“We are the only pure play e-commerce marketplace in the country.”
Shayaan Tahir is the CEO and founder of HomeShopping.pk, one of the leading players in the ecommerce marketplaces in Pakistan for the past 14 years. The startup made the business breakeven 6 months after launching and since then has mostly been profitable.
Following are the edited excerpts of a recent conversation BR Research had with Shayaan Tahir:
BR Research: Can you comment on the ecommerce sector’s performance during COVID, and categories that have seen most growth?
Shayaan Tahir: After COVID, generally we can see that ecommerce has been in limelight; especially with people ordering more things online. This is pretty much how it is around the world. And this will only grow from where we are today. At the same time, we have also seen a number of challenges with growth – primarily service-related issues from the sellers. However, all this is a good sign that shows that the market is maturing in terms of better experience and service delivery. COVID or no COVID, people are realizing that there is a lot more offering, convenience, and price comparison in ecommerce. COVID has been speeding up the process; the shift towards ecommerce was already ongoing.
For us it’s the home category that includes electronics, home furniture, bedding, etc. We have been selling more air conditions, televisions, home appliances and even vacuum cleaners which was never a thing in Pakistan because what we see is that people have been spending a lot of time indoors during the pandemic, which is forming new habits and needs for them.
BRR: What issues did you have with the government’s initial amendment proposed in the budget for the Sales Tax Act which shifted the onus of sales tax collection on online marketplaces?
ST: The term online marketplace is used to represent a brokerage firm trying to connect buyers and sellers through a technology-based platform; these marketplaces enable the exchange of goods which earns them income called the commission. The marketplaces pay sales tax on the commission earned. However, what was proposed in the initial budget announcement was that we – the online marketplaces – will considered as retailers and be responsible for sales tax collection on behalf of the sellers on the platform, which essentially meant rendering the existing online marketplace model futile. And we felt that it complicated things because it’s akin to asking a shopping mall to collect sales tax on behalf of all the shops within the mall. It doesn’t make sense in an offline environment and that is exactly why it wouldn’t make sense in an online marketplace either.
Though HomeShopping has been around for 14 years, we have been without any general support from anyone. And overall, the ecommerce is a very nascent market in Pakistan. If we are to face such challenges like changes in our business model, then obviously it will not be viable for us to continue operations. We as retailers will not be able to allow a lot of sellers selling from their homes, mothers, students trying to sell online and make themselves a living. Many of them don’t have sales tax number and I really hope that changes for both the online and offline markets together as opposed to having it just for the online market.
We are glad that the government reviewed the proposal; had this amendment gone through, it would have made the existing models obsolete and not let many businesses continue to operate in a legitimate manner. Especially for registered companies that want to grow and do things the right way, it is very important that the business model is clean.
BRR: Do you think the slow growth and transition towards online digital payments is a hurdle in scaling for online marketplaces?
ST: Scaling the ecommerce industry can happen with COD as well. It has happened in India, UAE and many other countries in our region who have scaled it into billion-dollar companies with sales running into billions of dollars by focusing on cash on delivery. However, going digital is mandatory to ease business models; if the objecting is not just to grow but have a sustainable and efficient model, then I feel it is very important to have digital payments.
At the end of the day the letter ‘E’ in ecommerce is in terms of payments. So, yes, we are helping people discover a product online, but beyond that the payment needs to happen via electronic means in order to bring the whole transaction in the actual ecommerce framework. HomeShopping is probably the only online store in Pakistan right now which is essentially the only pure play e-commerce marketplace in the country doing 100 percent prepaid orders unlike most doing cash on delivery. Obviously, we let go of a lot of business because of this policy, but we feel we are building habits, and this is the habit we want to build. At times, the right way is challenging, but we try to build value propositions which would convince people to take this route of paying digitally in advance. And I do see that after COVID, people are more inclined toward online payments provided that they understand the people they are dealing with are reasonable and trustworthy.
So, in the true sense of ecommerce, digital is the right way to move forward. But is it necessary to scale businesses? Not so much.
BRR: So, what has been the key hurdle in making Pakistan’s ecommerce industry scale at the competitive rate?
ST: Why hasn’t it happened for Pakistan like it has happened for other countries including Iran is because of lack of support. All the initial players that came about were running small shops for the longest of time and bootstrapping their businesses, and no one came forward to extend support and help and corporatize the companies to make them big. We kept building our business to the best of our abilities in the absence of any formal support of any kind, and simultaneously we could see an international company coming into the country, setting up and then selling to other international player. At the same time, we still haven’t been able to build a local, homegrown ecommerce powerhouse in Pakistan.
The development of the local players to turn them into powerhouses was the need at that time to give a boost to the industry, and that has happened in almost every country where the telecom companies supported these local players that later on went onto become very big. In UAE, it was Souq; in India, it was Flipkart. These are local players supported initially by local investors, then eventually venture capitals followed in, and within years they were listed on NASDAQ.
