Tap, Try, Buy allows customers to order unlimited items online without paying anything upfront. The only catch? No home delivery. Instead, items are sent to a Pomelo store for customers to try on. Pomelo covers the cost of delivery and returns, and customers only pay for the items they want to keep.
For Jou and Liang, digital gurus who also launched Lazada Thailand, Tap, Try, Buy captures omnichannel retail’s true potential. Unlike click-and-collect or buy-online-return-in-store, which merely play around the edges of fulfilment, it combines the best of digital and physical retail, so that the whole is greater than the sum of its parts.
Customers can experience the convenience of online shopping without having to worry about the hassle and cost of returning items that don’t fit, and Pomelo can leverage its entire inventory beyond the physical limits of a bricks-and-mortar store.
Over the past few years, Tap, Try, Buy has been a key growth driver for Pomelo. And it continues to evolve as the retailer expands its physical store network across Southeast Asia.
Metrics of success
Pomelo currently has 20 bricks-and-mortar stores across three markets — Thailand, Singapore and Indonesia — and is set to open its first store in Malaysia later this year. According to Pomelo’s chief omnichannel retail officer Anders Heikenfeldt, one of the benefits of offline expansion is the ability to increase reach while reducing customer acquisition costs.
“When we started opening these locations, suddenly we were tapping into new customers and seeing our new user acquisition cost, which is one of the key KPIs for an online business to look at, coming down pretty significantly,” Heikenfeldt told Inside Retail.
Besides serving customers, stores also act as advertisements to people passing by. If someone is curious to learn more, they might walk in or look up the brand online.
In the case of Pomelo, this is how many new customers discover Tap, Try, Buy. Because the brand ships globally to more than 50 countries, but only supports Tap, Try, Buy in markets where it has a bricks-and-mortar presence, it’s easy to see the impact of the offer on customer behaviour.
According to Heikenfeldt, order frequency and usage of the brand’s mobile app are noticeably higher in countries where Tap, Try, Buy is available than countries that are e-commerce only.
“Over time, this leads to higher purchasing frequency and higher lifetime value, which has proven to outweigh the costs of Tap, Try, Buy,” he said.
One of the major costs associated with Tap, Try, Buy is the transportation of items between the warehouse and stores. Pomelo has its own last-mile delivery arm, Pomelo Wheels, which helps save margin, and consolidates returns to keep the unit economics in check.
But there’s also the opportunity cost of not being able to sell items when customers are trying them on. (Pomelo offers an unusually long 365-day return policy.) To address this, the buying team uses a sophisticated demand forecasting model that considers multiple variables, such as seasonality, category and price, to decide not only what to buy, but how much.
“The more data we get, the more accurate the machine learning algorithm becomes,” Heikenfeldt said.
At the same time, the brand is constantly trying to increase the hit rate of what customers buy compared to what they order, and it’s currently working with Amazon to personalise its product recommendations based on customer data.
“We perceive ourselves as a tech company,” Heikenfeldt explained. “If you take away the stores and the warehouse, the majority of our employees are working on tech.”
The next phase of growth for Pomelo involves expanding Tap, Try, Buy beyond its own stores. In 2019, the retailer launched Pomelo Partner locations, enabling customers to send orders to yoga studios, gyms, cafes and other businesses, try on and even buy items. The idea is all about convenience.
“Our goal is to get closer and closer to our user base,” Heikenfeldt said.
There are currently around 100 Pomelo Partner locations in Bangkok, and the business plans to open Partner locations in Singapore next.
A platform to rule the world
However, Dr Seshan Ramaswami, a marketing professor at Singapore Management University, is not fully convinced by Pomelo’s omnichannel offer.
“While the Tap, Try, Buy model is certainly innovative for a fast-fashion brand in Singapore, I do not think this will be a critical factor for its success,” he told Inside Retail.
“What will ultimately determine Pomelo’s success are the basics — are their designs attractive to the consumers shopping in that mid-price range?”
Pomelo’s appeal has likely gone up since it started selling iconic brands, such as Converse, Levi’s and L’Occitane, through its digital channels last year.
“There are a lot of benefits to being a platform versus an own brand,” Heikenfeldt said about the recent shift, announced in November.
“First of all, it’s a bit more risk-diverse because you’re not betting everything on your own collections, you have other brands supporting it. You can also tap into different price segments and offer a wider range.”
Pomelo currently has more than 100 third-party brands on its platform. At the moment, they’re only available in Thailand, but there’s an “aggressive hiring plan” in place to expand the platform to more markets this year.
Despite Pomelo’s impressive growth and innovation in recent years, it’s still operating in the shadows of the global fast fashion giants.
Uniqlo’s revenue in Southeast Asia and Oceania rose 20 per cent year-on-year to 170 billion yen (roughly US$1.6 billion) in the 12 months ended August 31, 2019; the retailer’s last full-year not impacted by Covid-19. H&M’s revenue in Asia and Oceania rose 11.7 per cent year-on-year to 35.6 billion sek (roughly US$3.8 billion) in the 12 months to November 30, 2019. The Swedish retailer currently has 1.5 times as many stores in Asia and Oceania as it does in North & South America.
Pomelo is a private company and does not disclose its revenue, but in 2019, it was reported to be looking to raise US$50 at a valuation of US$200-240 million. It later raised US$52 million in a Series C round from blue-chip investors, including Chinese e-commerce giant JD.com and Thai retailer Central Group.
But Heikenfeldt, who is actually from Sweden and spent the bulk of his career at H&M before joining Pomelo, believes there are some areas where the Thai business has an advantage over the market leaders.
“I think major retailers entering this part of the world face big problems because often they have a one-size-fits-all approach,” he said.
Pomelo understands the need to tailor its offering to each market through the local language and culturally and spiritually appropriate products and marketing.
“Southeast Asia is a very diverse group of people,” he said.
Dr Ramaswami also sees Pomelo’s Asian heritage as a core strength of the brand.
“A strength it can capitalise on is that it is an Asian brand and can draw upon Asian motifs and fashion traditions that it can modernise — to make it distinct from brands like H&M and Zara,” he said.
“Pomelo has an opportunity … to develop its own unique style, that can then be marketed across the world, not just in Asia.”
Watch out, Zara.