2019 wasn’t just another year in the history of humankind as it will be remembered for the birth of one of the most harmful viruses the world came across in recent history, but it is the year 2020 that dealt a terrible blow by endangering the lives of millions and ruining almost every economy across the world.
We are only nine months into 2020, but the “Coronavirus” has already stalled economies worldwide, primarily due to precautionary lockdowns and travel restrictions. With the virus now being at the forefront of everyone’s mind and the World Health Organization (WHO) warning us to prepare ourselves to live with this infectious disease for the rest of the time, businesses across the globe are reflecting on the dynamics of the new normal.
Airlines, automobiles, mobile phone manufacturing, real estate, hoteling, tourism; think of an industry that isn’t bleeding in these nine months. Several global entities have gone bankrupt, and millions have lost jobs. Some economists have already called it a reflection of Great Depression, and according to the IMF, the global economy will shrink by 3% by the end of 2020.
As most shoppers stay at home in a bid to stop the spread of Coronavirus, the retail industry has suffered unprecedented losses worldwide. In Pakistan, retailers saw a staggering PKR 900 billion loss in the 45-day lockdown period, and developed countries like the U.S. and UK have seen a respective 52% and 78% decrease in retail footfall till June 2020. But all hope is not lost for retailers; there is still a light at the end of the tunnel. Despite a gloomy picture painted by huge losses across the globe, many businesses primarily related to the essential items are being saved through the miracle of e-commerce.
E-commerce, most commonly referred to as online shopping, has proven itself to be life support for the brick-and-mortar businesses, whether it is a retail store, our local grocer, restaurant, and similar other businesses in the service industry. As people started to opt for social distancing to avoid potential contagion, essential sectors — food, grocery, pharmaceuticals, etc., and other retail businesses switched to taking orders online and making door-to-door deliveries (mostly via a third-party).
In 2018, global e-commerce generated around $2.95 trillion of revenue income that went up to $3.50 trillion in 2019. The latest forecasts from e-marketer predict that with the religious emphasis on “stay at home” policy and prevalent economic downturn, the e-commerce growth rate might decrease to nearly 16.5% in 2020.
According to Adobe’s Digital Economy Index, the consumers in the U.S. have spent $73.2 billion on online shopping in 2020, up by 76.2% year-on-year, which is way above the country’s average online spending during the holiday season.
E-commerce spending around the world focused more on essential items like groceries and cleaning supplies but soon included digital entertainment items. However, the ratio of the latter is considerably low.
During the initial months of the pandemic, governments rushed to contain the virus by shutting down their countries, which halted manufacturing in many economies and broke the supply and demand chain.
The strict health guidelines disrupted national and international means of transportation — and, sea and air cargo — that eventually halted the business dependent on these services.
As the governments have started to ease the restrictions on businesses, more products are making it to the digital shelves of the online stores, and analysts predict a surge in global e-commerce revenue in the remaining year. Looking at the statistics so far, Canada has seen a record $3.9 bn e-commerce sales in May — 99.3% higher than what the month of February observed.
Online sales figure in the UK is expected to grow from initial forecasts of 11% to 19% in 2020, reaching a total of £78.9 bn. Online retailers in China also earned a total of 5,150.1 bn yuan (USD 727.36 bn) in the first half of the year, up by 7.3% year-on-year.
In a study by Kantar, around 80% of people surveyed in France, Germany, and the UK said that they would return to shop non-essential items online in 2020. Simultaneously, the demand for internet and mobile data services is also on the rise, where some operators are experiencing as much as a 60% increase in Internet traffic than pre-COVID-19 times.
Pakistan in the Time of COVID-19
The situation in Pakistan is no different. The crumbling economy has included it in the list of the world's most affected countries. Though the country has managed to keep the death rate comparatively low compared to many developed countries, its position as a developing country with limited resources, digital, or otherwise, has pushed it to the brink of chaos. In March 2020, the country started to see different versions of lockdown, which significantly impacted the overall retail economy.
Pakistan has around 3 million small and medium businesses that make up 40% of its GDP. According to Pakistan's Sustainable Development Policy Institute (SDPI), nearly 1.4 million SMEs may lose 50% of their income due to COVID-19. Simultaneously, 58% of these businesses have already laid-off employees, while 47% of workers have experienced salary cuts, and around 9.5 million non-agricultural jobs are now at risk.
Google's Mobility Report shows that Pakistan has seen a 39% decrease in the footfall (May-July 2020) in retail and recreational places like restaurants, cafés, shopping centers, etc. and a 26% decrease in mobility trends for places such as supermarkets, and pharmacies.
Sadly, there is no consolidated real-time data available to discern how much impact e-commerce has made in the lives of small businesses. However, the constant outcry of the traders is a significant sign that the country still relies on physical store visits to make the revenue, especially in the retail sector.
Although businesses related to food, and essential items partnered with many online services including the ride-hailing companies like Careem, Airlift, etc. and delivery services like Cheetay, Foodpanda, etc. to keep their sales alive, stores and companies who dealt with non-essential items were left alone to fend for themselves.
Amid the havoc, some of the severely affected industries have tried to create their online selling channels themselves. Brands like Huawei and Gree have adopted a little conservative approach. They have asked customers to order online, and the company will deliver products from the nearest retailer.
