Strategy for scaling e-commerce

15 March 2017

Indonesia Malaysia Philippines Singapore Thailand Vietnam

AGENDA

Lazada at a glance

South East Asia – The opportunity

Challenges in Indonesia

The future of shipping in Indonesia

Lazada & how to win

2
 Lazada at a glance

COMPANY OVERVIEW LAZADA PRESENCE2

 The online destination site in South East Asia for customers Lazada B2C eCommerce
China market position
& brands

 Launched 5 markets in March 2012: Indonesia, Malaysia, HK / Shenzhen

Sourcing hub
Vietnam, Philippines, Thailand
~60 employees

 Launched Singapore in May 2014

#1 #1
Vietnam Philippines
 One-stop shop to access locally and internationally sourced Pop: 93m Pop: 108m
SKUs across 13 categories #1 ~800 employees ~1550 employees
Thailand
Pop: 68m
 Created an end-to-end ecosystem enabled by best-in-class ~700 employees
logistics and payments capabilities to address key challenges in
#1
South East Asia Malaysia
Pop: 30m
 Majority owned by Alibaba Group, and backed by leading Singapore ~700 employees
sector specialists and investors including Rocket Internet, Pop: 6m
#1
Tesco, Temasek, Investment AB Kinnevik, Summit Partners and ~200 employees
Indonesia
J.P. Morgan Asset Management Pop: 254m
~850 employees
 HQ in Singapore with local offices

Source: IMF database

3
AGENDA

Lazada at a glance

South East Asia – The opportunity

Challenges in Indonesia

The future of shipping in Indonesia

Lazada & how to win

4
 There are 3 Megatrends driving SEA forward

1 Internet  Strong GDP and population growth - over 145m people to achieve disposable
friendly income greater than 3k USD by 2015
Macro  Young, tech-savvy population – >10% of world’s ‘youth population’ in ASEAN
Environment countries

2  Rapid adoption of low-cost mobile phones and tablets is accelerating shift to

Explosion of online
Mobile  ‘Always-connected’: mobile as online access point driving fast adoption of
Commerce mCommerce

3  Poor offline shopping offer in rural, Tier 3/4 US retail sqm per capita is 40x
Lack of
ASEAN
developed
Offline Retail  Consumers will leapfrog physical retail in presence of right eCommerce
Footprint alternatives: in China average online shopper in tier ¾ cities has >30% share of
wallet directed to online

Source: Industry Research, Lazada Group estimates; All numbers exclude Lamido
5
 South East Asia GDP is projected to grow at 7% CAGR

GDP
CAGR
(Current prices, US dollars billions)

3,500

299 Vietnam 7%
3,000
276 3%
482 Thailand
254
2,500 457
234
436
216 543 Philippines 9%
200 417
2,000 488
191 404
436
391
389 527 Malaysia 9%
395
1,500 349 473
312 423
292 377
336
303
1,000 296
Indonesia 7%
1,408
1,178 1,274
500 1,015 1,097
859 941

-
2015 2016 2017 2018 2019 2020 2021

Source: IMF October 2016

6
 And a relatively low but growing GDP/capita

GDP/Capita
CAGR
(US Dollars)

40,000

35,000
3,078 Vietnam 6%
2,855
30,000
2,661 6,955 Thailand 3%
2,476 6,597
25,000 2,307 6,303
2,088 2,164
6,033 4,719 Philippines 7%
5,842 4,327
20,000
5,742 5,662 3,942
3,593
3,280
15,000 2,991
2,863
15,260 Malaysia 7%
13,932
12,667
10,000 11,483
9,546 10,426
9,501

5,000

4,376 4,673 5,099 Indonesia 6%

3,362 3,636 3,871 4,130
-
2015 2016 2017 2018 2019 2020 2021

Source: IMF October 2016

7
 Driven by a huge population of more than 550m+ people

Population
CAGR
(million persons)

700

600

96 97 97 Vietnam 1%
94 95
500 92 93

69 69 Thailand 0%
69 69
69 69
69
400
113 115 Philippines 2%
106 108 111
102 104
300
33 33 34 35 Malaysia 1%
31 32 32

200
Indonesia 1%
255 259 262 266 269 273 276
100

-
2015 2016 2017 2018 2019 2020 2021

Source: IMF October 2016

8
 The Indonesia Middle & Affluent Consumer population is
expected to grow from 74m (2010) to 141m (2020)

Indonesia Middle and Affluent consumer – Population

(million persons)

5
MAC consumers
Rest of Indonesia
10 Monthly Household
expenditures > IDR 2M
4
Sulawesi
9

5
Kalimantan 2010
10
2020
17
Sumatra
34

24
Rest of Jawa
47

18
Greater Jakarta
30

0 5 10 15 20 25 30 35 40 45 50

Source: BCG Analysis March 2013

9
 The internet user base is still small but growing rapidly in
Indonesia

Internet users
(per 100 people)
80

70 71
66
64
60 61
56 56 56 56 57
53
Indonesia
50
48 Malaysia
44 Philippines
40 39 40 41
39 Thailand
36 37
35 35 Vietnam
30 31
29 29
27 25 26
24 22 24
21 21 22
20 20 20
18 17
15 15
11 12
10 9
8 7
6 6
4
2
1
- 0
2000 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: World bank data

10
 In Indonesia, ~75% of all mobile phone users do not use a
smartphone!

Mobile phone subscriptions

(per 100 people)
160
149
147
145 145 144 144
140 142 141 140
135 132
129 131
125 127 127 125 126
120 120 118
116 114
111
108 111 Indonesia
108 105
102 102 105
100 100 99 Malaysia
93
87 86
89
88 Philippines
82
80 80
75
Thailand
69 Vietnam
65
60 60
52
40 40

