Trends in e-commerce in Pakistan

One of the major winners from Covid-19 globally has been e-commerce companies. Based on data published by InsiderIntelligence, global online sales in 2021 are expected to be 19.5 per cent, compared to 13.9pc in 2019, a 45pc increase in 2 years. Pakistan has not been excluded from this trend; based on data published by the State Bank, the number of registered e-commerce merchants in Pakistan increased from 1,707 in 2019-20, to 3,003 in 2020-21, a 76pc increase.

In Pakistan, e-commerce tends to be dominated by business to consumer (B2C) companies. There are three main sectors, general e-commerce, groceries/quick(q)-commerce and fashion.

The most fiercely contested current sector in Pakistan is quick commerce/groceries, where Foodpanda and Airlift are the two big companies battling it out for market supremacy. Both have adopted the dark store model which requires a limited number of stock keeping units (SKUs) being stocked in different strategic locations spread across different neighbourhoods, allowing both companies to promise a sub-30-minute delivery in major cities. Another start-up, Munchies has raised $2.5 million to follow the dark store model and have launched operations in Karachi recently.

The reason for such big raises is that the dark store model requires heavy capital investment upfront to get operations up and running. Further, other big brand retailers (Carrefour, Al-Fatah, Metro etc) and start-ups (Grocer app, Hum mart, Cheetah, Bykea amongst others) are trying to compete in this space using different models.

Most people do not trust e-commerce in Pakistan which is why cash on delivery is still the preferred method for payment for the majority of online orders

Despite all the funding being raised by q-commerce companies, a fundamental question remains. Is q-commerce a model that will work in Pakistan? Pakistan has a lifestyle where the pace of life is slower compared to the US/Europe. The affluent have employed paid help and people tend to use shopping as an excuse to get out of the house as there are fewer leisure activities available. Right now, customers are using the services since there are multiple discounts doing the rounds as start-ups are fully funded and focused on obtaining customers. The question this raises is, how sticky and loyal will such customers be?

Fashion is an interesting sub-market as all the major retail brands have a significant presence online, and a few of them do limited stock drops online, which get sold in a matter of hours. Further, there is a variety of direct-to-consumer brands which exist based on social media targeting, particular categories (eg Fitted for men’s polos, Genie for Jeans), companies that buy stock from local factories and sell online (ExportLeftovers as a prime example). There is room for a bigger multibrand store/aggregator and clicky.pk and Buraqstore are vying for that space.

Global trends in fashion that have started in Pakistan but haven’t picked up are re-commerce (selling/renting of used clothes) and personal styling. Secret Stash is one local company that wants to create a marketplace for re-commerce, just like TredUp has done in the US.

Rent It, on the other hand, provides the opportunity to consumers to rent a dress by big fashion designers. There is economic sense to do this in Pakistan, and global comparables exist like Rent the Runway in the US, though they provide a monthly subscription of designer clothing to their customers.

Personal styling companies which utilise data and algorithms to suggest clothes have not been started in Pakistan yet. The US has StitchFix and is a space to look out for in the future.

By far the biggest player in e-commerce is Daraz, which doesn’t face any direct established competition. Incubated by Rocket Internet, and sold to AliBaba in 2018, Daraz has the financial muscle of AliBaba behind it and has been spending huge sums of money to bring e-commerce to the forefront of the public using their annual deals day, through sponsorships or more recently by streaming the T20 World Cup for free. Daraz wants to position itself as the premier e-commerce service with endless selection and quick delivery.

However, this doesn’t solve the company’s greatest challenge — an inherent lack of trust in the brand. This was at full display when a video of children from Gilgit unpacking a drone ordered from Daraz went viral last year because the listing was fake and the box was empty. A major reason for the video going viral is that this is an experience many Daraz users had felt at some point or the other. This is further validated by it having a score of 1.7/5 on Trustpilot, and being ranked 168/468 marketplaces for trust by Sitejabber.

Daraz launched DarazMall in 2019 to counter this, where only established brands sell their products to customers. OLX Group also launched their B2C competitor for Daraz, called OLXMall in November 2021.

This lack of trust is a mindset that most people in Pakistan approach e-commerce with. Furthermore, this is also the reason that cash on delivery is still the preferred method for payment for the majority of the online orders, which further compounds most vendors problems with the platform.

For e-commerce to grow further in Pakistan, the challenges to solve are clear — further digitise payments, improve last-mile logistics and better regulate to protect customers and empower them to claim refunds and return the products.

Published in Dawn, The Business and Finance Weekly, November 29th, 2021