Zain Suharwardy, MD, Daraz pk, on the evolution of Daraz.pk and the consumer trends which dictate online retail.
AMBER ARSHAD: What was the idea behind Daraz.pk and how did it start out?
ZAIN SUHARWARDY: The concept of Daraz, and what it eventually aspires to be, is a platform where you can source everything; electronics, home living, baby clothes, toys and so on. The idea is to have everything under one roof by making all the products offered by specialty websites available in a single place; think Amazon or Alibaba. Daraz started out in 2012 as an online fashion retailer with a few apparel brands. After that, we jumped into every category, started to partner with different brands, marketed ourselves and increased our product assortment drastically.
AA: What is Daraz’s business model?
ZS: We are primarily a marketplace, a platform where consumers and vendors can interact and transact. We do not hold any inventory; we bring together customers who place orders and vendors who hold the inventory and pack the products. However, this model does pose a problem because we don’t have control over the inventory; we have to trust vendors, and more importantly, we need to train them.
AA: What kind of training?
ZS: Before we bring vendors on board, we invite them to spend a couple of days with us. We help them open an account on Daraz, ask them to bring some of their product SKUs and guide them in creating product descriptions. We teach them how to pack the products so they are not damaged in transit. We ‘ease’ vendors into our system – initially, they are limited to accepting three orders a day and if they meet our KPIs, this number increases. We have a vendor rating system and if they fall below a certain level, we penalise them. We train our third-party courier companies and advise them not to accept deliveries if they are not packed properly. The customer experience remains at the heart of our business and satisfied customers are the reason why Daraz has seen such significant growth.
AA: How has Daraz grown over the years?
ZS: We have been seeing double-digit growth month-on-month from the start and this growth will probably continue for the next four to five years. Since 2012, we have grown several times over. We had 500 customers in 2012; today, a single promotion attracts at least a couple of million people. Our biggest advantage is our product assortment. When we started, we had 1,500 to 2,000 SKUs; today, we have close to 250,000, and we are just scratching the surface. Our product assortment aspirations are similar to those of Amazon and Alibaba, which have close to 500 million products on their website.
When we started, we had 1,500 to 2,000 SKUs; today, we have close to 250,000, and we are just scratching the surface.
AA: A rising middle class is often cited as the reason for the growth in retail in Pakistan. Is this true of Daraz as well?
ZS: As a business we serve the whole of Pakistan, but for practical purposes, the middle class is our target audience and the reason behind our growth. Our customer base starts from 18 and goes up to 45 and 50. Karachi, Lahore, Islamabad (KLI) are our biggest markets, although a good amount of traffic comes from second-tier cities as well. In fact, 50% of our orders are from KLI and 50% from second-tier cities and other towns; second-tier cities do not have as easy an access to malls and markets as the larger cities do and this is why we intend to focus on them as part of our growth plan. We are also seeing increased mobile traffic, which in fact, accounts for 75% of the total traffic; 23% comes from the app, and 52% from mobile devices.
AA: What other consumer trends do you see in online retail?
ZS: Seasonality for sure. In summer, there is a surge in demand for air-conditioners, fridges, water dispensers, etc. From mid-Ramazan, we expect an increase in travel-related orders because a lot of people travel inter-city to celebrate Eid. We capitalise on these surges by running promotional campaigns. Overall, there is an increase in women visitors. Smartphone penetration in second-tier cities has also proved to be a game changer.
AA: How do you extract these trends?
ZS: We are a data-driven company and invest heavily in our data teams. We look at sale trends, see how different promotional campaigns perform and how and when traffic spikes happen. We monitor the customer journey, we have heat maps to monitor how many people have seen new ad banners, how many click them, how much time customers spend on a banner or a product page and the average amount of time they spend on our website; we then plan accordingly.
AA: What are the challenges of online retail?
ZS: The first is to create that belief that online shopping is safe and people will not cheat you. The second is training vendors and growing their base. The third is that there are no defined mechanisms to measure online retail (or even the overall retail industry); in fact, there is no real measure to determine how big the market is.
By working together, courier and e-commerce companies can have synergies that will give customers the very best service.
AA: Is outsourcing logistics not a disadvantage given the fact that companies like TCS have entered the retail market?
ZS: Having a courier company does not mean you know e-commerce. We are a marketplace-based model, whereby Daraz is at one end, the customers on the other – and in between there are the courier companies. I can give our products to any courier company and they will ensure delivery to the customer. However, we are aware that having our own fulfilment delivery would be a strategic advantage and this is why we launched ‘D First’ – a facility available for the most popular items on our site and which are directly delivered by Daraz. Ultimately, the optimal way forward will be partnerships. By working together, courier and e-commerce companies can have synergies that will give customers the very best service.
AA: What is Daraz’s growth strategy for the next two, five and ten years?
ZS: In our business, two years are like 10 years in a traditional business! In the next couple of years, we will focus on building our product assortment. We plan to aggressively expand our FMCG, health, beauty, electronics, kids and baby section and partner with new brands to launch product deals which will be exclusively available on Daraz. As part of our long-term growth strategy, Daraz merged with Kaymu (a Rocket Internet company) in 2016, and although for now Kaymu operates as a separate site, eventually, all products and sellers will be listed under Daraz, thereby further increasing our customer and vendor base.
AA: Daraz is an international venture with investments by Rocket Internet and the CDC Group. What future do they see in Pakistan?
ZS: Pakistan has been earmarked as the regional head office for Daraz. Daraz Pakistan will oversee five markets in Asia; Bangladesh, Myanmar, Nepal, Sri Lanka and Pakistan. The tech hub will be in Karachi. For Rocket Internet, the core fundamental is to enter untapped markets and create the ecosystem, and in this respect, Pakistan was a very viable opportunity. First, with a population of 200 million people, this is a big market to tap into. Second, Pakistan has excellent logistics, road networks and interconnectivity. Third, there is a rising middle class, and consequently, an increase in purchasing power. Fourth, there is the talent pool. There are a lot of young, intelligent, driven and hardworking people in the country, and technology-based companies like Daraz thrive on this. We are still nowhere near our true potential, but we are moving in the right direction.
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