Lazada boss shares strategy for low prices

Inanc Balci, the co-founder and chief executive of Lazada Philippines, remembers that when the online shopping company first set up an office in Makati City nearly six years ago, it was in a former spa facility along Jupiter Street.

“Our meeting room used to be a jacuzzi.  Our interview room was a sauna.  And people would be scared to come to talk to us and enter the sauna,” says Balci, a 32-year-old Turkish expatriate who oversaw the expansion of Lazada Philippines, which now occupies a swanky 3,000-square-meter office at Net Park Building along 5th Ave. in Fort Bonifacio, Taguig, aside from a 2,000-sqm facility along Paseo de Roxas Ave. in Makati.

The change in Lazada’s office address somehow represents the rapid rise of the electronic commerce company into a dominant player in the $1-billion industry.  Lazada Philippines has millions of products on its online platform, easily surpassing those sold by large shopping malls.  “When we started the business six years ago, e-commerce was very small, almost non-existent.  Now it is a $1-billion industry.  We have an extremely strong market share.  It is a significant, majority market share,” Balci says in an interview.

ONLINE SELLER. Lazada Philippines co-founder and CEO Inanc Balci
“We currently have 29 million products on Lazada Philippines.  If you go to a shopping mall, you will see 600,000 to 1 million products.  On Lazada, we have 29 million.  So we will continue growing the assortment of products and the merchants.  We have recently launched Taobao collection.   Taobao is the largest e-commerce company in China.  It has 1.6 billion products.  It is a part of Alibaba,” he says.

Lazada, now controlled by Chinese billionaire Jack Ma of Alibaba Group, is present in six Southeast Asian countries: the Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam.

Balci, who has a double degree in Industrial Engineering and Economics from Prude University in United States, heads Lazada Philippines, which employs more than 2,500 people in 38 hubs all over the country, a 30,000-sqm warehouse in Laguna, a 10,000 sqm warehouse in Cebu, a major sorting center in Taguig, an in-house business process outsourcing facility, a logistics company, a payments solutions company and third-party partners.

Lazada Philippines will expand the Laguna warehouse into a 60,000-sqm facility, open another warehouse in Davao City next year and increase its number of hubs, Balci says in an interview in Fort Bonifacio.

Lazada was started by Rocket Internet SE, a German technology company.  Alibaba acquired a majority 51-percent stake in Lazada in April 2016 and increased the interest to 83 percent in April 2017.

Balci personally accompanied Jack Ma during the Chinese billionaire’s recent visit to the Philippines. 

Balci says he and Ma talked about everything.  “We talked about how we can execute the strategy in Southeast Asia, which is a different market from China,” he says. “We talked about the Philippines. We talked about general concepts like the issues on payments, Internet, infrastructure, even the traffic, and then we talked about specific issues related to Alibaba business in the Philippines.”

Balci says Lazada has developed its own expertise in Southeast Asia.  “If Alibaba comes here, it may not work, because it is a different market.  If Amazon comes here, it may not work, because it is a different culture. So we are talking to them [Alibaba] on how to craft and execute the strategy,” says Balci, while acknowledging Alibaba’s great experience and expertise in the China market.

He says while Alibaba and Amazon have their own expertise focused on their home markets, Lazada has developed its own business strategy in the Philippines, which also includes logistics (Lazada Express) and payments business to overcome the challenges specific to the country.

“The first challenge in the Philippines is always logistics for e-commerce.  We are the first and only company that resolved this by launching our own Lazada Express. Today, we deliver 80 percent of Lazada packages through Lazada Express.  For the rest of 20 percent, we use third-party logistics companies,” he says.

“The second challenge is payments.  The Philippines is a cash economy, with not enough credit cards or electronic payments.  Over 80 percent of our sales is cash on delivery. We were the first company to launch nationwide cash on delivery.  We are still the only e-commerce company that can do nationwide cash on delivery,” he says.

Balci says there are other challenges related to internet connection, smartphone penetration and lack of trust with customers or potential customers.  “I believe we will overcome all of these in the coming years,” he says.

Balci believes that given Lazada’s diversified expertise in the Philippines, it will sustain its dominant market share.  

“The plan is to continue growing the company.  We have a very strong momentum especially in the Philippines.  The business continues to grow very fast,” he says.  “We are devising our strategy to continue this momentum and how to reach out to more people.  We are doing tremendous investments in logistics.  We have now 38 hubs all around the Philippines.  We have thousands of riders.  We have recently moved into a 30,000-sqm fully automated warehouse in Laguna.  There is a second phase being built.  It will be 60,000 sqm.  It is huge.  You have to take a bicycle to go from one end to the other end,” he says.

Balci says the company has recently launched Lazada E-wallet and will add more payments options through partnerships with other players in the market.

“We launched same-day delivery for the first time in the Philippines.  If you order at 1 p.m., you will receive it on the same day.  There are hundreds of thousands of items available for this,” he says.

Balci expects the e-commerce industry in the Philippines to continue its robust growth.  “There are 10 million e-commerce customers.  But only 1.5 percent of retail sales comes from e-commerce.  If you look at the region, it is around 1.5 percent to 5 percent.  So definitely we need to continue investing in the market to grow it,” he says.

“At the same time, we are very optimistic.  When I look at customers, I see there are 63 million Facebook users, which means we can drastically grow e-commerce customers.  I believe that if we realize these new customers, the Philippines will be the No. 1 in Southeast Asia, and potentially in the long term, one of the biggest in the world,” Balci says.

Balci says Lazada surpassed its sales target during its Online Revolution campaign on Nov. 9 to Nov. 11 and expects to break another record for its mega sale on Dec. 7 to Dec. 12.  He confesses that Lazada is offering huge discounts on products to attract more customers to try e-commerce.

“We want our customers in the Philippines to buy the cheapest Christmas gifts. More than that, some people don’t understand that these are long-term investments.  These are the kind of events that people get the courage to buy something online for the first time, because the prices are unheard of,” he says.

“We make an investment, our brand partners make an investment, companies like P&G, Unilever and Nestle, hundreds of them.  Our merchants make investments.  Together, we bring down the price by as much as 95 percent.  We make these investments so that in the future, it will be a much bigger market.  This obviously benefits the customers.  It gives them an excuse to try e-commerce for the first time.  Because the prices are no brainer,” he says.

On how Lazada is able to bring down prices by more than 90 percent, Balci says the company and its partners subsidize the cost of some products.  “Through our own funding, we make subsidies in certain products.  Brands makes subsidies in certain products because their marketing costs are much lower when they sell online. Our merchants also make their own subsidies because they don’t have to open all these stores. They don’t need to employ more people.  So the cost base of our brands and merchants is much lower. We also contribute ourselves.  Together, the prices have become unbelievably low,” he says.

Balci says Lazada remains on expansion mode and continues to invest, but the long-term plan is still profitability.

“Southeast Asia is a growing market.  What we are doing is we are investing into the market in order to fulfill the whole potential of Southeast Asia. Today, if Lazada wants, Lazada can be profitable.  But the issue is not to look at this first.  There are more urgent priorities which are the growth of the market and having this massive market share.  This is why together with investors, we have a plan and we are 100-percent adhering to this plan,” he says.

“This is still very early days for our business.  It is a billion-dollar industry, but it is going to be a multi-billion-dollar industry.  There is still a lot of room to grow,” says Balci. 

Topics: Lazada , online shopping
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