However, post COVID, the situation has become better as people and investors are now interested and I am hopeful that it will pick up pace in Pakistan as we do have the right numbers in place.
BRR: There has been a rising trend of getting funding by Pakistani startups lately especially the B2B online marketplaces. While on the other hand, we haven’t been able to lure in foreign investment in the online marketplace in recent years especially in the B2C category. What explains this trend?
ST: The B2B and B2C are two different segments of the ecommerce industry. In Pakistan, the race for B2C ended before it started; there’s one large international player that has been in the market for quite a few years now, and they are backed by an international giant in the B2C component of the competition and there is no one competing them or willing to come in and compete. Even though HomeShopping is number 2, we are very far behind. Flipkart India raised the first funding in 2009-10 and exploded after that. However, when we started back in 2008, it was too early to expect investment to come into the sector in Pakistan as the industry was too small. Had we or any other player been able to raise a significant funding, it would have been a game changer for B2C segment of ecommerce. But because that didn’t happen and we all were busy running our own shops, the market was completely open, Daraz came in and took the B2C seat.
In terms of B2B, it is still very early stage, and I believe that the mistakes that were made in B2C category are being cautiously considered as seen by the recent investment activity in the segment. Because it is happening now, the sentiments are much different today for Pakistan; investors are more eager to put capital behind the cost. They haven’t built businesses out of those yet, but since B2B segment is starting off and there are startups and have support of international investors, it’s very positive as its driving capital into the country.
I do feel that B2C still has a lot more potential, but it’s just that we haven’t had any major local homegrown player that could take the industry forward.
BRR: Pakistan has recently been added to the sellers’ list by Amazon. What does that mean for the sellers and the ecommerce industry in the country?
ST: Amazon has recently listed Pakistan as a country from where they could accept sellers, which is good news because it will allow local sellers to now start registering themselves directly and start drop shipping to the US. But at the same time, a lot of these local larger manufacturers were already selling on Amazon for the longest time not just Pakistani items, but items sourced from other countries like China and drop shipping them in the US through a distributor or their offshore company; it was the SMEs who were left out and will now be able to sell on Amazon.
So, it is good news for small manufacturers and players who do not want or can’t to sell through a distributor or wishes to sell directly; payments coming as remittance into Pakistan is also a good sign unlike previously when the companies used to route money to their offshore holding companies. Unfortunately, it might not as big as it seems. First, because Pakistan does not have a lot of good online sellers that focus on quality and other selling ethics. Unfortunately, selling a replica for many sellers in Pakistan is just the product made in a different country. Second, a lot of the sellers that are being trained by these different companies are being trained for selling products from anywhere in the world, and not specifically Pakistan. When this is the objective of sellers’ training, Pakistan will not be as competitive as its peers.
We need to work on these areas, and I wish that a local homegrown ecommerce player or a local marketplace could really build a lot of good sellers, because only then these sellers would graduate and sell on global platforms like eBay, Amazon. Very few people know but Pakistan was already listed previously, and we got delisted due to same reasons. We need to figure out what we did wrong the last time and work on that. I don’t think we have done much yet.
BRR: in terms of ethics for selling online, do you think that SBP’s framework that it has recently presented to facilitate to sell products through these international online marketplaces is a step that could correct the issues?
ST: I don’t think government organizations and regulators having the capacity to deal with this challenge. This challenge is greatly unique, and I think there needs to be a body that is created to regulate all this – An ecommerce body that makes sure and enforces that whoever is selling online is working in a legitimate framework. I don’t think that any of these big government bodies have the room to take this up at the moment; they have a lot on their plate and priority right now.
BRR: So, what are you doing to solve these problems? And what are your plans for HomeShopping going forward?
ST: We are setting up an association for all ecommerce players called Ecommerce Association of Pakistan (ECAP), which is now under formation and includes over 150 top ecommerce marketplaces and different retail stores. I initiated this, and now it’s an industry-wide initiative with everyone on board. It is registered as a trade organization within the ministry of commerce.
The solution that we feel so far is mandatory is that anyone who wants to open a COD account with any of the courier companies should be a registered seller. By registration, I mean being registered with SECP as an online merchant. Therefore, whatever transactions are being done within the COD account makes you accountable for them; if you are cheating around, there is at least some way to get back at you.
As for HomeShopping, we have been around for the last 14 years now. It was a startup and I have been running it with my amazing team members. We cannot grow at a pace that is required because we have no local support by the corporate sector. It’s a bootstrap business and right now we are the second largest ecommerce store. And since we don’t have a foreign investor or a sponsor, we have to remain profitable to keep going unlike these VC-backed businesses that can keep growing and not worry too much about the bottomline. Our objective is to stay sustainable and healthy and serve the customers right. Moving forward, we are waiting because it is one of those industries where you can’t really go in half-hearted. You need the right kind of investors who could help you go in and compete. And till that doesn’t happen, we are happy with what we are doing.