Who is Zalora? What is the Zalora business model? Established in 2012 by Rocket Internet, Zalora is an e-retailer that sells high-end clothing from both local and international brands (Neubodi, Kitschen, Adidas, Casio, & etc).
Though they now accept third-party retailers to sell their products on a platform like Lazada (previously under Rocket Internet), Zalora's main focus has always been to sell all things that are high-end fashion; ranging from clothes to accessories, bags, and even grooming supplies.
Let's take a brief look at their history, and business canvas, before going into the Zalora business model and revenue model.
*Note most information on Zalora business model are based on leaked information and/or various other sources. Information on gross revenue, net income, and the like are guesstimates at best*
Based on the 9 concepts of the business canvas, we can break down the Zalora business model into smaller and simpler to understand parts. From the canvas provided, we see how each aspect is interlinked with each other, and are able to use it as a point of reference. This highlights key strengths in the Zalora business model
What value does Zalora create for their customers?
What are Zalora's Key Activities?
Who are Zalora's Key Partners?
What practical resources does Zalora need to operate?
How does Zalora interact with their customers?
How does Zalora inform customers about their value proposition?
Which groups of people are Zalora solving the problem for?
What are the types of costs Zalora incurs?
How does Zalora generate revenue?
Let's begin by looking at Zalora's initial source of revenue, namely revenue via direct sales. Based on the infographic below, Zalora would take a 25-30% commission on every transaction.
Still, we want to figure out how much Zalora makes (or at least an estimate). In this case, we will need to find other information that can be help fill in the blanks (and there are a lot of blanks to fill).
Zalora has an average basket size of RM 212 ($ 52) and RM 220.16 ($ 54) on their mobile and desktop platforms respectively. Using the infographic above, they have an average of 79 k visitors on their platform monthly. To add, they also have a conversion rate of 1.9%.
For the ease of calculation, let's take the average basket size of their mobile and desktop platforms at RM 216.08. With 1.9% of their 79 k visitors, Zalora should have about 1, 501 users making transactions monthly. Multiplying both basket size and user transaction averages, we can estimate that there is RM 324, 336.08 in gross revenue a month, and RM 3, 892, 032.96 in gross revenue yearly, just in Malaysia through sales alone.
There are many ways to earn revenue through advertising. In Zalora's case, their main way of displaying advertisements are on their mobile and desktop platforms. Even so, there are still a few avenues for advertisement revenue such as click-through rate (CTR), cost per click (CPC), and cost per impression (CPM).
For ease of understanding, we will be focusing on CPM. Though CTR and CPC are probably implemented and are usually run concurrently with CPM, that sort of information is harder to determine for a specific entity.
Cost per impression is the total cost divided by a number of impressions per ad, multiplied by 1 000; so basically, every ad viewed 1 000 on your platform would give you X amount of money (a rate with a high variance). In Malaysia, the average CPM cost is RM 2.04 ($ 0.50), based on average revenue on Facebook.
With a figure provided, we can start guesstimating how much revenue Zalora makes on CPM ads alone. Again, they have an average of 79 k monthly visits monthly, and an average of 3 pages per visit. Adding on, we can say there are at least 6 ads acting as featured brands.
Doing the math, that would be 233 k monthly visits or 2.796 mil visits yearly. With the cost of RM 2.04 every 1, 000 views per ad, RM 12.24 is gained from the 6 ads. Totalling it all up, the yearly revenue from CPM advertisements should be around RM 34 223.04, based in Malaysia.
If you're someone who has been following the e-commerce scene for at least the past five years, you may have been very skeptical while reading through this. To the others that do not know, Zalora has been having a negative profit gain ever since it's inception in 2012.
How is this possible? How are they even still in business? It definitely was not easy, nor was it straight forwards. With many nay sayers, critics and skeptics, the past 6 years have been rough on this company, with many staff changes, including several CEOs, a reshuffle, and a decommissioned marketing team. But, let's stick to numbers for now.
Before continuing, an important thing to know is EBITA/EBITDA. These are acronyms that stand for Earnings Before Interests, Taxes, Depreciation and Amortization. EBITDA is a metric that, by its name, is used to gauge how much a company has profited, in consideration of financing costs.
Though dated, the image above shows the Zalora's EBITDA from 2014 to the first quartile of 2016. Though slightly confusing, the EBITDA margins displayed are in the negatives, inferring that Zalora has only had losses, however with a decreasing margin.
To quote, Romain Voog, outgoing CEO of Global Fashion Group (GFG) (parent company to Zalora) in 2018, "... we are now in single-digit EBITA negative results, which is a steep improvement to the minus 40 we were three years ago. I am not interested in being a profitable small business – I am interested in being a large, high-growth business, so I think the priority will always be to make sure we stay the leader and reinforce that leadership position."
Tallying the comments and figures, it can be assumed that the image provided reporting the EBITDA should be read in the negative. That said, examining the earlier quote, it seems that it was planned that Zalora focus mostly on growth, rather than profitability; which would imply that infrastructure and other supporting systems was a big expense of the company. This highlights how the Zalora business model is somewhat unique as it prioritises growth over profit.
Globally, the e-commerce market was valued to be at US$ 23 billion and is estimated to hit US$ 102 billion in 2025. In countries like Malaysia, e-commerce is still in an early stage of market penetration; about only 5-6% penetration, meaning there's still 94-95% of untouched market ready to be tapped into.
With an estimated yearly revenue of RM 34,223.04 in advertising and RM 3,892,032.96 in sales, totaling to RM 3,926,256, multiply it by 10 (assuming a 50% market penetration) and you get RM 39 - RM 40 million. This shows an extremely large market size which is suited to the designs of the Zalora business model.
To handle such a big market requires infrastructure, which Zalora have been building for years. With branding that is recognized, affiliations, investments, a customer base and partnerships that have grown over time, the company is in a great spot to receive a higher market penetration.
That said, the e-commerce market and its niche subordinate the high-end fashion market is hot with competition. With an expected higher market penetration, time will tell which businesses will flourish, and which will fall. Regardless, it is worth the watch.
We hope you enjoyed reading about the Zalora business model and revenue model.
Click on the links below to read up on other e-commerce businesses and how they work, or even how their business models work:
https://www.nexea.co › insights-lazada-business-model-revenue-model