Are Pakistan’s e-commerce platforms really winning as big as they claim on Black/White Fridays?

Hello friends, colleagues and co-conspirators!

Black Friday sales are always a time that paint an extremely rosy picture of the promised land thats e-commerce. If one were to read the coverage of the event, one would believe that all big players broke all conceivable records and everyone was a winner. Case and point ProPakistani’s articles titled “Daraz Breaks All Records with PKR 3 Billion in Big Friday Sales” and “Yayvo’s White Friday Sale Surpasses All Sales Records” (the whole fiasco over the fatwas calling a holy day like Friday black and the subsequent re-branding of sales as White Friday is a rant for another forum & day). So which of these players actually really won big, ProPakistani? We can’t be sure, particularly since the aforementioned articles seem to be press releases created by the PR arms of the concerned companies, rather than a critical look at the numbers. It would be better if both companies focused on customer satisfaction post-sales (there have been bad customer reviews post-Black Friday sales), instead of expending energy and money on creating hype about breaking records.

There are a number of issues with the data reported. Let’s take the example of Daraz.pk. While the local e-commerce leader reported the highest sales worth PKR 3 billion (the platform also raked in the highest total visits by a significant margin during Black Friday standing at 20.40 M. Yayvo and Symbios got 2.23M and Homeshopping actually saw a dip and stood at 1.27M according to estimates provided by SimilarWeb, see Techjuice for more), this figure means nothing unless we also know if they’re also including discounts (usually players don’t include this because that would lower their numbers), how many of these products were returned or cancelled, the average transaction value, etc. The sales number could be this high because of a few really high-value transactions which may not even have any significant margins. On top of that, imagine if a high-value transaction was later cancelled or returned? Furthermore, the internet is ripe with accusations that the platform hiked-up original prices before discounting them. Many customers are also claiming that they were informed several days later that their product was out-of-stock (a problem that caused huge problems for Daraz after last year’s Black Friday sales as well).

One of the unique features about this years Daraz sale was its “cutting-edge” partnership with VEON which was painted as a major success. However, if the rumour mill is to be believed, it seems that VEON/Jazz walked away unhappy from the partnership, which also resulted in VEON spending around PKR 15 million in discounts. Representatives from Jazz/VEON did not share any concrete data with us when we reached out which neither confirms nor denies these rumours. While Yayvo steers clear from providing a concrete sales number by simply stating that their sales volume grew 4 times, they also do not share any of the numbers we listed above (and did not respond despite multiple requests for the data). Shopistan also shared that the Gross Merchandise Volume (GMV) across their brands over Black Friday weekend was USD $250K, and the GMV was USD $750K for the whole month of November (concerns about GMV estimates stated above apply). Without objective data, it is nearly impossible to figure out Pakistan’s actual GMV.

Recently, Jawwad Farid & Faizan Siddiqi attempted to estimate Pakistan’s GMV, but, as they cautioned repeatedly in their article, their estimates cannot be used for deal-making, valuations or acquisitions because without accurate market-based disclosures these figures will not be accurate. However, despite these caveats, this piece is a good attempt at providing a rough estimate. While the official number that the Pakistan Telecommunication Authority (PTA) gives us for the country’s E Commerce market size is 1 billion by 2020, Farid & Siddiqi estimate it to be more in the neighborhood of US$7.6 to 6 billion by 2022. Even if we fall short of that figure by 50%, thats a) a much bigger number than what the PTA is predicting and b) a massive market opportunity for players that survive until 2022.

In light of this (and combined with Pakistan’s growing middle class – almost equal to Turkey’s entire population – and increasing mobile phone internet users – 40.56M according to the EComX report), it’s no surprise that players like Alibaba are rumoured to be looking at Pakistani e-commerce operators for potential acquisitions. With Amazon having made recent aggressive plays at markets in the region with its acquisition of Souq.com, we have seen and will be seeing more strategic plays by Alibaba to expand its reach as well (Its already made a  play for the Southeast Asia market by acquiring Lazada.com). Recently, the rumours of Daraz having been acquired by the Chinese giant have surfaced once again. I can understand why this would seem likely, Daraz.pk is widely considered the market leader (even though the overall market is still very small and estimated to be between US$60 – 100 million in 2015 according to PTA), Alibaba has signed an MOU with the government to promote/invest in Pakistan’s e-commerce ecosystem and it has dealt with its primary backer Rocket Internet before during the Lazada.com deal (Lazada.com was launched by Rocket Internet in 2012). However, I don’t believe there to be much truth to this rumour for a number of reasons – 1) Lazada.com had significant traction and a track-record of performance that is still unmatched by any of the local players including Daraz.pk. Additionally, Lazada has much greater geographic spread and serves six countries in the region. So a potential acquisition of a Pakistani platform is still at least a couple of years off. 2) AliExpress is already estimated to be outperforming local players when it comes to online shopping and experts say the platform receives approximately 15,000 orders a day from Pakistan even without a formal presence in the country. This is similar to why Amazon does not formally enter the Southeast Asian region, particularly Singapore, its biggest market in the region – there isn’t a need to because it’s already generating a lot of revenue without official presence in the country. 3) If Alibaba or AliExpress were to officially enter the market, they would either just build their own infrastructure or acquire a player that would fulfil this need. Daraz.pk would not meet this requirement. However, if Alibaba were to acquire TCS & merge with TCS-backed platform Yayvo, they’d be in a much better place to meet this need. Currently though, Yayvo isn’t performing well-enough for this to be an option and from past deals made by Alibaba, the giant does not seem inclined to put money into ventures that haven’t yet demonstrated significant results. Yayvo is still quite young and things may change a couple of years down the road but an acquisition right now seems unlikely.

