PHOTO: REUTERS
Just last week, the German start-up dynamo Rocket Internet announced it raised its first round of investment for e-commerce marketplace Daraz.
The site, originally launched in Pakistan in 2012, had expanded into Bangladesh and Myanmar earlier this year, following Rocket’s strategy of entering markets which it deems are underserved but hold potential. The news couldn’t have come at a better time for the company.
For almost two years Daraz plodded along, trying unsuccessfully to capture the online fashion retail space in Pakistan. Performance was middling, at best, and customer service inferior to offline retail.
Online shopping in the country had barely begun to make headway and consumers needed cogent reasons as to why they should alter their purchasing habits. Simply bombarding them with advertisements on their Facebook feeds or chasing after them as they browsed the web would serve as an irritant, rather than a compelling reason to transact online.
Yet it continued to burn exorbitant amounts of cash on marketing, warehousing, employee headcount, and logistics. More questionable was its delayed decision to move into higher volume categories such as smartphones, home appliances, laptops, and tablets.
It had already, by incessantly spending money, raised enough brand awareness in the local market and should have aggressively scaled into all available product categories. From an outside perspective it seems Rocket Internet itself wasn’t sure of how best to position Daraz – comparisons to Alibaba, Tmall, and Amazon are drummed up now, but Daraz was a far cry from these aggressive giants in its formative years.
It’s difficult to ascertain who was calling the shots. The Samwer brothers – Rocket Internet founders – are known for their ruthless approach towards replication of successful models and strategy. Their conviction is to hire a bunch of well-educated, well-trained corporate executives who’ll subscribe to this view of scaling aggressively, sometimes even without rhyme or reason.
It seems any localisation of model or business strategy to account for variations of culture is not a priority. Daraz could very well have been fashioned after Jabong – Rocket Internet’s fashion-centric marketplace in India, which, by the way, isn’t exactly killing it either.
Structural overhaul
Thankfully, as Daraz entered new markets, there was the foresight to appoint a management team that would oversee the ventures as a group, rather than relying on individual co-founders in each country with little cohesion between them.
Unsurprisingly, Bjarke Mikelssen, co-CEO of Daraz, tells Tech in Asia that growth in Bangladesh and Myanmar has been a lot faster when compared to the same trajectory in Pakistan. The fact that Daraz is now operating as a consolidated group helps, as well as the fact that they’ve adopted best practices from other ventures within Rocket’s family.
The start-up has also, from day one, had a clear focus on all product categories rather than a niche vertical, such as fashion.
There are rumours that Daraz is looking to expand its footprint into other countries. Bjarke declines to confirm or deny them, but says “it’s always on the strategic agenda to look for interesting markets around us.” When pressed further, he reveals it could be “Sri Lanka or Nepal”, but their key focus right now is to consolidate operations within the countries they’re currently present.
New investors, more responsibilities
The spiel of consolidating and strengthening operations is a constant theme throughout our chat. Bjarke seems confident, optimistic, and upbeat about the company’s future. He describes Daraz as a “super interesting project”, and says that with investment has come a “lot more responsibility,” presumably to deliver returns and create value for shareholders.
This investment round we’ve done is a milestone for us. It’s very important for us, both internally as a company, as well as externally [for our shareholders]. The direction has always been that we want to be the number one marketplace for frontier markets. We’ve been focused on streamlining the machine and make sure people have a good shopping experience.
Part of the investment in Daraz’s US$55 million funding round has come from CDC, an investment wing of the UK government, whose stated mission is to “support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places.”
CDC has invested in Rocket Internet start-ups before, such as Jabong in India and Jumia in Africa. Bjarke says they’re familiar with the ecommerce model and focused on doing things “the right way.”
This focus means it is important now, more than ever, for Daraz to continue delivering on its promise of providing original, authentic goods and delivering a seamless customer experience.
Bjarke mentions they’re working with vendors much more closely and trying to evolve the model into a ratings ecosystem. However, until that transition happens, they’re training vendors on how to adapt to an ecommerce platform. If they don’t meet standards set by his team, they’re delisted until further changes are made.
“For many of our vendors it’s the first time they’re dealing with an online business […] we have to help and guide them so that it’s beneficial for both of us. Yes, Daraz is a marketplace, everyone can buy and sell, but we still need to maintain standards and control over the experience.”
But with such a clear focus on strengthening the marketplace model, doesn’t that make it dangerously close to sister start-up Kaymu? Bjarke indicates that the Daraz model is a hybrid and a positioning on authentic goods means they’re suitably differentiated.
“While we like marketplaces, we’re never going to adopt that model 100 per cent. There’s going to be a mixture between stocking our own inventory, especially for fashion categories, and reliance on vendors when it comes to general merchandise. We’re always going to have outright fulfilment,” he adds.
It seems Daraz is finally waking up and realizing the need to lure and tempt consumers to alter their shopping habits and feel comfortable transacting online. Bjarke says: “For ecommerce businesses such as ourselves, the one way you really move the market is with big events. One of our big events coming up, in partnership with [payments solution] Easypaisa and Google, will be Black Friday. It’s a huge opportunity to bring people together for the best possible deals.”
As for the long term, Bjarke rules out the possibility that Rocket is looking simply for a quick, leveraged exit. He explains Daraz is here to stay, and all streamlining efforts are underway to develop a sustainable model. “The most important thing is to achieve healthy growth […] What’s going to happen in five or ten years, who knows. There are lots of things that could happen. But we want to focus on our own business.”
This article was originally published at Tech in Asia here.
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