Zalora invests US$4.2mil on regional e-fulfilment hub in Malaysia

• Sole hub servicing six markets and supporting two more
• Proprietary technology drives efficiency

ONLINE fashion retail business Zalora officially opened its new Regional e-Fulfilment Hub on March 3. The e-Fulfilment Hub fulfils thousands of orders per day – about four to 4.5 million items – and serves as Zalora’s sole fulfilment hub for Malaysia, Singapore, Brunei, Hong Kong, Macau and Taiwan, while providing stock support for the Indonesian and the Filipino markets.

The e-Fulfilment Hub covers 470,000 square feet (approximately equivalent to nine FIFA football fields) and is split across five levels.

The online retailer has invested heavily in building its e-commerce infrastructure from warehousing facilities to last mile delivery fleets to ensure the highest level of delivery experience for consumers across all markets.

Driving growth

“To stay ahead in the industry, we made a strategic decision to redevelop our logistics network and build our advanced fulfilment centre to cope with our growth scale. We began this effort with the consolidation of our fulfilment operations across six countries into a single operations hub here in Malaysia,” Zalora Group CEO Parker Gundersen revealed in a speech at the launch.

“Our new e-Fulfilment Hub will be a key driver of Zalora’s growth in the future, cementing our position as one of the region’s biggest end-to-end fulfilment players,” he continued, adding that Zalora received a lot of support from the Malaysian government.

Present at the launch was the Malaysia’s Minister of International Trade and Industry Mustapha Mohamad, who said that the Malaysian government wants to work closely with Zalora to further promote the e-commerce industry, build a robust database and help micro-enterprises make the move to e-commerce.

Zalora Malaysia managing director Rostin Javadi told Digital News Asia in an interview on the sidelines of the event that the total investment that went into the e-Fulfilment Hub is RM20 million (US$4.2 million).

Zalora is supported by Singapore-based logistics and supply chain management services provider YCH Group Pte Ltd, a partner for the past two years. Javadi revealed that YCH helped Zalora with the conceptualisation of the hub, sourcing of the vendors and on financing, making an investment into the hub.

Why Malaysia?

According to Javadi, one of the main things Zalora looked at in deciding the location for its e-Fulfilment Hub was the geographic density of orders and customers. The highest density comes from West Malaysia and Singapore, with Hong Kong and Taiwan showing rapid growth.

The e-Fulfilment Hub is located in Shah Alam, an industry-heavy city accessible by seaport and airport, and close to Kuala Lumpur, which is one of Zalora’s most customer-dense cities.

Zalora has managed to secure a good working relationship with the Malaysian Customs department, and has acquired Authorised Economic Operator status, giving the e-Fulfilment Hub what is essentially a green lane at the border and allowing for seamless 24/7 cross border movements.

Cost was, of course, another factor; Malaysia offers a lower cost base than Zalora’s other main markets of Singapore, Taiwan and Hong Kong. “This makes it a lot more sustainable for our overall unit economics,” said Javadi.

Lower cost markets such as Indonesia and the Philippines were not picked because of higher risks and complexities in dealing with Customs controls.

“Also, we wouldn’t be able to fulfil orders in the way we do today,” he said, explaining that currently, the e-Fulfilment Hub handles 100% of orders from Singapore, 99.7% of which are fulfilled on the same day. “This sort of speed is unachievable should we be in Indonesia or the Philippines.”

Javadi said that the Malaysian warehouse is probably the most state-of-the-art in the region based on all global industry benchmarks that he has seen. “It is certainly the best in Malaysia, and one of the best in the world.”

“This is a huge advantage from a customer experience standpoint, which translates to more sustainable growth. This is one of the most important things for us,” he continued.

High-tech systems

The Mobile Picking system Zalora developed about one-and-a-half years ago for use in all its warehouses is in use here. This is a customised solution that transmits information on customer orders through an Android-based app to mobile devices to enable efficient picking of items off shelves. The increased efficiency allows for greater scalability.

In an official statement, Zalora states that since the introduction of the system, picking productivity has increased significantly and accuracy is now at 100% due to real time item verification.

A large part of the investment into the e-Fulfilment Hub went into developing proprietary logistics and operations systems.

Zalora’s in-house development team, which is based in Vietnam, also developed a new order management system (OMS) for the Zalora operations team to track movements of inventory into and out of its warehouses, manage customer returns and refunds, and manage the company’s own delivery fleets.

In developing the OMS for the warehouse, Zalora spent some time studying the systems used of other large e-commerce fashion retailers in Global Fashion Group, of which it is a part, as well as Zalando, the biggest e-fashion player in Europe. “We got a lot of ideas from them and managed to take it from conceptualisation to roll out, a process that happened over several years,” said Javadi.

The OMS is still being continuously improved, with new features released every two weeks. “We see big potential in continuing to do this in-house and making a solid and sustainable platform for our company.”

Javadi pointed out that besides the IT systems, the warehouse is physically automated, with about 250 metres of conveyor belts running through it. It is the first warehouse of its kind in Malaysia to extensively use conveyors; others work with pallets. Given the type of items and orders that Zalora fulfils, rigging the warehouse with conveyors makes more sense for efficiency and cost.

Sustainability

“We live and operate in a diverse geographic region where oftentimes traditional brick and motar retail is largely not present. Leveraging technology and our logistics capabilities, Zalora is rapidly changing the landscape of fashion retail across our markets, allowing our brands access new territories they previously were not able to reach,” said Gundersen at the launch.

Zalora’s backer Rocket Internet reported good growth for Global Fashion Group in the first half of 2016, with net revenue growing by 47.5% on a constant currency basis to €456 million (US$481 million) (the latest numbers are not yet available), despite Zalora’s exit from Thailand and Vietnam early last year. It was speculated the exits were due to unsustainable costs, though Zalora did not confirm.

Javadi declined to give Digital News Asia details on Zalora’s profitability, but said that the e-Fulfilment Hub marks a major step towards more sustainable unit economics.

“We have an amazing cost structure here because of the scale we are achieving. It is really driving cost drastically down. Fulfilment is one of the major cost drivers on our overall profit and loss balance sheet. We are taking huge steps forward and it’s just a matter of time now,” he said.

“We are really in it for the long run. We’re planning to build a big sustainable company, something that will last 50 or 100 years, and something that will really be the fashion destination for all of Southeast Asia.”

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