20 22

8
5
- 2
1
2000 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: World bank data, http://www.pewglobal.org

11
But, Indonesia is in the most active internet segment in the world!

62% of Indonesian internet users access internet through their mobile device

70 million active Facebook accounts. Indonesia is Facebook’s 4 th

largest market
globally despite low internet penetration, and has one of the highest penetration rates in the
world (98%)

181 minutes per user spent by Indonesians on average on their smartphones per
day, which is the highest in the world

30 million Line accounts. Indonesia is LINE’s largest market outside Japan

Sources: Semiocast, eMarketer, NAVER Corp., Facebook INC., Milward Brown AdReaction, W&S Market Research

12
Expectations can be wrong …

Jack Ma founded Alibaba.com in his

1999 living room with 17 of his friends as
co-founders

“China will reach an online share of

2009 0.2% of total retail market in 2013”
(Euromonitor)

China reached 8-10% share of retail

2013
market going online – a USD 450 bn
market

Alibaba goes public at a USD bn 250

2014 valuation with annual GMV of USD bn
300

13
AGENDA

Lazada at a glance

South East Asia – The opportunity

Challenges in Indonesia

The future of shipping in Indonesia

Lazada & how to win

14
We face massive challenges in the parcel delivery market in
Indonesia

Issues & Challenges What the customers/sellers want

• Limited seller capability • Reliable and customized contract

Fulfillment
logistics fulfillment capabilities
• Maintaining consistency of service • Consumers want precise windows of
Unreliable delivery
quality delivery promises

Complex returns • Breaks trust in e-commerce • Free, easy returns process

• Fully traceable
• Not tracking and tracing • Real time visibility on package journey
Track & Trace
• Lag in status updates
• No seamless distribution of
information among network
• Different prices with providers • Price visibility and clarity
Price sensitivity
• Decrease sales competitiveness
• Change in customer plans disrupts • Ability to choose time of delivery
No timeslots (or)
deliveries • Change in delivery address
Location changes
• Delivery with installations

Cash on delivery • Very hard finance reconciliation • COD option everywhere

processes
Customs • Cross border trade • Seamless cross border order
• Create uncertainty in deliveries experience
15
 But, the whole value chain of logistics providers face challenges
as well, that need to be overcome before the industry moves
forward
What they own in the value chain
Postal • Mail and parcel
• Newspaper, documents
Courier & Express • Courier, express, parcels
• Road & Rail forwarders
Freight forwarders
• Air & Sea forwarders
• Road (FTL, LTL) & Rail
• Sea (containers, tankers, bulk,
Line haul
break, ferry, ro-ro)
• Air (pure cargo, passenger)
• Rail network (owners and
operators)
• Port authorities (landlords)
Logistics • Sea terminals (Container
Infrastructure service, dry bulk, tanker)
• Airports (owners, terminal
operators, cargo ops)
• Warehousing
Source: BCG, Lazada transport
Challenges they face
• Managing materials handling & equipment
• Digital wave, express companies
• Managing materials handling & equipment
• Fleet structure challenges
• Achieving scale on routes
• Spot business lacking loyalty
• Access to logistics infrastructure
• Capacity management challenges
• Network efficiency & productivity
• Managing contracts & tenders
• Air cargo: pricing pressure from passenger
• Sea cargo: Overcapacity pressure
• Management of infrastructure (lots of assets)
• Traditional pressure on ROA
• Regulatory pressures
• Price controls
• Low profitability on warehouses
16
 And there is a massive talent gap in the Indonesian economy

Source: BCG analysis

17
AGENDA

Lazada at a glance

South East Asia – The opportunity

Challenges in Indonesia

The future of shipping in Indonesia

Lazada & how to win

18
A few thoughts on the future of parcel deliveries…

Customer is  Expectation have changed on what a “standard delivery” means

in control  Customers decide when, where, how and who

2
• Current line haul economics driven by cutoffs and hub and spoke models.
Shipping Future line haul economics will be disrupted by continuous flow and point
costs must to point models
fall • Automation, better materials handling, and IT will further drive down costs
• We need to rethink the cost to serve rural customers
3

Shared  Shared services (uber, go-jek, etc) will disrupt standard parcel delivery
services services by drastically changing the business model via leadtime and costs

19
AGENDA

Lazada at a glance

South East Asia – The opportunity

Challenges in Indonesia

The future of shipping in Indonesia

Lazada & how to win

20
How to win…

Operating model Similar players Launch Entity Benefits

 Control supply chain

B2C 2012  Build strong customer satisfaction,
reputation and trust

 Expand assortment and reduce

Marketplace 2013 inventory risk
 Improve economics

 Offer marketplace/ C2C

merchants and 3rd parties
Fulfilment 2014 eCommerce logistic services
 Further drive operational efficiency

 Offer customers trustworthy and

Payment 2015 reliable payment options
 Reduce costs for sellers
 END-TO-END ECOSYSTEM
Lazada is building an end-to-end ecosystem in Southeast Asia that will drive synergies and
network effects

Lazada Ecosystem

Buyers Sellers
Assortment and
Logistics Enabler
Category Strategy
Domestic and Cross-border
Sellers and Brands

Scalable Seller Solutions Payments Solutions

Technology, Supply Chain and Full range of payment

FULFILLMENT Content ERP options (COD!)

Buyer and Marketing

Data Science
22
 Thank you

Indonesia Malaysia Philippines Singapore Thailand Vietnam