How Lazada competes for the ‘king’ of e-commerce with Shopee in Southeast Asia

Lazada Group (Lazada) – Alibaba’s extended “arm” in the field of e-commerce in Southeast Asia – expects competition in the region to ease when the Covid-19 pandemic passes, CEO James Dong said. share the same with Nikkei Asia .

“The biggest difference and also the long-term barrier to entry [for e-commerce platforms] is technology ,” said Dong. ” The other thing, of course, is capital ,” he added.

The view shared by Lazada CEO after Alibaba’s latest “money injection” into this e-commerce business. In August 2022, Alibaba poured another $912.5 million into Lazada, thereby bringing the total amount invested in this e-commerce platform since the beginning of this year to $1.3 billion.

Dong emphasized that the investment gives Lazada a ‘huge advantage’ over regional e-commerce platforms, and allows the company to ‘stay in the game much longer’.

The ‘winter’ of e-commerce

The capital flow from Alibaba helps Lazada’s financial health is said to be much better than other e-commerce platforms in Southeast Asia.

This sector is going through a bleak time when online shopping demand decreases (normalizes) after the epidemic, while the Russia-Ukraine conflict drives prices higher and weakens the purchasing power of consumers. .

Notably, Sea – the parent company of Shopee , which is backed by Tencent Holdings (a rival of Alibaba) – was forced to downsize its business. Once fueled by demand for home shopping and other services, Sea’s growth is waning, forcing the company to consider costly marketing campaigns.

In the first half of 2022, Shopee’s parent company posted a net loss of $1.51 billion, higher than a net loss of $855 million in the same period last year.

Since listing on the New York Stock Exchange, Sea has spent heavily on marketing – from signing soccer star Cristiano Ronaldo as a brand ambassador to offering generous discounts. on its platform – all made possible by the abundant capital this company has raised.

That strategy is partly effective when Shopee has surpassed Lazada to become the largest e-commerce platform in Southeast Asia. In fiscal year 2021, Shopee’s total merchandise value was $62.5 billion, up 76.8%. Lazada’s GMV was $21 billion in the year to September 2021.

But as the wave of investment in technology stocks passed and investors focused on profits, Sea’s capitalization has dropped more than 86%, or $170 billion, since its peak in October 2021. . This made it difficult for Sea to raise more cash.

” After the pandemic, with the decline of the market, this is clearly a difficult period for all businesses operating in the industry ,” Dong said. He also noted that demand for online shopping is ‘pretty much normalizing’.

” It will last for at least a few more quarters, ” added the Lazada CEO.

Shopee has withdrawn from many major markets in Europe and Latin America. The company also reduced the number of heads in markets in Southeast Asia, the top executives also cut their own salaries and tightened the company’s expense policy.

Opportunity for Lazada?

Lazada CEO said that the company “always operates in a sustainable way”. However, Lazada is not completely out of the market.

Alibaba’s international retail revenue – which includes Lazada’s business and other overseas operations – has slowed significantly this year.

After recording double-digit growth in each quarter of 2021, Alibaba’s international retail sales fell to $1.56 billion in the first three months of 2022. This target was from April to June of this year. 2022 only reached $1.57 billion, almost unchanged from the previous quarter and down 3% from the same period last year.

That poses many challenges for Lazada CEO James Dong – a former consultant who was in charge of Lazada’s units in Vietnam and Thailand. Mr. Dong has just been appointed to a leadership position at the group since June 2022.

Lazada currently has 150 million users in 6 Southeast Asian countries. This e-commerce platform intends to double its number by 2030.

One of the solutions to this goal, according to James Dong, is to form partnerships with brick-and-mortar retailers.

“ We connect [our technology] to their system ,” he said, “ and [partners] connect into our ecosystem to provide services to our general customers.” “.

In Vietnam, Lazada seems to have found the right partner, through Alibaba’s $ 400 million investment in The CrownX – a member of Masan Group.

Dong also bets on upgrading the user experience and technology so that Lazada can attract more customers. The company has invested in direct procurement and tailored its apps to the local market.

” Consumers will switch platforms to get more benefits [like discounts] ,” Dong said. ” But if the exchanges are the same, they will choose the platform they like ,” Dong said.

Despite reports that Lazada is eyeing European markets, Dong stressed the company “will continue to focus” on its Southeast Asian markets, at least for the time being.

Dong declined to comment on how long Alibaba will continue to sponsor Lazada but stressed the e-commerce platform is “on a very good path to profitability”.

While the parent company funding keeps Lazada afloat, learning how to stay afloat will be crucial if the platform really wants to reach the European markets.

Reference source: Nikkei Asia