Ayala's stake in Zalora PH: Fusing online and offline retail

The Ayala conglomerate’s decision to back Zalora Philippines, the country’s largest online fashion platform, could spur the development of Philippine e-commerce by blurring the lines between online and offline stores.

“Our partnership with Ayala opens up the real possibility of creating a true omnichannel retail experience, fusing the online an offline retail, and it would possibly be the first of its kind in an emerging market,” said Zalora co-founder and CEO Paulo Campos III.

Ayala announced the preliminary details of its significant investment in Zalora in a disclosure to the stock exchange last week.

“Ayala’s investment is primary investment, meaning, that no one is purchasing existing shares and so is not a buy out. The investment introduces fresh capital into the business, all of proceeds of which will go directly to expanding Zalora’s operations,” Campos explained.

Ayala’s 49% stake

The Ayala group placed a 49% stake in BF Jade E-Services Philippines, which owns and operates Zalora Philippines – 43.3% by holding company Ayala Corporation and the balance by subsidiaries Ayala Land Incorporated, BPI Capital Corporation, and Kickstart Ventures Incorporated, the in-house venture capital firm of Globe Telecom.

Global Fashion Group (GFG) retains majority control with 51%.

Ayala will get a proportional amount of seats on BF Jade’s board, although Campos stressed that Ayala was happy with how Zalora was being managed.

“The nature of the split is a vote of confidence in existing management  and how we are doing things. Of course, they will be very active at the board level and with overall strategy,” he said.

The arrangement also doesn’t preclude Zalora teaming up with brands or firms associated with Ayala's rivals. Zalora is set to sell brands from Robinson’s Specialty Stores, Incorporated (RSSI)  in April this year.

Synergies across the board

Campos described the partnership as a "win-win" for both parties. With the investment, Ayala enters the e-commerce industry, which has  untapped potential in the country.

He added that 38% of Filipinos purchased a product or service online in January 2017, based on surveys.

"That's a number that has gone up year after year. Last year the average was around 29%," Campos said.

 E-commerce as a percentage of retail is key, Campos said, "because it implies that e-commerce could grow at compound annual growth rate of 34% per year for the next 10 years in the country which is very realistic." 

KEY STATISTIC. The key statistic for e-commerce players is that 38% of the population purchased a product or service online in January 2017 (based on surveys), a number that has gone up year after year,' says Paulo Campos III. Image from Zalora Philippines

KEY STATISTIC. The key statistic for e-commerce players is that 38% of the population purchased a product or service online in January 2017 (based on surveys), a number that has gone up year after year,' says Paulo Campos III.

Image from Zalora Philippines

BLUE OCEAN. Results from a 2016 report by Google and Singapore investment firm Temasek. Image from Zalora Philippines

BLUE OCEAN. Results from a 2016 report by Google and Singapore investment firm Temasek.

Image from Zalora Philippines

“Zalora itself has grown its topline revenue for the past two years by more than 300% from its 2014 level. We are also fully profitable in terms of variable margin, all results after delivering and marketing expenses, on a FY 2016 basis,” Campos said.

For Zalora, the arrangement creates a lot of synergies across members of the Ayala group, particularly Ayala Land, Globe, and the Bank of the Philippine Islands (BPI).

In the short term, the partnership with Ayala Land – the second largest mall operator in the country – allows Zalora to partner with more fashion brands that it can sell on its platform.

“Brands are the lifeblood of the business....Whereas before entering e-commerce, it might have taken a leap of faith from the brands, having Ayala behind shows we are not a fly-by-night operation and are here for the long-term,” Campos said.

 “Ayala can now also offer their partner merchants an easy way to transform their business into a digital one through Zalora,” he added.

Co-marketing

The partnership also deepens the co-marketing between Zalora and Ayala. Prior to the investment, Zalora had partnered with Ayala Malls and Globe for its pop-up stores.

These initiatives could range from rewards points earned cross the Ayala group that can be used on Zalora, to creating a co-branded credit card with BPI.

Access to the conglomerate's technology is also a key factor, particularly in payments.

Campos pointed out that 70% of Zalora’s transactions are still cash-on-delivery (COD), and that the challenge for the entire industry is to migrate them into some form of digital payment.

Globe, which has just partnered with payments giant Ant Financial, offers ready-made tools for that through GCash.

Another possibility is to offer Globe subscribers the chance to access Zalora through free data promotions similar to what the telco offers for services like Spotify or Facebook.

In the long term, Campos noted that the technology and reach that Ayala provides can help make possible the omnichannel experience that everyone is after – something similar to what e-commerce giant Amazon.com is doing with its new tech-enabled checkout-less grocery, Amazon Go.

Having the technology and the space that the Ayala investment provides makes a lot of things possible. This includes creating virtual fitting rooms using augmented reality technology, to putting up terminals in Ayala malls where you can buy online and also use the malls as pick-up points themselves, Campos pointed out.

“It’s the very early days, so we’re still fleshing out the specific initiatives for each but it’s a win-win, mutually enforcing relationship,” he added.—Rappler.com