Zalora, the startup all grown up, hones its operations at Klang hub

Packages are plucked from shelves and transferred to conveyor belts, where they are sorted and packed.

Assembled for pickup by trucks, they are delivered to customers, usually within two days of order; within Singapore, it is now possible for this to happen within a day.

This frenzied action takes place at regional online fashion retailer Zalora's new regional e-fulfilment hub in Shah Alam in the Klang Valley, where clockwork precision plays a crucial role in ensuring that thousands of orders are fulfilled daily.

The 470,000 sq ft hub is expected to be the company's key driver of growth in the years ahead.

Already, group chief executive Parker Gundersen is looking to the next decade or two and beyond.

He told The Business Times in an interview at the hub: "Zalora as an organisation is a five-year old company. I tell the team we are no longer a startup. So the things we may have been able to get away with in the early days no longer apply.

"We are now on a scale where we must operate with 100 per cent efficiency; otherwise we lose the trust of our three biggest partners (our investors, brand partners and customers)."

He channels a major part of his energy into transforming and professionalising the company, and going through all the operations, processes and systems to increase efficiency and productivity gains.

Investments made in developing the in-house logistics and operations systems enable, among other things, for items to be picked out more accurately, inventory to be traced and returns and refunds to be processed.

"We are now spending a lot of time on all the things a start-up doesn't have the luxury to do, spending time to build up the right organisational framework."

In the early years, the lack of infrastructure and e-commerce models made it tough.

But now, with the logistics network up and running and Zalora's product-assortment and financial model more refined, the focus has turned to "sustainability and getting to operating profitability".

Incubated out of German Internet investment firm Rocket Internet, Zalora is now part of the Global Fashion Group, which counts Swedish venture-capital firm Kinnevik AB as its biggest shareholder, with a 35 per cent stake.

Zalora has yet to turn a profit, but Mr Gundersen maintained that it is getting there in most of its markets and that its investors are clear on the path the company is taking, as well as the markets it has chosen to be in.

"They understand there is a balance between growing scale and profitability. In e-commerce, we are not constrained by growth. We can grow as fast as we want, but it's a question of whether we are going to make money.

"I can tell you growth has been very healthy ... We could get more growth - but that would be at a cost."

Getting the balance right and ensuring a sustainable business model is crucial, lest the business be consigned to the e-commerce scrap heap.

Mr Gundersen said margins are much healthier now than five years ago, owing to better brand partnership leverage, as well as efficiency gains in logistics and marketing.

In the early days, getting brands on board was tough.

But with momentum, more brands - the biggies included - have signed on.

Zalora's in-house brands are at the same time being upgraded, and it now hosts more local designers.

Customers value the retailer's relationship with the brands.

"Because we work directly with them, we get the seasons, the stuff, the sizing - all important things to the customers.

"e-commerce is about price transparency. Very quickly, you can see who the best is, and because we have an efficient model and are working hard to get more efficient, we ensure we stay more competitive."

Zalora tracks product views, but declined to reveal the conversion rate of orders; it confirmed, however, that its app has had "more than 10 million" downloads.

Customers can be fickle, but macro trends point to there being more opportunities than challenges for a company that successfully carves out a niche for itself.

Zalora's e-fulfilment hub could well enable the business to dig in, given that it is one of a handful of companies - and the first and only fashion e-commerce retailer in Malaysia - to be bestowed "authorised economic operator" (AEO) status.

AEO gives the regional hub an "express lane" of sorts at the Malaysian customs, paving the way for seamless cross-border movements 24/7 - and therefore, faster deliveries.

Mr Gundersen said Zalora has capitalised on Malaysia's progressive thinking on e-commerce to extend its presence in the country.

"We see the advantage of being here because of the special relationship we have with the ministry (of international trade); it's easy to bring the products in and to get them out as well."

Built in partnership with supply-chain partner YCH Group, Zalora's hub is approximately the size of nine football fields and is split across five levels.

Because it is scalable, it can process up to 100,000 items daily and store more than four million at any one time.

Between 200 and 250 employees work in mainly two shifts to fulfil orders for the eight markets - Singapore, Malaysia, Brunei, Hong Kong, Macau, Taiwan, Indonesia and the Philippines.

In a constantly evolving business and environment, remaining relevant is key.

Mr Gundersen said: "My goal now is to ensure Zalora remains relevant for all employees, investors and customers. The focus is on building a great, sustainable company and the key is making sure our operations are all aligned towards the customer."

Customer trust, once lost, may never be regained, he said.

To this end, Zalora gives assurance of the authenticity of its products - resellers on its site are monitored and those caught selling fakes are "shut off", he added.

btworld@sph.com.sg

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This article was first published on March 14, 2017.
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