Note: The article looks in depth at retail Ecommerce. Ridesharing and Food Logistics companies have not been classified as Ecommerce by the government of Nepal. As a result, they have not been taken into the umbrella term of Ecommerce in this article.
We are in the midst of a time when relative household per capita expenditure and human movement has been the lowest since the inception of the globalization concept in the aftermath of World War II. As the world economy plunges towards an unprecedented 5.2% shrinkage, we are looking at the potential collapse of the aviation, retail and the tourism industries worldwide. Even in Nepal, experts predict that industry output will shrink by 3.1% and service sector by 2.1%. Meanwhile however, despite retail and trade sector in Nepal expected to shrink by an estimated 0.8%, ecommerce has been one subsector which has overseen a meteoric boom. In a worldwide trend, the ecommerce sector has benefited largely due to the reluctance and inability of people to go out to shop in retail spaces. Amazon has seen its market capitalization go up by $570 billion after March 2020, while Alibaba expects a revenue growth of around 27% this year. In Nepal, Sastodeal has raised $1 million from Dolma Impact fund alongside other investors this June to expand its services. Smartdoko is another e-commerce website which has raised money to expand its services in the burgeoning market. Overall, the market sector is expected to grow at a rate of 300% over the next few years. Daraz’s acquisition by Alibaba and Sastodeal’s partnership with Flipkart remains testament of the potential that the Nepalese e-commerce market holds.
The e-commerce sector before the COVID-19 crisis:
From the initial days of e-commerce in Nepal when the likes of thamel.com and muncha.com spearheaded the entry of e-commerce into Nepal, the sector in Nepal did definitely come a long way. But the sector for much of its history has been a wild west of sorts. The infrastructures for digital mapping and integrated payment systems have been critically abject. The sector has been marred with data breaches, high logistic costs, low network traffic and low product quality. In addition, the government had paid no heed to the sector for almost 2 decades since its inception in the Nepali market. Not only did the government fail in providing favorable investment climate and opportunities for the sector to evolve and grow, but it even failed to regulate the sector by failing to enact rules to govern the sector. In 2019, the government was reportedly in the process of drafting an E-commerce bill. But the fact that the government was two decades late in trying to formulate the bill does go in some way to show how much of a nascent market the sector had been. Despite the hassles however, by 2018, the Nepal ecommerce sector was predicted to have been worth around $25 million and employing just over 2500 people. There definitely was progress with the likes of digital payment systems like e-sewa(2009), Khalti(2017) IMEPay(2018) and ecommerce websites like Sastodeal(2011), Daraz(2013), setting up an infrastructure in place for a growth in the sector with the combination of the right ecosystem metrics.
Impact of the COVID-19 crisis on the e-commerce sector in Nepal:
Unlike any other sector playing its part in the world economy, ecommerce has been the one of the bigger benefactors of the government enforced lockdown that has ensued. Nepal’s e-commerce sector has been no exception to this. The burgeoning demands in the sector have meant that the e-commerce facilitators have hired more than 2500 people in the aftermath of the pandemic outbreak. Sastodeal alone has put out a vacancy of over 500 individuals in logistics in this 6 month time frame. It was reported by Nepal Rastra Bank that the amount of e-commerce transactions in a month peaked at over Nrs 1.20 billion from 168,827 transactions. This sudden boom in the Nepali e-commerce sector has been primarily because of the travel restrictions and the agoraphobia that has ensued with the news of the deadly virus in the loose. The rising number of cases in the country has added fuel to giving people the incentive to go online with their purchases. The online businesses have also managed to capitalize on this with strategic marketing campaigns and strategies which have been successful in riding the wave with record number of active users and transaction amounts being reported by all the local e-commerce giants in the country.
The ecommerce boom in Nepal has definitely had a monumental impact in shifting the mindset of the same people, who had a lot of reservations shopping online. There have been distinct shopping pattern changes in Kathmandu judging by the decrease in footfall in areas of Kathmandu like New Road, Khichapokhari and Asson during the festive period. While this decrease in footfall can be attributed to the reluctance of people to step out into the marketplaces during the ongoing health crisis, the question does arise, what is filling in that demand vacuum? Given the festivity demands are unlikely to decrease considerably even amidst the pandemic, a serious look into the alternatives begs to be assessed. The fact that on average, the major e-commerce giants in retail of the country have reported a monthly active user base of 700,000 in and around the festive period does give a tentative idea on the scenario of user footfalls. This unprecedented e-commerce boom in a short time has meant major online businesses have diverted their think-tank on product management and logistics. This will open a window to a lot more of logistic bottlenecks and constraints, opening a new chapter in Nepalese e-commerce.
While there have been noticeable and commendable growth in the local e-commerce market in Nepal, the situation is dire for export centric businesses. A lot of export centric business have been relying on e-commerce to market and sell their products in the international stage. In light of the COVID-19 situation, the supply chain for a lot of export oriented products in Nepal has been disrupted. As a result, despite the rosier picture for the sector internally, the export segment’s inability to thrive despite being in the midst of a revolution in the e-commerce centric landscape, does shed some warning signs to even the local e-commerce giants once they expand their services out of the major cities of the country.
Aftermath of the COVID crisis – Opportunities and Challenges:
As the number of COVID-19 cases increases, infecting over 53 million people with over a million deaths, social psychologists predict that we are going to take a lot of habits developed right now into our future. The time we are in right now, in millennial colloquium, is a sweet spot to let new habits set in. The e-commerce sector is a tough sector to break into in any market. In the sector, you don’t sell the items, you sell the service. In Nepal however, the customer support service of the sector has been historically abysmal. Incidents of fraud, product pricing deception have been headlining the news of the sector for quite some time. The lack of a mechanism to combat consumer fraud techniques might come back to haunt the sector dearly. With the government enacting laws to bring a consumer court in the country and with the enaction of laws to govern the sector, the companies might not get away with inaccuracies and inconsistencies as easily in the near future.
Customer retention has always been a headache for every company, whichever sector they are in. This will definitely be the biggest challenge for the industry in Nepal. Consumer retention in the sector has historically in other markets like India been about huge discounts and cash incentives to the customers to pull them back to the service. In a price conscious market like Nepal, it remains to be seen how the market players will try to lure customers back. Expansion of services will also require investments into more expensive computing technologies like investments into more secure payment gateways, Virtual Reality(VR), Augmented Reality (AR) and ) Business Intelligence (BI). The current market will require a large influx of capital and the industry needs to be able to convince the investors for this meteoric rise in expenditure capital.
Sources:
[1]Nepal macroeconomic update 2020 – ADB:
Published: https://www.adb.org/documents/macroeconomic-update-nepal-september-2020
[2] 5 Big Numbers That Show Amazon’s Explosive Growth during the Coronavirus Pandemic: Published:https://www.forbes.com/sites/sergeiklebnikov/2020/07/23/5-big-numbers-that-show-amazons-explosive-growth-during-the-coronavirus-pandemic/?sh=6e16c5241376
[3] Coronavirus: Chinese retail giant Alibaba sees ‘recovery’ after virus:
Published: https://www.bbc.com/news/business-52771858
[4] Covid-19 creates job openings in e-commerce sector:
Published: https://kathmandupost.com/money/2020/09/30/covid-19-creates-job-openings-in-e-commerce-sector.
