"Daraz to have 25 million users by 2022" - An interview with Ehsan Saya, Managing Director, Daraz Pakistan

A former investment banker, Ehsan Saya is the Managing Director at Daraz Pakistan. In 2018, Saya returned from Canada to join the leading e-commerce marketplace. In Toronto, he had also founded JoeyCo, a transportation and logistics company.

In his recent conversation with BR Research, Saya talks about the progress Daraz has made in the last year. Following are the edited excerpts of the conversation:

BR Research: Daraz started off as a fashion retailer in Pakistan in 2012, but is now a complete marketplace. Walk us through what Daraz is today?

Ehsan Saya: Daraz is the leading online marketplace in South Asia (excluding Indian market). It is a mall, a community, and a marketplace - all in your pocket. It’s a platform which gives you easy access to over 10 million products across 100 categories; over 5 million Pakistanis use the app monthly; and we deliver over 1.5 million packages every month. Within Pakistan only, we have created 50,000 jobs; and every month we train and educate about 3,000 sellers.

2019 was a tough year, but e-commerce remained resilient and continued to grow. Our active users grew by 100 percent year-on-year; the number of customers grew by more than 140 percent; and the number of orders increased by 200 percent. These stats show that people are buying more frequently as growth in the number of customers has outpaced the growth in active users. And those that are buying more frequently are placing multiple orders - evidenced by the growth in orders.

For us, 2019 was all about infrastructure building. First, we provided a much bigger and a much wider assortment of products; we have about 10 million products on the app today, whereas we had around 3 million SKUs about a year ago. We have also given our app a much more personalized touch by introducing AI as it really understands the customers and caters to their needs.

Secondly, we looked into channels to segment the customer experience; we’ve launched Daraz Mall as a channel on the app that guarantees an authentic product from a reputable brand or an authorized distributor with a longer return time of 14 days for our premium customers. We did the same with the cross-border channel we launched where products come from China and Turkey to Pakistan if customers want specific products that are not accessible in the country.

Third, we really made it easy to make payments. By 2022, we want to make digital payments and financial inclusion accessible to more Pakistanis. With Daraz Wallet - launched in 2019 - customers get easy payments and instant refunds. Today, over a million wallets are active on Daraz platform. And you can top up and load money into your Daraz Wallet through multiple methods such as debit/credit card, Jazz Cash, Online Bank Transfer etc.

Fourth, we have also launched image reviews to make the customer experience easier. It really helps when you are trying to convert offline shoppers to online shoppers. With online shopping, you cannot touch and feel the product, so the idea of image review is to be able to see a picture of someone holding the product. Also, features enabling buyers to engage directly with the seller are also among the efforts we have made in the last year that have driven growth.

We launched the instant message feature in 2019 to help customers reach out to sellers directly to enquire about products they are interested in, delivery timings, options etc. Through instant message, customers can streamline their options to make informed purchasing decisions.

Fifth, as much as Daraz is a marketplace, it also a platform university for entrepreneurs. Every month, we provide over 3,000 individuals free education on how to start their own business on the platform. We provide step by step insights on things like listing their products; pricing; participating in the platform, improving and managing their stores etc. Today we have educated over 30,000 sellers across Pakistan.

Fifth, we invested in logistics infrastructure. A key challenge in Pakistan’s ecommerce space is logistics, because the ecosystem in Pakistan is not fully digitized and integrated. To overcome this challenge, we have built Pakistan’s first and largest logistics company specifically designed for ecommerce operations. We carried out major expansion in our logistics infrastructure in 2019. We have our own fleet under Daraz Express with over 1,500 Daraz Heros across the country; 50 hubs across 19 cities; and 4 warehouses.

To make our customers come to Daraz app for not just shopping, we also focused on gamification. For example, we launched Mission 11-11, Mission 12-12, and 1 Rupee game where customers would win different items.

Having a logistics company has helped us improve our lead times by 1 - 2 days. Today 60 - 65 percent of our deliveries are done through Daraz Express (DeX). However, our intention is not to take it to 100 percent, but to take the bar higher in terms of standards for the industry so that everyone can improve. In addition to the 50 hubs where we serve the sellers, we also have customer experience centers across the country where we offer free and easy pickups & returns and personalized customer service.

Led by DeX, we have ‘Fulfilled by Daraz’ premium service, which operates at 4 warehouses in Karachi, Lahore, and Islamabad, which has faster lead times because the product is in our warehouse. We employ more than 500 people in our warehouses, and we will continue to scale logistics in the coming year.

BRR: Do you have process automation to improve the supply chain and inventory management?

ES: We have a full conveyer belt system at our warehouse, and we will have a similar system at our sorting facility. But it will be done in a much more automated way.

BRR: Do you have any systems in place to ensure minimum errors?

ES: Our most important job is to ensure that the customer is always protected. Of course, there are mistakes, but we work hard to minimize errors and make them right. We have a 7-day return policy for product bought from our general marketplace; and a 14-day return policy for products purchased from Daraz Mall. In addition, we give product and image reviews as discussed earlier. We also ensure 100 percent return for damaged products.

