Zilingo, the Singapore-headquartered business-to-business fashion ecommerce company with close to US$1 billion in valuation, has cut more jobs in Singapore, Thailand, India, Vietnam, and Indonesia as it deals with the fallout of the Covid-19 pandemic, several sources close to the situation tell Tech in Asia.
Founders Ankiti Bose and Dhruv Kapoor said in a blog post that 12% of the company’s total workforce has been affected.
This follows the first round of layoffs in April, which affected about 5% of its then-900-strong workforce, though sources indicate that the retrenchments went even deeper.
The company is also instituting pay cuts and remote working measures as well as shifting some Singapore-based roles abroad. This may mean letting go of or subletting its current spaces. Its entire office at Singapore’s Duo Tower, for instance, was advertised on the property site CommercialGuru, a person involved in the sale tells Tech in Asia.
Zilingo, however, said on its blog post that its “current Singapore office” will be fully functional by August. The listing has since been taken down, but it was up for a few days at least.
Meanwhile, Zilingo’s chief financial officer James Perry – a well-regarded investment banker who worked at Citibank for 22 years before joining the startup – has returned his shares to the company for a token sum, public filings reveal. He had been with Zilingo for just over a year.
However, a spokesperson states that Perry is still with the company. The filing “reflects an internal restructure of shares to be in compliance with applicable regulations,” she said.
Effects of Covid-19
In the company blog post, Bose and Kapoor mention that for most fashion-focused small and medium-sized enterprises across Asia – Zilingo’s core market – recovery is expected to be slow and will likely take another three to six months. They also say that over 25% of fashion MSMEs in South and Southeast Asia have shut down.
In addition, one employee tells Tech in Asia that Covid-19 has disrupted the company’s fintech plans, as many SMEs are expected to default.
Zilingo’s role has been to facilitate loans to SMEs in partnership with a financial institution. Through brokerage fees, this business was supposed to be a profit-generating machine, an ex-employee says.
The exact scale of Covid-19’s impact on Zilingo is unclear, but a concerned chief executive at one of Zilingo’s vendors tells Tech in Asia that he has decided to cut the company’s credit line.
Zilingo’s founders, meanwhile, are claiming that “various initiatives” in Q2 2020 have allowed the company to “significantly” improve profitability and focus on specific areas of the business.
It has also expanded into new categories, such as personal protective equipment (PPE) and – in a departure from its fashion focus – fast-moving consumer goods (FMCG). On Zilingo Trade, its B2B platform, users can already purchase face masks and face shields, along with cooking oil and instant noodles.
While employees recognize the need to find alternative income sources to help the company survive the pandemic, they also question this strategy.
“PPE is definitely something that everyone is chasing, but I don’t think there are margins to make there,” says a current employee. “It’s not going to move the needle.”
A former employee questions what Zilingo’s value proposition is for PPE, as it would not be the first company to consider this particular vertical. The source admits that offering PPE could be a nice strategy – if done “properly,” that is.
“You need to be very professional, because you cannot deliver bad products [when] people’s lives are on the line,” the ex-staff says. “You also need time, you need to know suppliers, have contracts, secure logistics and supply chain. It’s not a business you enter in two days.”
As for FMCG, an employee in Thailand says that Zilingo will come up against a formidable competitor: the Charoen Pokphand (CP) Group. The homegrown conglomerate operates 7-Eleven convenience stores across the country, among other businesses. The source says that Zilingo’s target has been mom and pop shops, but there are “barely” any of those left in Bangkok.
“I don’t think they did the demographic analysis right,” the person explains. “In Bangkok alone, everything is monopolized by CP and 7-Eleven.”
The same goes for restaurants, which are starting to reopen in the country. Zilingo would have to go up against CP-owned Makro, Thailand’s biggest food supply distributor.
In the meantime, Zilingo’s founders are expecting the global economic recovery to take a year or more. As such, the company is cutting down costs to ensure “long-term profitability.”
The leadership team is also taking a 30% pay cut “at the very least,” while others have opted for voluntary pay cuts.
“We would like to ensure a majority of our teams remain on full pay,” wrote Bose and Kapoor.
The challenges of B2B ecommerce
While Covid-19 has surely made an impact on Zilingo’s business, current and former employees tell Tech in Asia of problems within the company that have existed even before the pandemic.
In the blog post, Bose and Kapoor talked about having a “razor-sharp focus” on two core propositions: enabling B2B commerce and enabling merchants with critical digital services across software, logistics, marketing, and payments.
Employees generally agree that the B2B segment is the company’s main revenue driver. A former employee recalls that Aadi Vaidya, Zilingo’s chief operating officer, sent an email to staff sometime in 2019, stating that the company’s gross merchandise value (GMV) amounted to over US$1 billion.
Assuming the typical marketplace margin of 10% to 15%, the former employee estimates a turnover of US$100 million, most of it coming primarily from B2B.
