Interview with Rumman Ahmed, CEO Dynasty Distributions: 'Retail stores must have a Nadra number'

Rumman Ahmad holds a Masters in Creativity and Change Leadership from Buffalo State College, USA and also an MBA from Institute of Business Administration, Pakistan. He is an entrepreneur who has been running import and distribution business in the field of watches and hi fidelity audio for the last 25 years under the firm called Dynasty Distributions. Recently, he has also added innovation and creativity consulting for corporates to his portfolio, and regularly works with organizations to develop a culture that is fertile for innovation. In this sit down with BR Research, Rumman sheds light on Pakistan's luxury and lifestyle style with a focus on watches.
BR Research: Let's begin with a little bit of your company background?
Rumman Ahmad: Our Company has been in the business of importing and distributing watches for the past twenty years. We started out with one brand - Rado - in 1992, and then we added Tissot and Calvin Klein; we recently also started distributing Bose speakers. To date, we are the largest importers of watches in the country.
When we started out in 1992 the industry was an unregulated mess, both from the perspective of business and the government. Everybody was doing whatever they wanted; there was no fixed pricing. We have made quite a few changes and the industry recognizes those changes in terms of getting people to put fixed price tags. At that time there was no price tag on the products; only a few gibberish alphabets written on the tags; only the retailers knew that an A stands for this and a B stands for that. That gibberish helped them sell the item at various prices depending on what their assessment of what the customer was willing to pay.
Later, 1998-99 onwards, the mall culture began in Karachi that was a very positive development in the retailing sector. As an economic structure, the mall has changed the landscape of marketing of lifestyle, luxury and leisure goods.
Because of these malls, the retailing is becoming a bit more organized.
BRR: Are you currently into importing, wholesale or retailing?
RA: We are into all three. We import as well as wholesale our products through a network of dealers and we also retail ourselves, although only 25 percent of our business is retail and 75 percent is still wholesaling.
Back into those days, nobody was willing to take a risk to open a store in a mall. If you had a shop in Saddar, you thought of it as the end of the universe. Most mall stores start with years of losses, and if you are single point retailer, you can't bear a loss because retail mentality in general is about how many sales you can make in day. But being a little more open minded in terms of seeing global and regional trends we said if retailers will not open stores in the malls then we will.
We took a long-term view thinking that standards need to be set; it was also necessitated by the 'globalization of retail'. Today people are travelling across the world; and they see the environment where these products are being sold abroad with a display, window decorations, shop signs - all of that gives customers a level of confidence that they are buying from the right place. Then you come back to Pakistan and then you go to a side street with a guy who has dumped all the watches in a counter. We tried to educate the dealers, but change has been a long and slow process even though we were being pressured by our global principles.
BRR: Which of the watch brands you distribute is the hottest in Pakistan?
RA: In luxury products, it's about the marketing, and about your image. A watch is not just a time telling machine; it's a piece of jewelry which is why some people will swear by one brand; others will swear by others. Still, Rado is probably the number one brand in the country not only for us but across the country.
The reason why Rado is this successful in Pakistan is because they entered the market very early - going back into the sixties and seventies when duties and taxes in Pakistan were prohibitively high so there was no question of importing and distributing the watches in the country. But the number of people going from Pakistan to Dubai and other Middle Eastern countries to work was very high. Rado did all their marketing over there while opening their service centers here in Pakistan. The network of service centers gave confidence to the customer that no matter whether it's Sialkot or Faisalabad, a service center will be there. There are things like strap and other stuff that are to be changed, and obviously you don't want to go to Dubai for a strap.
BRR: What percentage of the market share do you have in this industry?
RA: As a percentage of total watch imports ours is greater than fifty percent for all our brands together. But the problem is that there is a huge grey market that exists out there.
BRR: Do you have estimates of the grey market?
RA: I can't say about the whole watch industry. I can probably estimate that in our brands may be twenty percent of whatever is officially imported is present in the grey market, which is a substantial amount given the size of the industry. But it also depends on the conditions that prevail today. Today it may be 20 percent; in three to four months it might be more than fifty percent. Our imports are dropping, and the grey market imports are increasing because of recent increase in tariff and regulatory duties.
BRR: How does this grey market work?
RA: Watches are very small products. It works through the famous 'khepia' system. You can take a flight from here to Dubai and back, and you can safely flag those people who are not genuine travelers. These are the people who go and bring back a basket of goods; if you put two to three watches in that basket of goods that won't be an issue with the customs. The only way it is feasible for you if you can sell those products over here. In the case of our brands the total impact of duties and taxes was about thirty percent. That differential gives enough incentives to 'khepia' trade. Now that the incident of taxes has risen to 60 percent, which means 'khepia' trade will only rise in the months to come.
The misconception from the side of the government is that revenues will go up if you raise the duty; the reality is that the revenues go down. On the other hand, instead of routing the dollars through the formal channel, these 'khepia' get dollars from the open market to make these trades or otherwise use the hawala/hundi system.
BRR: What's your pulse reading of the retail industry in Pakistan?
RA: Pakistan's market today is now offering consumers a lot of options. Even in relatively smaller towns, such as Faisalabad, Gujranwala, and Sialkot have surfaced or are under construction, which is offering a lot of choices and encouraging competition. If a consumer in Gujranwala wanted a luxury item seven years ago, he'd think of buying it when he'd go to Lahore. Now he can get it in his own city. Malls also help grow the economy by triggering impulse purchases that in turn drives the economy.
The weakness for getting into organized retail business right now is the double standards of taxation. If you open a shop in the mall it becomes an issue because every other day there is this government guy who asks you about the various taxes and a plethora of other regulatory or registration affairs. But if you open a store in bazaar then you can get away from a host of duties, taxes and regulations. How can retail sector become formal in such an environment?
BRR: Has e-commerce affected your business in any way?
RA: Online is the future. There are two kinds of purchase behaviours when it comes to online - one is 'research online purchase offline'; and the other is 'research offline purchase online'. Now research offline means that somebody comes to my shop sees the product works out the price then goes online and buys the product from there because of the cheaper rates, which is not true in our case since our online prices are the same as offline prices.
But Tissot, for example, in their international sales has gotten into e-commerce through a hybrid model. You can visit their website, see the watch online, and if you like something you can reserve it for yourself at the store of your choice for the next 36-48 hours. What they have found is that the traffic to their store has gone up.
For every 100 people who come online, let say 70 people make a reservation and out of those 50 people turn up to the store and eventually 25 people out of those do buy the watches they reserved. So that's a nice hybrid model we can use here at home.
BRR: Is the grey market also flourishing in the online space?
RA: Both grey and fake products are being sold online; and they are flourishing because all you have to do is to put up a website. Many e-commerce platforms are not regulated, whereas fake watches are being imported and cleared right under the nose of custom officials.
BRR: What is your solution to document the sector?
RA: Every shop must have a trade license, and that license number must be displayed. Nadra has done a fantastic job with the ID card numbers, and now they are also coming up with a payment system with MasterCard. It's an amazing institution and it has done a great job building that database. Now is the time to expand it, such that every shopkeeper should have a Nadra number.
Second, during Shaukat Aziz era, they imposed 0.1 percent duty on tax withdrawal, on the premise that this is a documentation measure and not a tax collection measure. By charging on withdrawals you were trying to make a data base of people who were withdrawing more than a certain amount in cash. The second step was that now that you have the database you go after them and inquire into the matter. But instead of inspecting this they took it as a source of money and gradually increased the percentage without efforts to document the economy.