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thank you for joining tech talk with dr. Ferrari this is our fourth episode of series which is called digital transformation and today we will be talking about regional industry not only in Pakistan but at the global level so join me in welcoming my first guest Professor Jonathan Reynolds welcome on board professor oh very good thanks good else new to everybody all right so professor jonathan is the deputy dean of sadness and school represent a University of Oxford and as you know I'm also from University of gamma-rays so this is our Oxbridge connection I'm really happy that Professor Jonathan rains have joined us um professor my first question to you is how I did we tale in Dutch mean will emerge in the in our economy so you know which we say emerging economies especially in the aftermath of coup at 19 I think that's a that's a the $64,000 question I think the question to start with is really to what extent is the prospect for digital transformation in emerging retail markets different from the West I think we can see already you know less reliance on big expensive legacy store networks and systems we don't see the kind of big chains of multiple outlets that we have in the West which are well established and have bigger risks and bigger challenges to face in transformation many emerging markets I think were already on the way to leapfrogging Western experience and and jumping straight to digital so we're already starting to see an acceleration of the growth of e-commerce in emerging markets long before physical retailing in those markets had reached the levels of concentration and door in in most Western markets and this is driven by mobile it seems to me so for example in 2020 McKinsey has been suggesting that half of Africans are expected to own a smartphone and in the largest African economies the suggestion is that ecommerce could soon account for 10% of retail sales there's also a link I think between urbanization and retailing and as emerging markets in some areas of the world continue to urbanize so we see mobile urbanizing young people being the route to growth in e-commerce so I think for retailers kovat provides a challenge and an opportunity for emerging markets I think first of all it's a a challenge in the sense that global supply chains are being disrupted so in many markets that are in lockdown businesses are closed I'm consumer demand is is skewed and very volatile and unpredictable and for both reasons I think you know longer-term economic prospects in such markets are much poorer than they were so in in Pakistan for example gdp is forecast to shrink by one and a half percent next year and who knows when that figure will increase as the crisis continues and we see savings ratios rising and so on and in some markets even you know governments are preventing online retailers offering all the essential goods so it's quite difficult to actually see the full potential of e-commerce in those markets that's holding digital transformation back but I think this this crisis has to be seen also opportunity it's not unity in the sense that emerging markets of always being characterized by creativity and agile innovation perhaps in ways the West have not I think it's a chance to experiment to next law to replace lost customers with with new ones in new channels and I was just thinking about Pakistan again the lockdown in Pakistan has led to the growth of a number of retailers offering doorstep delivery of groceries experimenting with this in in it's not a bad in Karachi in Lahore and we see that in the West as well but again I think the agility and the the innovation is is really gratifying to see in all markets a remote world cool so I take this point from from here so you would you're talking about it in the econ in the emerging economy context particular that you know with agility with innovations perhaps you can also do way better so let me join let me ask her my second guest to join us so our second guest is Mohammad Ahsan he is the MD of for hush puppies and of course hush puppies is a fashion brand but it's the future branded so my question to you Qasim and I am connecting professor Charlotteans point to two possums that you know we do understand that we were not to a greater extent view nor digitized however these days providers a huge opportunity so my my question to accustom is that house detail digital transformation taking place and in Pakistan over to cast it yeah firstly thank you dr. Farah for having me and hello to everyone in general I mean if I talk about digital transformation in Pakistan retailers are very far away from that I mean we were using e-commerce and we but you know as far as Omni Chang is concerned or using data to get meaningful insights we're far away from that if I talk about digital landscape of Pakistan in general we haven't used digital footprint like Jonathan was saying you know we have a we have a population of around 200 million people although with 75% have access to cellular services and as far as this 3G subscription is concerned we have around 69 million subscribers so that's really you know the backbone and what's going to drive the digital transformation in Pakistan and if I look at that in a retail context it's really you know boost the opportunity for to retailers you you know serve that customer in the remotest of areas where maybe having a pretty long store would not have really make sense and now if I talk about you know hushpuppies digital journey we've been advocating a lot of a budget in the past couple of years closed digital marketing but still you know when you talk to Nielsen or research in Pakistan traditional marketing is still the number one form and people still prefer TV and that's the more sort of effective medium has to speak so if I talk about you know what hush puppies you know we've really focused it focused on digital market aiming and when we have used machines on social media because we feel it is not an opportunity you have a direct relationship with with our customers and engage with them better and follow them better and as far as the e-commerce is I just shed some light on that some numbers on that we started our e-commerce operations in 2015 since then we've had a growth of on an average growth of 17 percent year-on-year Pumas is generally doing well we're serving around 56 with the level 256 but which still the major champion the sale is coming from the top 10 cities of Pakistan leading reading thing is like been hard in Islamabad where you already have a strong retail presence but you know this is sort of reflecting that even in the previous years the customer the consumer behavior is changing and a lot of gold and new customers are actually now preferring to buy online rather than go to the stores the challenge is sort of highlight a challenge over here ecommerce generally is is not a very high margin channel for and in Pakistan consumers are not very comfortable using credit card or digital payments so lot of what we'll a lot of our deliveries that actually instead of me if I look at the numbers around 97 98 percent of our deliveries are cash again still different so this means that you know we have a lot