Five years after Alibaba's acquisition, Daraz is still mired in "losses"

Daraz is not often mentioned in Alibaba's overseas e-commerce business layout, but in fact, it has been five years since Daraz was acquired by Alibaba. This e-commerce platform, the largest in the South Asian e-commerce market outside India, has been trying new moves since the acquisition, but the effect does not seem to be obvious and it is still not profitable. The economic downturn in 2022 has forced Daraz to lay off employees and reorganize.

In South Asia, the e-commerce market in countries other than India is relatively weak, and the penetration rate of e-commerce shopping is low. Daraz's main market is Pakistan, which fell into a serious economic recession in 2022 and the number of poor people increased sharply. Many sellers reported that the traffic and conversion of the Daraz platform have declined significantly.

However, even if the growth is not significant, Alibaba has been increasing its investment in Daraz, from introducing live streaming to building automated distribution centers. With Alibaba's support and its dominant position in the untapped South Asian market, it is still worth looking forward to whether Daraz can get rid of its losses and achieve growth in the future.

What did the acquisition by Alibaba bring to Daraz?

Daraz was launched in Pakistan in 2012 by RocketInternet, a Berlin-based startup. The original intention of the platform was to bring the e-commerce model to Pakistan, attract investors to expand the scale of funds, and eventually complete the sale. However, at that time, Pakistan had only 2.1 million broadband users and had not yet introduced mobile 3G networks. Almost no one had heard of online shopping, so Daraz's initial development was relatively slow.

Despite this, Daraz was still favored by investors and raised $55 million in 2015, more than the total financing of all Pakistani technology startups at the time. With sufficient funds, the goods on the Daraz platform expanded from the original single fashion category to electronics, lifestyle and other categories, while launching a large number of promotions and discounts to attract local buyers.

Until May 2018, Daraz was acquired by Alibaba, and this acquisition was also optimistically received by the outside world. Since then, under the leadership of Alibaba, Daraz has tried many new promotion strategies, such as introducing live shopping and baseball broadcasting rights. Alibaba also successively acquired Lazada in 2016 and acquired a majority stake in Turkey's Trendyol in 2018.

At that time, Alibaba had accumulated rich experience in technology, logistics and marketing in the domestic e-commerce market. After acquiring Daraz, it first launched a digital wallet and increased investment in the platform's logistics infrastructure. In the year ending March 2021, Daraz's revenue climbed to 6.5 billion rupees (40.1 million U.S. dollars).

Alibaba also introduced a live shopping function for Daraz. In 2021, Daraz began to sign online celebrities to promote its products. The latest data shows that Daraz's Live & Affiliate influencer program has generated revenue of 4.4 billion rupees (15.7 million U.S. dollars). The launch of the live broadcast function has brought traffic growth to merchants, but according to sellers, the conversion rate has not increased significantly.

In October 2021, Daraz announced that it had purchased the exclusive broadcasting rights for the baseball tournament ICCT20 World Cup, which attracted great attention at the time. In 2022, Daraz and Ali Cainiao opened the first batch of automatic sorting centers in Pakistan. These sorting centers can handle up to 1 million parcels per day, but the platform's order volume can only approach this level during shopping festivals.

Joining Alibaba has made Daraz a pioneer in emerging models in e-commerce, marketing and logistics, and has indeed improved the development and operational efficiency of the platform. However, according to the latest public company documents in 2022, Daraz has been losing money for many years. In February this year, Daraz announced the layoff of 11% of its employees worldwide.

Faced with the impact of the economic crisis, can Daraz turn things around?

In 2022, the global economy declined, Pakistan fell into a severe recession, inflation soared to more than 20%, and the government was forced to ban the purchase of non-essential high-value goods from abroad. This seriously affected the local e-commerce market, and the number of electronic product imports was reduced by more than two-thirds. In other markets including Sri Lanka, Nepal and Bangladesh, Daraz's situation is not optimistic either.

Daraz's after-tax loss for the fiscal year ending March 2022 was $143.2 million, up 25% year-on-year. At the same time, many sellers also reported that the platform's order volume has dropped sharply. According to an interview with RestofWorld, Najmuddin, a seller from Pakistan, said that his order volume has dropped from 500 in the past to 300-400.

Daraz is also trying various measures to drive growth. After the Pakistani government issued an import ban, Daraz shifted its focus from electronics to fashion, beauty, home and living products. Daraz also launched its own private brands in several categories, such as Maahru, which sells seamless lawn fabrics, and Zeest, which sells pulses.

At present, the effect of these measures is unknown, but the overall prospects for Daraz are optimistic. First, Pakistan has a population of 527 million, which provides strong purchasing power, and the e-commerce penetration rate is low, which has a large room for growth.

In addition, Alibaba announced a reorganization in March this year to incorporate Daraz into the International Digital Commerce (AIDC) division along with Lazada, Trendyol and AliExpress, which may bring economies of scale and other benefits.

Editor✎ Ashley/

Disclaimer: This article is copyrighted and may not be reproduced without permission.