China sourcing hub a key move for iBuy

• Eliminates middleman, improves margins and customer experience
• HK chief exec confident of competing against Rocket Internet

WHILE e-commerce company iBuy Group Limited, listed on the Australian Securities Exchange (ASX), had around US$75 million (RM245.5 million) in revenue last year, it has launched a sourcing hub in China that it hopes will put it on a fast track to profitability.
 
This hub would cut down its procurement costs by eliminating the middleman and helping it achieve scale.
 
Originally meant to be the sourcing hub for beecrazy.hk, a leading Hong Kong-based group discount site, it became the de facto sourcing hub for iBuy after Catcha Group founder and chief executive officer Patrick Grove crafted a deal that brought four e-commerce sites together under one umbrella last December.
 
The impact on gross revenues has been tremendous with both Grove and Krzysztof Marszalek, CEO of beecrazy.hk, talking about a 20% to 25% bump in gross margins, which themselves used to be in the 20% to 25% range.
 
“For some products, it is even double,” Marszalek tells Digital News Asia (DNA).
 
With the combined buying power of the iBuy group, he sees a win-win situation for all parties. “When we procure in bulk, we get lower prices which we then pass on to customers, who then buy more from us. In turn, we buy more from the suppliers and ask for bigger discounts,” he says.
 
But it is not just about buying in bulk to get lower prices, it is even more about buying the right things.
 
“This is where we work closely with the various sites, which will know what to buy and what will sell. We then buy these things in bulk to give the various country setups a stronger competitive positioning,” says Marszalek.
 
Besides buying the right things, the sourcing centre also lies at the heart of iBuy’s strategy to control the customer’s experience, from end to end. Even though it is based in Hong Kong, Kris says that beecrazy.hk had a hard time ensuring the reliable delivery of goods and their quality, due mainly to unreliable trading partners.
 
Establishing a sourcing hub was the only way it could eliminate inconsistent customer experience and protect its brand.
 
For the Polish-born Marszalek (pic), this was just going back to his roots. He first landed in Hong Kong in 2003 to establish a sourcing office for a European consumer electronics company.
 
Right now, he oversees the sourcing centre, which is about to move into a new 10,000 sq ft premise with a rapid surge in staff from 30 to about 100 in the next six months.
 
This is the first expansion in the sourcing hub since its launch. “Doing business in China is still extremely challenging and we took a deliberate strategy to grow slowly, and it has been the right move with a lot of lessons learnt. But now is the time to scale,” he declares.
 
The goal is to provide customers in South-East Asia with everything and anything they need with 10,000 products across 400 categories.
 
“We see ourselves as the WalMart of South-East Asia, with an emphasis on value and selection, while controlling the customer’s experience,” says Marszalek.
 
If that seems ambitious, he simply points out that the lack of a dominant player in the market makes the goal possible.
 
“Plus, we have everything we need to succeed,” he declares, alluding to the fact that iBuy is made up of a ‘tremendous team’ of entrepreneurs who have funded their companies without a lot of capital, but who are now equipped with capital from the iBuy listing.
 
While the capital they have raised from the December 2013 IPO (initial public offering) – A$37 million or US$33.4 million – pales in comparison with the US$500 million German powerhouse Rocket Internet has raised for its e-commerce ambitions in the region, Marszalek is undaunted.
 
“The size of the opportunity in South-East Asia is amazing; our teams are pumped up and we feel very comfortable competing against Rocket Internet. We are not burning through hundreds of millions of investor money like it is, and feel we have a slightly more sustainable model,” he argues.
 
Hinting that iBuy is already experiencing very promising results after the recent consolidation, Marszalek declares that it is just starting up, with lots of developments to come including the launching of private labels in major product categories to enjoy better margins and improve the customer experience.
 
“We have a long-term vision, looking out to 2018, and we are committed as a company to achieving it,” he adds.
 
Related Stories:
 
iBuy listing reinforces value of SEA market to investors: Grove
 
Rocket Internet adds another US$500mil to war chest

 
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