Samwers Peddle iPhones in Pakistan for Emerging Market Lead

  • Rocket Internet expanding offerings in Africa, Southeast Asia
  • German copycat kings try to beat rivals in growth regions

The Samwer brothers have made a fortune copying successful U.S. Internet businesses in Europe. Now, their company Rocket Internet SE is trying the same approach in Africa and Southeast Asia, where the opportunities -- as well as the hurdles -- are much higher.

“What happens in Europe will be repeated, with a time delay, in emerging markets,” Rocket Managing Director Alexander Kudlich said in an interview. “The more complex the market, the smaller the competition. And the smaller the competition, the higher the margins. It’s more difficult, but if you succeed, it’s very good.”

When Rocket’s shopping site Daraz held a Black Friday sale in Pakistan, orders jumped 55-fold compared to regular days, with rebated Apple Inc. Iphone 6s handsets selling out in five minutes. The same day, Rocket’s African shopping site Jumia had 35,000 orders mainly from Nigerian customers, with one in four of them new to the platform.

Rocket, which has already built up online retailers in countries including Indonesia, Nigeria and Pakistan, plans to expand further in Africa and Southeast Asia in a bet that young and growing populations, rising Internet and smartphone use and a widening middle class will fuel revenue growth and eventually profit. The Berlin-based company -- founded by Oliver, Marc and Alexander Samwer -- needs these regions to grow because unlike Amazon.com Inc. in the U.S. and Alibaba Group Holding Ltd. in China, Rocket doesn’t dominate one large home market.

In Africa, with its more than 1 billion potential customers, Rocket has been among the first to introduce online shopping. That’s meant educating customers on e-commerce, building a delivery supply chain and handling collection of the mostly cash payments. Succeeding in Africa could mean dominating the overall retail sector, because bricks-and-mortar competition is much weaker than in Western countries or even non-existent.

Offering Access

“In the U.S. you have one retail outlet for about 1,100 people; in Africa, it’s more like one for every 100,000 people,” Kudlich said. “You’re offering customers access to products that they didn’t have before.”

Rocket gained as much as 1.4 percent in Frankfurt on Tuesday, and traded up 0.7 percent at 28.61 euros as of 11:57 a.m. local time.
 
Rocket’s Lazada, active in Southeast Asia, more than doubled sales to $154 million in 2014. It’s the most popular shopping site in markets including Vietnam, Thailand and Indonesia, where retail e-commerce sales are expected to jump 66 percent to $3.2 billion this year, according to researcher eMarketer Inc. Lazada Indonesia had 11 million unique visitors in July, compared with 1.9 million for Amazon and 1.7 million for Alibaba, eMarketer said.

“Lazada has established a dominant position,” said Lucas Boventer, an analyst at Warburg Research GmbH in Hamburg. “Alibaba or Amazon who have shunned these markets also see their potential by now, but Rocket went their first.”

The push hasn’t worked everywhere. Rocket pulled out of food delivery in Vietnam by selling its Foodpanda unit to a rival. In India, its fashion retailer Jabong is facing strong local competition that may in the long term result in Rocket exiting the market or selling the asset, Boventer said. Rocket said it sees “big potential” for Jabong in India, recently hiring a former Benetton executive in India as CEO. Potential long-term risks for Rocket’s emerging markets push include local currency devaluations, Boventer said.

Rocket is determined to succeed and make the two areas profit centers for the company. To get there, the company needs to first cough up more cash. Rocket invests “double-digit million-euro” figures each month in Southeast Asia and Africa as it tries to grow and dominate both regions, Kudlich said.

“We’re seeing very strong growth and we have no doubt that if you’re patient -- and you have to be -- it will continue this way in the coming years,” he said.

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