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Opinion: A Closer look at Daraz’s Ambitious Plan

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Lava International

More than 16 million Nepalese currently use the internet, that’s 63% of the total population and still, E-commerce in Nepal hasn’t developed as it should have been. Nepalese buying behavior is a tough nut to crack because of trust, quality of service/product and of course payment methods. Both service provider and Client here are learning how to gracefully adapt this. 

A research by Bibhusan Chitrakar on Nepalese buying behavior through the internet suggests that 

The use of the internet is favored more on social sites and study sites rather than shopping sites.The trust issues are still vulnerable to the business of online shopping. Awareness is shown by consumers when exposed to tangible promotions. And people tend to follow their traditional method and are influenced by the decision making of their companion. Finally, the competitive market is generally focusing on their own survival rather than bringing a huge change.

Daraz.com, now a part of the Alibaba Group, is a frontrunner in Nepali e-commerce scene. Daraz has undergone a lot of changes since its inception as Kaymu in Nepal. They have revamped their app and website and spending a lot to expand the number of e-commerce users. 

Daraz is getting strong at helping offline sellers digitally market their products; Its like free advertisements for sellers enrolled in Daraz. This is what compels many sellers to join the platform. The commission rate of Daraz varies from 5% to 30% on different products, the apparel being the most profitable category.  

SELLERS RUN E-COMMERCE MARKETPLACE

Daraz says that it currently has 250,000 plus products in more than 100 plus categories and more than 75,000 people visit its website every day. They also claim to deliver more than 100,000 packages every month to all corners of Nepal and has created 5,000 jobs in Nepal, and every month 500 new sellers are educated through their university. 

However, Daraz in their interview last November said that “We carry 100,000 products right now; and in six months, we plan to have 600,000 products. We have 1,200 sellers and are planning to boost that number to 5,000 in six months.” which didn’t go as per the target expected.  

Daraz is also aggressively working on its logistics. Along with working with third-party logistics agencies, they have an in-house team with over 100 rides operating in six major cities. They also have Daraz Hubs for easy pickups/returns and warehouse for faster delivery.

Daraz also recently introduced an online payment system partnering with major banks.

Daraz’s initial strategy as it enters any country is to become the destination for product and price search to bring in visitors. This then leads to becoming a habit for visitors and such visitors are also targeted voraciously through google and facebook ads. 

Daraz Pakistan’s lead Muneeb had a view that ‘when Daraz becomes the destination of product information, even if one out of a hundred visitors purchases, that would be sufficient’.

Daraz Ambitious Plan

In a recent press conference, Daraz laid out a very ambitious plan to structure the e-commerce scene in Nepal and make more people adopt it. 

Daraz’s ambitious plan this time includes an annual market growth rate of 100%+, Digitize their logistics ecosystem with real-time delivery information, creating a robust digital payment ecosystem and the most important one; The moonshot of creating 100,000 jobs, all of these within 2022. 

Daraz also aims to reach 20,000 Daraz sellers educated through their seller education platform called “Daraz University”. If you are wondering what Daraz university is, here is how it works: There is an incubation team in place that trains the seller after contract agreement. The duration of training is 4-8 weeks. 

The role of incubation team started once the seller signed the contract. The sellers are trained in order to adopt Daraz’s system and policies. The key component of the incubation is to teach sellers to use seller center tool i.e. a web-based ERP (End to End Shop Management System). The team also links the sellers to Daraz’s photography team in case the sellers had difficulties with photographs for their products. After completion of the incubation period and training, sellers receive a graduation certificate from Daraz university to make it look more authentic and ceremonial.

What needs to Improve?

Daraz has had many campaigns over the years that had great reach but received mixed reviews, mishaps and missed targets as we are good at pointing out pricing mistakes. Daraz is now taking careful steps to mitigate such problems and has adopted a strict pricing policy. However, Daraz messed up its 11.11 sale due to pricing blunders and people’s trust went downhill when images emerged of erroneous pricing.

Well, Daraz has a long road ahead and it sure is bumpy. Nepal is an unforgiving place on social media and any errors can escalate quickly resulting in trust issues and negative voices.

Daraz may have a hard time if the mistakes from the past are not corrected. Here are a few things Daraz should consider:

  • Daraz’s return policy is questionable. People want less hassle when it comes to their money. Daraz’s solution to a wallet may not seem a good idea for a lot of people since it locks in their money.
  • Daraz should have stricter price monitoring mechanism. Same products have random prices like that of Hamrobazar.
  • Daraz did come up with a foolproof idea of D-Mall (a category where only branded products are sold with 14-day return policy) to tackle ingenuity of products but what about the products floating around its website that are low grade with no guarantee of any quality. One bad product and the customer is gone forever. 
  • Daraz’s flash sale is basically what you find in Mahaboudha area. They are still selling fake earpods. (Not everyone knows it’s fake and Daraz discounts the product from Rs. 1200 to 350 which is actually the default price that sellers around Mahaboudha ask for. Many People who try Daraz also know about Mahaboudha, the mecca of wholesale electronics. 

Conclusion

Daraz is definitely investing a lot to reshape e-commerce industry in Nepal. In less than a year of acquisition by Alibaba, they have introduced D-Mart (grocery store), D-Mall (authentic seller store), and Flash sale (limited time offers).

Also, time to time, they are introducing campaigns like Mobile Week with good offers on gadgets and home electronics. But, these kinds of offers are often built with burning cash from Daraz side. Remember, the Pocophone F1, that was available for Rs. 34,000 at 11.11 Sales, it’s rumored that Daraz was selling them for a loss.

This screams a lot of investment in cash burn from Daraz side. Also, Daraz is aggressively investing in marketing (digital, influencer, blogs) and has over 200 employees. Although Daraz revenue might have increased YOY, the company have witnessed increases in their total expenses and is operating in huge loss.

This loss trend will continue to grow unless Daraz has enough users. And to gain more users and continue being the number one e-com marketplace, Daraz needs to keep on working on its strategic management, gather and inspire more sellers, and build a culture to motivate the team to work hard. Otherwise, if bigger player like Amazon enters Nepal, the loss trend is only expected to intensify.