-on points. COVID-19 has allowed us to expand to open more locations, given the low demand and high supply in the [brick-and-mortar] retail market at the moment. While other platforms are being a little bit more cautious in terms of new location openings, we’ve been quite aggressive in opening new physical stores. In the last seven weeks, we opened five new stores and we will continue to open stores at a very rapid pace in different cities like Jakarta, Kuala Lumpur as well as in countries like Thailand and Singapore.
Kr: What are the lessons that can be learned from big e-commerce players in the region?
DJ: The first thing is that you need to be able to make all customers your customer. One of the limitations of fashion e-commerce companies is that they only focus on customers who are comfortable buying fashion online and have it delivered at home, which only accounts for 5% to 10% of the customer segment.
The second thing is that a lot of e-commerce companies traditionally use performance marketing like data on Facebook, Instagram, and Google to acquire new customers. The truth is that, though effective, it’s very very expensive. It makes it difficult to be profitable.
The third thing is the hidden costs of returns. For fashion e-commerce firms, every single order may generate a return; sometimes the items are damaged, e-commerce businesses have to pick them up while customers don’t pay for it. It’s a huge cost to companies.
The last thing is that online marketplaces or platforms only take a portion of the sales as margin, and the platforms have to make everything work with the limited commission or margin. That’s what makes it so difficult.
Now, if you look at Pomelo, it’s a completely different story. We have our physical stores, so we are also not reliant on performance and paid marketing because a lot of people discover Pomelo in the malls. Our stores are actually profitable. We get a full margin on our products, not just a commission, as we control everything from manufacturing to sales. Plus, we don’t really have any returns. If you look at it in all those different ways, you know our business model is meant to not only provide a great customer experience but in the long term, it is financially sustainable.
Kr: Does replicating the Chinese e-commerce model still work in the region?
DJ: Innovation is really important to us. When we think about problems, we may research and look at what is happening in China or the US, to try to understand if there are unique ways to solve the problem that makes sense for the local markets that we’re in.
I think that mindset has led us to a few different places. If you look at most of the [online] marketplaces, they have quite a different business model from ours. They don’t want to do physical stores as part of their online marketplace or they don’t want to do logistics, that’s pretty much the Chinese model. There are marketplaces that work, but they may not be profitable unless they have a really big scale, but that doesn’t mean they provide something better or something different.
Kr: What are the next big trends you see in Asia’s fashion retail sector?
DJ: I think one of the big trends is around content, while more and more people are looking for community. They’re looking for content to be inspired, instead of just looking for deals and promotions. That’s really one of the big themes, which is an area that’s really important to us too. We focus on creating great content, whether it’s live streaming on TikTok or on our social media channels.
The second big trend is really the community. How do we build a community of users who can get inspiration from each other to really express their personal styles? Another big trend will be around sustainability: more and more customers are demanding that companies have sustainable practices, like taking care of the planet and the natural environment. That’s another area of focus for us as well.