By February 2020, Zilingo was hitting US$2 billion in annualized GMV, a source close to the company told Tech in Asia previously.
However, a source who is familiar with the company’s marketing strategy says that unlike the business-to-consumer segment, which generally focuses on promo code-heavy discounts (even for other companies), marketing for B2B revolves around getting sellers to enlist on the Zilingo platform through offline engagement. But the return on investment for their B2B marketing spend is negative, the person says.
“In the markets that we operate, we cannot build that trust and brand awareness to encourage a buyer in Indonesia to spend more than US$100 to go online and buy from wholesalers” on the Zilingo platform, the source says. As a B2B brand, Zilingo is not as established as competitors like the Indonesian startup Ralali or the bigger ecommerce marketplaces, the person further notes.
Tech in Asia reached out to over 15 clothing merchants on Tokopedia and Lazada in Indonesia and five in Thailand. While most have heard of Zilingo, especially among those in Indonesia, only one merchant has used it. That merchant last communicated with Zilingo in 2018 and didn’t continue on the platform because the transaction fees were substantially higher compared to Tokopedia’s. Zilingo had said in February that it had 70,000 sellers on its platform.
Meanwhile, the CEO of a major competitor says that his firm has not encountered Zilingo in its outreach to “decent-sized” ecommerce sellers in Indonesia.
Zilingo had also solidified its foray into the software-as-a-service (SaaS) space with the acquisition of Sri Lankan startup nCinga for US$15.5 million at the end of last year. But while Bose and Kapoor talked about software solutions as part of their core propositions moving forward in the blog post, employees say that “most” members of the SaaS team have exited the company.
Those that have left include the SaaS team’s head of business and product Sid Narayanan and its product marketing manager Willy Vanneste. Narayanan declined to comment for this story, while Vanneste did not return Tech in Asia’s request for comment.
Zilingo is currently looking for a sales manager and head of SaaS, who will be both based in its Jakarta office. That said, employees point out that the company hasn’t reached a large customer base for the SaaS product yet.
One bright spot for Zilingo appears to be its marketing-as-a-service (MaaS) unit, which lets brands and other businesses hire Zilingo’s in-house team for catalog and video shoots. An employee says the service is seeing a “healthy pipeline” in markets like Indonesia and Thailand.
“In Thailand, it’s doing really well because there are a lot of SMEs and small fashion brands,” the person says.
However, it’s unclear how much Zilingo’s MaaS contributing to the bottom line or how scalable the service would be compared to other business units. The employee says the four-person Thai MaaS team is “overworked,” handling something like 10,000 stock-keeping units a week.
The toll of rapid pivots
While drastic changes in the midst of an unprecedented pandemic is understandable, employees say that the move to PPE and FMCG is just the latest in a string of pivots in Zilingo’s history, giving them the impression that the startup has unclear priorities.
Having started out primarily as a B2C fashion platform similar to Zalora, Zilingo doubled down on B2B after raising US$226 million in series D funding early last year. It proceeded to announce new initiatives in SaaS, MaaS, and fintech.
However, the way the pivots were done has taken a toll not just on company performance but also the culture. Decision-making often felt “impulsive,” employees say.
“I think that may have worked two years ago, but that kind of business decision-making at this point is not sustainable for team morale or productivity,” says an ex-staff.
The lack of transparency and communication from the top included disclosure of metrics such as revenue, GMV, or even cash burn and runway, which were “not actively distributed,” reveals one former employee. The staff would know only if they ask the right people or if they were in the right meeting or team.
Zilingo would also organize off-site meetings at the last minute for a select number of people (primarily senior staff), without disseminating the minutes or results of those meetings to the rest of the company.
“Even finding out about new offices that were opening in Vietnam and Cambodia – by the time the [whole] company would hear it, it had been one or two months [already],” a source says. “A running joke was that you would find out more about the company through the news, rather than as an employee.”
But a former employee also spoke of a positive time at Zilingo, when the leadership was “approachable” and willing to disclose information when asked.
“It’s an individual effort. To be recognized, you need to put in effort, not just in terms of results but also in reaching out” to the leadership, the source says. “Everyone needs to be proactive.”
The pivots also had ramifications in the hiring process. An employee says new hires would show up on their first day and then be informed that their scope had expanded or totally changed.
“Because of all these constant changes, the attrition rate is very high in the marketing and sales teams,” the person says. “There are people hired to do B2C, and now they’re doing SaaS. It’s very hard to pivot skill sets into a different vertical or role.”
An ex-staff adds: “I guess that’s part of the startup nature. But at this time and with their resources, I don’t think that’s a decision that would help them.”
Zilingo investors Sequoia Capital India, Temasek Holdings, Wavemaker Partners, and Burda Principal Investments declined to give comment for this story.
In the meantime, Bose and Kapoor said that Zilingo’s leadership and human resources team are “driving” outplacement efforts for those affected.
Employee stock option plans will continue to vest during the notice period, while cliffs and non-compete clauses have been waived.