If local players are to make dreams of a big exit a reality, there is a serious need to hunker-down and actually work on cracking the market potential rather than investing in PR that presents inaccurate and inflated numbers. The only information that e commerce players have released that is useful it’s the conversion from Cash-on-Delivery to prepayments. While the percentage conversion to prepayments quoted by players varies from 95% (Homeshopping.pk) to 73% (Yayvo) to 55% (Daraz.pk), the trend is encouraging because it debunks the assumption that trust and security concerns are what stop Pakistani consumers from prepaying or paying online. What motivates customers are incentives, but such incentives are not sustainable on a regular basis. What we need are for more concrete data-driven research to help build-out deeper customer personas to help understand if there are other ways to encourage Pakistani consumers to pay online or to design better payment gateways. Payments remains one of the last missing pieces in the formula for the success of many of the local e-commerce players and investors alike. It’s also interesting to note that Yayvo reports having delivered 52% orders within 2 days and 71% within 3 (thanks to its affiliation with TCS and what can truly give the platform an edge over other players). However, as noted earlier, while this is an encouraging sign at improvements on the logistics end we can’t say more without knowing how many returns were made. Daraz on the other hand notes having shipped out 85% of orders within the first few days but does not disclose the delivery times.

Read on for more on ecommerce & Black (White?) Friday related trends. Have more to say on the topic? Or just share some interesting research/articles with us? Give us a shout!

Cheers, 
Anusheh Naveed Ashraf
Head of Insights, Invest2Innovate

Tweet of Interest

Online/mobile payments have been a big missing piece that’s always identified as one of the key barriers to e-commerce taking off in Pakistan. These numbers shared by Telenor indicate a step in the right direction. We also reached out to all the other telecommunication companies but did not receive any numbers. Of the major players, though, VEON seems to have been the only one that made a play during Black Friday through its partnership with Daraz, but as discussed earlier, rumour has it that they walked away unhappy from said deal. Fintech company, Finja, with their online wallet SimSim, made limited experiments via partnerships with Homeshopping, Symbios and ShopHive, but according to representatives we spoke to, the numbers are humble due to the limited nature of participation and the company just having started out. SimSim is currently the only player making payments through its wallet free for both customers and merchants, so it will be interesting to see how their play to go cashless shakes out over the next year.

A Recap of Our Year in 2017

1) In-house research and gathering on the entrepreneurial ecosystem;
2) Bespoke studies/researches/strategy work for corporations, international players and investors – our past clients include TALA, a global fintech company for whom we did a market entry research and Green Bean Coffee, a locally roasted coffee for whom we conducted market research on Pakistan’s coffee drinking population and designed a rebranding and marketing strategy. We are currently also in the final stages of negotiating three big research projects – an impact assessment study, a data mapping exercise of where data exists in Pakistan and a mobile payments study that looks specifically at small merchants with three corporate clients.
3) Working towards leveraging our research work to advocate for more data-driven policy dialogues and reform.

Some of the highlights of our year were:

We authored a chapter in the World Bank’s biannual Pakistan Development Update on on the country’s startup ecosystem, but more importantly, why startups matter for the national conversation, and why strengthening policy & finance is key to seeing startups become high-growth businesses & therefore engines for job creation and economic growth in Pakistan.

Launched our videocast series called i2i Chats (check out our latest episode with Atif Bin Arif – founder of Super Savari Express here), which seeks to highlight founders, players & stakeholders in the Pakistani startup ecosystem and talk about lessons learnt and also analyse emerging trends. There is a lot of great activity happening within the ecosystem but this series is our way of shedding more light on & celebrate it.

We were invited to share our work on making data open and accessible to all on multiple forums including this panel arranged by the US Embassy during the local Global Entrepreneurship Week celebrations. To us this is groundbreaking because these our the first few discussions of this kind that are not only talking about the impact data can have on improving our investment climate, market entry opportunities within Pakistan but went on to discuss the various interventions that are being take that put this into practice. In 2018, we look forward to solidifying our work even further by taking the first steps towards making access to the data we gather open & free.