of cancellations we have a lot of fun because psychologically I think that you know the customer really didn't feel that he's made the purchase because of this clash against immigrants coming in my mind now as you are saying that Pakistan market is not ready for digital transformation in the major reason is that it is very different you would like to go to the retail outlet and they would like to do shopping like that and more importantly they don't even trade a doll in traditional payment so the whole notion of the whole ecosystem then you know becomes very different but then when they alexander lock down and people have to buy and of course as lenders and fashion products fashion products are not like compulsory products but then they have some commercial products and so for example food products so they can't go down and they can't go out in the market but they have to buy so in this context concept if you would like to do with the charge so overall if I look at the industry overall the retail industry of West Pakistan prepared and if Pakistan was not prepared and then then perhaps what are the two steps would be yeah what would you gossip I mean I think I think the consumer behavior in Pakistan is also changing it's not that you know we are moving towards ecommerce and e-commerce has been coming but just to you know answer your question as to whether the industry or tweeted and that he was prepared or not for the crisis in the world was prepared as such and to sort of bring a little perspective to be covered people with this the retail I mean our government imposed GST of 17 percent in the last budget and that feeling it did retail industry heart I mean if I look at the traffic numbers industry-wide we've had a type of traffic of around 20 percent so I mean and again when I do to Eastern meditators they struggling to make full price sales at the moment and and you know another important thing to sort of realize is that this whole crisis came at a very wrong time for Pakistan and and globally because this was essentially like you know in Pakistan we went into lockdown on 22nd of March this was defined hold on season which is you know for Eastern where one of my biggest seasons and for other brands this was this was the time for the spring/summer launches and in 21 days we have eat witnessed again the biggest one of the biggest vegetables or the seasons we have so you know and and all of this is now disrupted so this leaves a big challenge for retailers with you know all the inventories they've been they've been tallying they were preparing for this this season so the left with all this inventory and my fear is that you know maybe a lot of brands will not survive mr. waadt crisis and and there'll be a big impact on the whole supply chain you're muted different thank you for informing yeah so so my question to mr. Jonathan is director NASA was also seen they you know there's a lot of destruction coming up especially supply chain is disrupted so a lot of people are also suggesting that most forward 19 will be a new normal so what is your take on it yeah I think that phrase the new normal is becoming a rather overused phrase and we're hearing it a lot in relation to this I've heard McKinsey talk about the next normal I quite like the notion as others have coined this as a before Co vid and after kovat world be CAC but let's stick with this new normal phraseology because I think the new normal in many markets is going to be about the greater use of online as I think you were suggesting as those in lockdown gained more experience of using mobile technology in many ways if you like its accelerated the digital future it's brought that digital future forward and we see evidence for that around the world we see the growth in app downloads for example as consumers adjust lifestyles a recent survey showed that about 45% growth in the first quarter of 2020 in app downloads not just in retail but in in gaming entertainment as people tried to find ways of keeping themselves busy under lockdown but will this persist you know will we slip back in the West I think there have been real distribution challenges as online only operators have been completely swamped with demand from those at home to clean grocery and essential goods an omni-channel retailers and there are many of them in for example the UK market have been really completely unable to scale as fast as they needed to without adding very significant costs to their profit and loss account as because Ian says you know ecommerce is extremely costly for those kinds of retailers and reading the the commentary that's coming in at the moment someone talking about food security and globalization and I think you know the new normal world is going to be less global in many respects and that will have a big impact on the retail sector in every marketplace you know there's retailers with very extended supply chains will have difficulty in getting back to the old normal given the fragmented state of markets and I think we'll start to see much greater reliance on offshoring and on self-sufficiency where where that's possible so I think the jury is out on whether there's a kind of snap back to the old way of doing things there is a sense in which certainly many markets consumers are reluctant even if lockdown is lifted to go back to the old normal because they're fearful of catching the virus if infants are being too close to other people and so on and perhaps they're learning new skills that they wouldn't otherwise have had at the same time fulfilling that that increased demand is becoming increasingly costly I think for for retailers and carving out of already quite low margins for for many companies so it's an interesting balancing act I think so on my question then to pasen pasen professor jonathan is saying things might be very different it would might be more expensive so how do you see all these things coming along here in Pakistan I mean talking about the new normal in Pakistan I think it's extremely difficult to you know say or to predict what the new normal would be we can only sort of look at global trends and forecasts and what's happening in other countries to sort of you know determine what's going to happen in Pakistan I was reading a report from McKinsey their state of fashion 2020 report which is now updated and they have the Kona Wireless update to it so their forecast in the coming here their forecast is basically that fashion industry fashion category will go down by 20% so 30% in 2020 and even in 2021 their forecast is a growth of three to four percent so essentially that means that you know getting back to the 2019 level will be extremely hard and will take a long long time when I talked to hush puppies licensees in China currently they've got 90 percent of their stores open but the traffic is down 60% the like mr. Jonathan was saying that even you know when the store is open you don't know if you know the consumers or the customers will actually come to the store or not if you look at Dubai they've got their shopping malls open now but they've got their imposed very hard a copy and one of the SOPs they have is that a new store can only have 30 percent of their total capacity of people in