BR Research recently sat down with Mr. Hamaad Ravda who is the CMO of Daraz.pk, which is one of the leading online marketplaces in Pakistan and offers wide variety of products. Below is an edited excerpt from the conversation.

<B>BRR: In terms of numbers, what is the size of Pakistan e-commerce market and where do you see it in the next five years?</B>

<B>Hamaad Ravda:</B> In 2015, the industry turnover was about $100 million. Currently, in 2016 we expect it to be around $150 million. By 2022, the size of the market can go up to $2.5 billion.

Daraz is by far the biggest player in the industry and even the second biggest player comes under Daraz which is Kaymu. If Daraz is able to maintain its current lead for the next eighteen months, then it would be very hard for anyone else to catch up.

<B>BRR: Tell us about the upcoming Black Friday sale. How the experience was last year and what have you learnt from it?</B>

<B>HR:</B> The Black Friday sale is happening on November 25, 2016 this year. Last year was the first time we introduced this sale in Pakistan and it was a big success in financial terms and also the number of new customers we got. Compared to a normal day, we got 55 times more orders.

We have definitely learnt from our experience and this year the sale would be bigger and better. There will be more products on sale compared to last year and this time around and our financial partners have also increased, who are also offering discounts. We are expecting five times more traffic and three times more orders than last year.

Our number one priority is customer experience and we are focusing on that. We have put in safeguards to handle heavy traffic and have doubled our capacity to handle logistics.

<B>BRR: Will all your products be on sale this time? Also, do you give discounts from your side or is it just the vendors?</B>

<B>HR:</B> Daraz assortment has kept on growing over the last year. We have now more than 150,000 products on our website and every product will be on sale this Black Friday. There will be different discounts for different products - we are offering up to 80 percent discount

<B>BRR: Which category the customers are most interested in?</B>

<B>HR:</B> Every customer is different and all our categories generate interest but electronics and appliances category usually has the most traffic. Looking at that, we have offered some of our best deals within this category.

<B>BRR: What does Daraz get out of events like Black Friday?</B>

<B>HR:</B> It is an opportunity to make a lot of good noise in the market. Pakistan is a very price sensitive market and it allows us to reach out to customers who we have never seen before. Being in the public eye gets us in good stead. We also get to test out our operations at full throttle and check for bottlenecks. Then over the next six months, we try to resolve those issues and get ready for the next such event.

<B>BRR: Does Daraz keep its entire inventory? Also, how do you make sure order fulfilment is done on time?</B>

<B>HR:</B> Daraz being an online marketplace acts as a middleman which helps you get your order. We do keep some inventory, especially during special events like Black Friday but overall we do not stock everything we market. There are better margins in having your own inventory but the risks are also higher. In our case, the inventory risk is borne by the vendor while our job is to generate demand and market the products.

The inventory that we keep in our warehouse gets to the customer faster. We usually keep products which are high in demand and there is constant coordination with the vendors to insure that inventory levels do not get low. We have developed a system whereby inventory count in our vendor's warehouse is synced with our back-end database.

We have a premium service called 'Daraz First' in which we guarantee 24-hour delivery within Karachi and 48-hour delivery in Lahore and Islamabad. We also guarantee availability of stock for products which qualify for this premium service. For now, it comes at no extra cost and is eligible for all customers.

<B>BRR: Has the customer profile and demographics changed over the years?</B>

<B>HR:</B> Karachi, Lahore and Islamabad continue to contribute about 80 percent of our sales.
The other areas have not grown significantly. Internet penetration in metropolitan cities is increasing at a faster rate so naturally traffic from these cities is quite high.

However, this year we have started to see an up tick in purchases made from our mobile app. We are also expecting about a quarter of our sales from the mobile app during Black Friday as well. So you can say there is a small shift in demographics and we are seeing people who did not have access to Internet before are slowly catching up because of 3G and 4G availability in many areas.

<B>BRR: Generally, companies in your space take a long time to become profitable. When do you think Daraz will start showing positive earnings?</B>

<B>HR:</B> If you look at the biggest player in our industry globally which is Amazon, it took them 16 years to become profitable. When you consider the e-commerce business model itself, what you understand is that upfront you need to be making heavy investments in logistics and marketing.

Then there is the very important concept of lifetime value which essentially means that you are spending to get a customer today and you will try to make money off him from his fourth or fifth order onwards. The loss making part is built in the model and on an average; it takes all good companies seven years to become profitable.

With respect to Daraz, it is just a matter of size ultimately. We have had fantastic growth over the last few years and this year has been good as well. I would say that in a couple of years' time we would be very close to our financial targets.

<B>BRR: How do you see some of your competitors who were into logistics business but now have setup their own e-commerce website?</B>

<B>HR:</B> Having a logistical base is a big advantage but it is not a decisive advantage. There are various challenges associated with the online business and logistics is just one part of it. You need to do online marketing properly and make sure each penny is utilised.

You need to build systems which do not break when there is heavy load. Processing 100-200 orders in a day does not test your systems compared to processing 1,000 orders a day.

Overall the market is growing at such high a rate that there will always be room for new players.

<B>BRR: Does Daraz have any plans to cash out?</B>

<B>HR:</B> Right now we are focusing on growing our business in Pakistan. We will re-assess our position each year and see what happens then.

<B>BRR: Do you think Amazon or Alibaba would step into Pakistan in the near future?</B>

<B>HR:</B> Sitting in 2016, I believe that the market is not big enough for any of these players to enter. The potential is there because it is a country with 200 million plus population with Internet users increasing every year. I think 2018 onwards would be a time when numbers would make sense for someone like Amazon or Alibaba to consider Pakistan.