Last month, Pomelo, a Bangkok-based online fashion brand, confirmed US$19 million funding led by, China’s second biggest ecommerce platform.

This is shortly after Zilingo, another fashion ecommerce company focused on Southeast Asia, announced US$18 million Series B led by Sequoia Capital India and Burda Principal Investments.

It is worth noting that recently concluded negotiations with Thailand’s retail giant Central Group to create a US$500 million ecommerce joint venture. JD Central ( is probably launching soon, if the two teams can get to the same wavelength quickly.

On the other hand, Zalora, Rocket Internet’s fashion ecommerce venture, seems to have lost its momentum. Last year it sold its businesses in Thailand and Vietnam, its Philippines operations were partially sold to a local conglomerate, and rumours are saying the Indonesian business is up for sale as well.

What happened?

Why fashion ecommerce

In many countries, fashion is always one of the first categories of goods that are put online, along with electronics. The economics are obvious: people spend on fashion, repeatedly; yet because of fast moving trends and the complexity of SKUs (with sizes, colours etc), optimising the fashion supply chain and offering consumers a good selection have always been lucrative business opportunities: think Zara or Uniqlo.

While for electronics (relatively standardised), people shop online for price, in fashion probably selection is the biggest driver. Offline retail, especially in emerging or far flung areas, find it hard to keep good stock that correspond to the latest trends; at the same time, their consumers demand such, after being exposed to popular culture and, increasingly, social media.

Obviously, keeping inventory in a central warehouse, and marketing directly to customers over their mobile phones, partially solves the scary inventory problem that many fashion players across the chain have been facing.

Why is Zalora struggling

From Yoox to Net-a-porter (which thus merged), there are many successful fashion ecommerce companies. Rocket Internet also started with fashion, building Zalando (initially a copycat of Zappos), which is now a listed company.

For that reason, the Samwer brothers believed in fashion, and Zalora was one of their first ventures built in Southeast Asia. It had a good start – getting lots of attention at least. Smart, driven young fashionistas wanted to work there; and constant interactions made it easier for customers.

The biggest disadvantage of fashion ecommerce is the lack of real experience, and many of the innovations in the space are meant to tackle that. From easy return to recommendation engines, and even the latest gimmicks, Zalora has always been at the forefront of adoption.

So why is it struggling?

Well, one key factor is, in fact, the markets it is in. You probably know that Rocket Internet has a Global Fashion Group (GFG), which owns Zalora and fashion ecommerce ventures in other regions. One of these ventures, Namshi, has been hailed as a big success – it is making a decent profit while Zalora is still bleeding money after five years.

While you can laud Namshi’s team as much as you want, you can’t ignore a simple factor: Namshi is operating primarily in the Gulf Countries, where its basket size is about US$100. In comparison, Zalora in Southeast Asia can hardly hit US$40.

So one has enough margin to make a decent profit – the other can’t stop losing money.

Yes, Zalora in Southeast Asia is selling many items that are more expensive than typical mall fashion for the masses but less classy than high end stuff for the region’s rich. It pushed hard on private label – alas, managing the private label supply chain for a big ecommerce platform is no way easy.

An ex-Rocket friend who used to be quite senior at Zalora, compared the trajectory of Zalora to livestock farming. “You have a cub in 2012 which you hope to raise to the size of an elephant,” he once told me. “After two years you realise that because of the environment, it is impossible to reach the elephant size within the investment horizon.”

“Although it can still become a decent sized cub, the farmer refused to acknowledge failure,” he continued. “So the farmer continued to force feed the adolescent cub.”

As a result, many members of the leadership team grew impatient and left the company. It had to take a down round – and the future was still foggy.

But Zalora is still a good brand, and it is not hard to find out. Just ask young female shoppers in the countries where Zalora operates.

Pomelo is hardly a new model

Probably as part of the funding round PR, Pomelo founders dismissed Zalora as a mere “online convenience store”, listing products from different brands, and Zilingo just a marketplace.

In comparison, Pomelo is a ‘brand rather than a platform’, selling its own branded fashion predominantly to Singapore, Indonesia and Thailand (and ship to about 40 other countries).

In other words, just like Zara, Uniqlo or Esprit (the last might not be a good example anymore), but better, with faster shipping and 7/24/365 availability. It also adds new inventory every week, which ‘sells fast’.

Although calling itself “rocket-speed fashion’ is kind of cool, what Pomelo is doing is hardly anything new.

The same model has been used in China for years, with competition, winners, losers, and lessons learnt.

The good thing about the brand is that you capture a larger percentage of the profit in the value chain. The challenge is that, you really need good supply chain (including an excellent buyer team), as people’s taste (a.k.a. fashion) changes rapidly and constantly. Otherwise brands have a very very short lifecycle nowadays.

Marketplaces are more resilient because it inherently has more selection. That said, you can only reap the profit of being a marketplace if you have a significant marketplace in a decent market.

China <=> Southeast Asia

The founder of Pomelo wants to bring the model to China – well, China is far ahead in that vertical. In fact, a few Chinese companies are coming to this region, with their millions of SKUs and mature supply chain.

This, coupled with the pledge of both Pomelo and ZIlingo to invest a significant chunk of investment in Indonesia. This is getting very interesting.

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