Retail giant Central Group is buying Zalora’s businesses in Thailand and Vietnam

Zalora, the fashion-focused e-commerce site backed by Rocket Internet, is selling its businesses in Thailand and Vietnam to retailer Central Group, according to multiple sources close to the deal.

We reported the planned sale earlier this month and have since confirmed that Bangkok-headquartered Central Group is the buyer. The deal is said to be agreed on in principle and currently subject to paperwork and red tape.

A Zalora spokesperson declined to comment. Central Group did not respond to multiple requests for comment.

Central Group may not be a name well-known outside of Southeast Asia, but it is one of the region’s largest retail players with a huge footprint in Thailand and forays into Vietnam, Malaysia, Indonesia and other countries. The group’s assets, which include multiple shopping malls and national department store chains, are worth close to $10 billion and it employs some 70,000 people across its operations.

The group has been tipped to enter the online commerce space for some time, and our sources say that it has struck a deal to buy the country businesses from Zalora for around $10 million each. Online is estimated to account for around 3 percent of all commerce in Southeast Asia and, while that figure has grown in recent years and stands to increase as the Internet becomes more widely accessible throughout the region, it remains a nascent segment that few offline retailers have stepped into.

The low level of online commerce has been a challenge for Rocket Internet’s e-commerce startups, which started out with overly ambitious targets, missed their projections for profitability, and have required significant capital to continue. Lazada received a $500 million investment from Alibaba this month after running out of cash, while Zalora remains unprofitable. Rocket Internet’s latest financial results show Zalora’s revenue rose 78 percent to €208 million ($234 million) in 2015, but its net loss increased 36 percent to €93.5 million ($105 million).

One comparison to Central Group’s move comes by way of Indonesia’s Lippo Group, a conglomerate with $15 billion in assets across a range of sectors that include retail. The group created MatahariMall, an online version of its department store, with its first move into online commerce last year. There are also parallels in China, where Alibaba has invested in physical retailers InTime and Sunning to explore the potential of combining offline and online commerce.

While Lippo Group pledged to invest hundreds of millions in its e-commerce venture, it is unclear what sum Central Group has set aside. What’s more certain is that the Thailand-based group is getting a running start with the acquisition of assets from four-year-old Zalora. Zalora doesn’t publish business figures per country, but it claims 10 million downloads of its mobile apps and 1.4 million transactions per year across 10 countries in Asia-Pacific.

Sources close to Zalora suggest that the company is selling the businesses in an effort to streamline its costs and move toward becoming profitable. Last week we reported that two of the companies managing directors have left the firm over apparent fallings out with Global Fashion Group, the $3.5 billion-valued entity that manages Rocket Internet’s five emerging market fashion brands. Tension apparently circles around GFG’s prioritization of investment in more developed markets, like the Middle East, over parts of Southeast Asia which it deems to be less capable of returning value.

Zalora raised over $200 million from investors prior to becoming a GFG business unit in November 2014. Now its money comes from GFG, which raises capital centrally for all of Rocket Internet’s fashion sites.