E-retailer Zalora bets big on Southeast Asia

Asian fashion e-commerce start-up Zalora aims to become a multi-billion dollar company, and according to managing director Michele Ferrario, Southeast Asia's burgeoning market holds the key to achieving that goal.

"Singapore is well-served in terms of online and offline retail, but when you think about smaller towns in Indonesia, the Philippines, Vietnam and Thailand, people there do not have the same access to fashion as people in developed markets," he told CNBC's "Managing Asia."

Home to more than 600 million consumers, the region's internet retail market is at an "inflection point," according to a UBS report published last June. Analysts estimate online spending across Southeast Asia is poised to hit $35 billion by 2020, on the back of high internet penetration and widespread smartphone usage.

"We thought this is a huge opportunity to change the way people access fashion," the 34-year-old said.

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Sales rising

Backed by German venture fund and start-up incubator Rocket Internet, Zalora made 69 million euros (approximately $81 million) in revenue in 2013 and over 44 million in the first half of last year. Ferrario declined to reveal latest revenue figures.

But competition is stiff, with heavyweight competitors from the West like Amazon and ASOS, more established regional rivals like China's Alibaba and Japan's Rakuten, as well as fellow start-ups including Lazada. Meanwhile, a lack of high-speed internet, poor logistics infrastructure and varying cultures, make Southeast Asia's flourishing e-commerce market difficult to navigate.

"The market is very fragmented, with 600 million people living in different countries [using] different currencies [and practicing] different religions. That changes the way we do business," Ferrario said.

To cater to the region's diverse tastes, Zalora localized its websites and services, from having Vietnamese-speaking customer service operators to offering Muslim products for shoppers in Malaysia and Indonesia.

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Investments in local infrastructure are also crucial.

"Within three months of operations, we built warehouses in every market. We recently launched a 'same-day delivery' service in all Southeast Asian cities and we can do that because we have local warehouses," Ferroria, who previously worked for McKinsey and a Milan-based private equity firm, told CNBC.

The fashion e-commerce firm also ventured offline, with its first brick-and-mortar "pop-up" store in Ion Orchard - an upscale shopping mall located in Singapore's prime shopping district. The three-month long "pop-up" store boasts of a unique concept, which allows customers to make purchases that will be delivered to their doorstep. The company is keen to execute the same concept in other markets.

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Tying up

Zalora is also in the midst of a merger with four other Rocket-backed e-commerce firms - Latin America's Dafiti, India's Jabong, Russia's Lamoda and Middle East's Namshi. The new entity named GFG will have a combined valuation of 2.7 billion euros (approximately $3.5 billion), 4.6 million customers and more than 7,000 employees, according to a press release by Rocket Internet.

Ferrario said a merger will benefit his company with "a big warchest on many levels," including new online marketing techniques and software, sharing of talents and leverage in supply chains.

When asked whether the merged group will eventually consider a listing, Ferrario said: "I think listing is always an option for a fast-growing company but at the same time, listing is never the only option. We just need to build the best potential for the company and shareholders will decide the best strategic option to bring the company to the next level."

Reporting by Christine Tan | Written by See Kit Tang