According to a survey conducted by Visa, 43% of Pakistan's consumers have significantly reduced buying in-store, but unfortunately, the loss of revenue is not being translated into online sales. The deep-rooted consumer behavior is evident from the fact that after the lockdown was eased and markets reopened for Eid-ul-Fitr, we saw a flood of people crowding the markets across the country and blatantly defying the government's social distancing rules and the advice to wear masks.
So are brick and mortar businesses still the prevalent and preferred mode of shopping? Absolutely yes.
Apart from fashion and beauty, e-commerce spending in different categories is too low to make a difference in the loss of retail sales. In Pakistan, only 2% of the total mobile phone sales are being done online, and the trend is quite similar for home appliances. Hence, despite a strong case in favor of e-commerce boosting a country's economy, currently, the progress towards overhauling the old system of doing business is too slow. There is a great divide between online spending in our country and the rest of the world.
So, what went wrong for Pakistan?
If you are looking for a simple answer to this question, you will find none as the digital world of e-commerce needs quite an intricate web of businesses and operations that cannot be developed overnight but needs time and the right conditions to flourish. Several big companies with no prior digital presence jumped on to the e-commerce bandwagon during the pandemic, but for the rest of the brands, the market was not so simple.
Only 32.5% of Pakistan's population lives in urban areas, which wipes out more than 60% of the community from the prospective market. Even if they want to shop for, let's say clothes, most of them are highly likely to visit the nearest bazaar where they are more comfortable to buy.
Now that we have narrowed down our audience, the concept of shopping online still feels foreign to many, and they may prefer to go to their local shops to make a purchase. Out of all those people who are willing to shop online in Pakistan, according to Visa, nearly 60% of consumers abandon their online shopping carts because of authentication delays or failure as small businesses are struggling to build functional digital capabilities. Other problems that have delayed the transition to e-commerce transactions include issues with user analysis, problems with inventory management, rising lead times to customer deliveries, capacity issues, and underdeveloped courier infrastructure.
Looking Towards the Future
With no expiration date for Coronavirus, we cannot predict when the pandemic will be over or how long it will take to get back to our normal lives, but for e-commerce, we are hopeful to see a subtle rise in online sales in Pakistan with a growth rate showing a stark contrast with the rest of the world because of the following factors:
Firstly, there is no emphasis on customer service in Pakistan. The products are more often than not just posted on a website without thinking about the interface or accessibility of the provider's services. Take Daraz, for instance, I have been eyeing a bunch of products in my wishlist for more than six months, and I still have yet to see them being available in stock for purchase. Even though the platform has taken on some small businesses on-board, especially after the start of the pandemic, I still have to see local products that I have become accustomed to buying from Anarkali Bazaar on their online platform.
Unfortunately for Pakistan, no major online giant like Amazon has yet entered the local market, which is why the local businesses have the least knowledge of the international e-commerce practices. The local enterprises lack space for 'mentorship' — a must-have method to learn the most efficient and competitive way for building a better e-commerce ecosystem.
Secondly, the consumers still intensely depend upon cash on delivery (CoD) instead of digital payment methods. Most consumers experience a certain level of mistrust when using a digital payment system that is the norm for e-commerce.
You can think of this method as a defence mechanism or insurance that protects the client from the future grievances as they won't have to worry about whether their order will get delivered or not.
Thirdly, poor cybersecurity of banks makes people wary of using an online payment method. In 2018, FIA revealed that the data from almost all Pakistani banks was stolen in a major security breach, questioning whether our account information and money are indeed safe with the banks. Moreover, more than half of the country's population is underbanked, which means that they cannot utilize the online payment system even if they want to. Some merchants have thus provided the option of paying with Easypaisa or JazzCash mobile wallet; still, a conventional bank is considered a reliable method in Pakistan.
Lastly, we live in a country where people still get fooled by spam SMS proclaiming a significant prize or lucky draw win. Without educating the consumer, we will only be adding fuel to the fire if we allow an unconstrained expansion of e-commerce.
Despite the harsh realities of the Pakistani market, everything is not doom and gloom as in just six years after the introduction of 3G/4G services in Pakistan; the total mobile broadband subscribers have reached 81 million (38.25% penetration) while the overall broadband subscribers are around 83 million (39.25% penetration). The mobile broadband penetration has more than doubled since 2015 when it stood at humble 15.32%. With the rise in internet penetration and the respective demand for the service, people are becoming more familiar with the digital world. They are transitioning towards smartphones, which opens up the local market for more innovative digital solutions by e-commerce merchants.
Instead of creating a website, some virtual stores are now using social media to sell their products directly to the customer while building a community around their brand. This helps people overcome their trust issues and make an informed decision while looking at customer reviews and feedback.
As many small businesses have already taken the first step of creating an online presence during COVID-19, their inclusion in the e-commerce sphere will make economies more competitive by becoming an economic driver for domestic and international growth.
The rise in broadband subscribers and digital businesses will create a better and louder discussion about cybersecurity and privacy as authorities will need to crack down on cybercrimes and data thieves. Being part of the developing world, Pakistani legislators will also have to make policies to protect consumers' rights in the digital space and provide better infrastructure for the growth of e-commerce across the country.
The author is a tech writer, blogger and Youtuber, and the founder and editor-in-chief of phoneyear.com and More Magazine.
E-mail: [email protected]
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