We also ensure minimum error from the seller side based on their product assortment, returns and reviews, and give them scores accordingly that allows good sellers to get much more visibility than the average sellers.

Returns have always been a pain point for customers because funds are routed through different banks. But with Daraz Wallet, which is a closed loop wallet that will only be operational on Daraz platform, we have made secured online payments even faster and the return process instant and convenient. Majority of our customers today take refunds in their Daraz Wallet because it is much easier, instant and you can redeem your wallet any time. These features are a must-have in order to overcome the trust deficit that naturally exists in an industry like ecommerce.

BRR: What is the workforce size of Daraz Pakistan?

ES: We have over 1,000 permanent employees and around 2,000 contractual staff across the country.

BRR: What is Daraz’s main revenue source?  What has been its revenue growth trend in recent years?

ES: We grow close to 100 percent every year on average. Our primary source of revenue is the commissions that we earn from the sellers, which vary according to categories. We are also working on other sources such as giving our sellers the ability to market their products on the platform that will allow them to get more visibility, but these sources are small. Commissions will remain our core revenues.

BRR: Now that you are the biggest online marketplace, what are your plans for Pakistan in the next few years?

ES: We are part of the Ali Baba Group since May 2018. Ali Baba wants to reach 2 billion global customers, create 100 million jobs, and have 10 million profitable businesses on its platform by 2036. Daraz essentially offers them access to 500 million customers in Pakistan, Bangladesh, Nepal, Sri Lanka and Myanmar – regions where Daraz operates. Our focus is how to play a part in Ali Baba’s global vision.

Predominantly, our commitment to them is 100 million customers from five Daraz countries, of which Pakistan is the largest market. Across the five countries, we want to create 2.5 million jobs, most of which will again come from Pakistan. We want to support half a million profitable businesses on our platform.

Our mission is making it easy to do business anywhere in the era of digital economy. We firmly believe that the digital era is on par with industrial revolution; and in the coming 10-12 years, digital technology will fundamentally alter many parts of the society from ecommerce to politics and culture. Our purpose is not just to embrace that change but to proactively create and lead that change for a better future of Pakistan.

We as Daraz not only have the ability but also the responsibility to build the ecosystem. Of course, our progress is not without challenges; we are ready to be the innovators in this area and overcome any challenges on the way.

BRR: If you were to describe your goals for 2020, what would they be?

ES: 2019 was spent on building the infrastructure in terms of products, logistics, and payments. 2020 is the year to make sure that everything works at an optimal level, enhance customer experience, and make Daraz an entertainment platform. We are doing a lot of things this year to make sure that Daraz becomes a ‘Shoppertainment’ platform. We will also continue to increase our deliveries and pickup points and will be launching express deliveries in other cities as well to scale our logistics infrastructure.

BRR: How do you describe the regulatory environment for ecommerce in Pakistan? Are you facing any challenges?

ES: To be honest, I won’t call them regulatory challenges, rather regulatory changes that will help the sector grow. Generally, industries such as ecommerce are not profitable from day one; they must invest in infrastructure from the beginning. As the largest platform in the market, our focus is not profit generation but job creation and building an ecosystem.

The government has now started to look at taxation in a way that would encourage growth in the industry. International players such as Daraz are not affected by excessive regulation and taxation as much as the smaller players trying to get into the ecommerce space. They should be facilitated because that’s how a sustainable and competitive ecosystem is built.

We have also been actively involved with the authorities and the stakeholders in Digital Pakistan and ecommerce policy framework. Government’s role should be to create an atmosphere which breaks down barriers that hinder innovation, reduces regulations and allows players to disrupt the ecosystem.

BRR: What value is Ali Baba adding to Daraz?

ES: It is tremendous. One is naturally the balance sheet; the capital support received to invest in infrastructure is a huge breathing space for us. Second is the knowledge; our employees are travelling to China, Malaysia, and Singapore etc on weekly basis to learn how Ali Baba was built and coming back with knowledge to apply in Pakistan. Third is the technology; our AI personalization, customer services platform, warehousing optimization have improved significantly because of technology transfer from Ali Baba.

We are trying very hard to help the exports of Pakistan as well by launching Daraz Exports (Dexport). We are working very closely with a lot of exporters to list them on Ali Baba for global customers who want to buy products from Pakistani sellers.

BRR: What is Daraz’s market share in Pakistan?

ES: We are about 60-70 percent of the market. There is no single consolidated market player that we face significant challenge from. We have a bunch of medium to small competitors, and the biggest competition we get is from the Facebook groups. Our goal is that by 2022, we have 25 million customers across the country that use the app on a regular basis.

BRR: How would you describe Daraz’s marketing strategy?

ES: In terms of innovation in digital marketing, which is the need today, we argue that we have the best practices. But we are also trying to innovate in terms of all-time marketing. Our TV ads are very action driven where we tie in our online and offline experience. This year for our 11-11 feature sale we collaborated with Jeeto Pakistan and for the first time in Pakistan, a person sitting at home could win a prize from TV.