the store at one time at any given time so obviously that's going to affect sales and I think in Pakistan also will probably have similar SOP needs what we do open so I mean to say so I feel you know in the new normal the brick-and-mortar stores will really struggle and and on the other hand I was reading a report by needs and the grocery shopping is up 30% 30% more people are buying groceries online and even fashion category spending online is up 20% very interesting so my question now our Pakistani retailer if I kind of fixated to this brick and mortar and for the obvious reasons because since the transformation didn't happen in that way in this part of the world you know how will be retailers you know how can these retail there because their DNA is excited to brick and mortar so so what if what would be your advice to the Pakistani retailer and of course to the to the military things but is listen you know food items and the kind of luxury items where we have fashion brands and oh okay I think I'm just picking up also one of the comments on the live chat which says you know traditional ways of buying is mostly preferred by a huge number of people over here in Pakistan is it going to change by the end of this pandemic so yeah what should a retailer in Pakistan do and as Kazim says the the sectoral impact is very different food and non-food essential non-essential clothing apparel as against groceries I think the general advice of course is as always to focus on the customer encourage the Rito to understand their customer base rather than a knee-jerk reaction to say we must move online I think one of the prime differentiators of the emerging market retailer particularly the local independent is that they know their customers intimately they know their local customers can they replicate this online it's quite challenging to do that
and we know also that it's younger customers who are embracing mobile internet particularly I think that's also the case in in Pakistan we've already heard reference to to payment and I think you know the dominance of cash payments psychology in many emerging markets not just emerging markets in Germany for example we see reluctance to use online payments is holding back some of that transformation and we think about logistics and then where did logistics it shoppers if you go online will increasingly write to your services based on price and convenience and if there is a problem with the home delivery or the fulfillment aspects of your your online operation you will very quickly get the blame for that that's the pressure would be around you know do you use your own logistics the party logistics have much control over because the the the worst thing you want are kind of long or unreliable delivery times I think the other thing I talk about also is platforms I think you clearly have in Pakistan you know a big dominant platform model in the form of bazaar we see a lot of that similarly other markets our research certainly suggests that one should be a little careful about platforms the research is starting to show that there is a challenge supplier brands can often get lost margins get squeezed in more than they otherwise do with a platform into new jury platforms indeed may actually reduce potential to build loyalty in certain cases and then of course as consumers mentioned the store what future for the store I firmly believe that the store will continue to play a role for retailers in every market now and into the future we have to focus on what stores do best I agree also though that in the interim period with social distancing it's going to be quite challenging for stores that are affected by those kinds of regulations or guidelines to trade of profitably and successfully as they used to be able to so again it comes back to saying no being adaptable being agile and edging your bets across particular channels should your customer base be receptive to that kind of move that will be my kind of two minutes of suggestions all right cool again the same question to Qasim did so how do you think that what are the challenges you know for the Pakistani retailer and how then then they can take their baby steps versus just the transformation because because that's what they need to do partially at least over to Gaza so I think the challenge I mean what we need to focus is on you know store efficiency because like Jonathan was saying that you know margins will go down so we need to have you know lean operations and even in terms of inventory management we need to you know sort of have leave in inventory very currently working with a with a data start-up to you know understand improve our demand forecasting and product affinity to sort of plan these inventories better I think going forward obviously omni-channel is key what I am very optimistic about or I think you know the world play a key role in the future is order online and pick up from stores so that way you know the customer doesn't really have to spend a lot of time at the store and you can just order online and walk into the store just make sure he's got the right fit and you know he likes the product and he can just walk out so I think going forward that will play a key role we were working aggressively you know we've upped our technology budget and we're working aggressively with our technology partners to become the first omni-channel retailer in Pakistan all right so let me take now a few questions from from from our facebook comments oh so here is like one of the questions so keeping the fact in mind that a number of people here in Pakistan is not fully aware of the technology self so I think the question is that if if they are not aware of technology how will we then be selling to them that's a challenge oh to Professor Jonathan yes well I mean that so that's the fundamental challenge isn't it because if no one knows about the the technology or is unwilling to use it then you haven't even got the first base we saw this totally in many markets as people saw to adopt new technology and what we found most useful in in encouraging growth and that was word of mouth effects so people aren't going to try something unless one of their friends or one of their trusted family members has actually done it for themselves so so there is a kind of viral if I can use the word effect in terms of adoption of new technology this is the result the virus begin within health conditions which actually means we need a kind of spread of information about these sorts of technologies we need people to talk talk them up and this is we doing on this on this particular webcast notice they actually that there are these technologies available that they may make your lives easier these are the prerequisites these are things you have to learn and in Western markets also you know we had we had some other challenges in terms of increasing adoption because people were suspicious they were saying well it will never arrive on time there'll be a missing item in the in the inventory when it is delivered its overpriced online I don't want to pet it delivery charge so the role of the the retailer is is to reduce these kinds of barriers to adoption and we heard Kasim talk about you know pick up store clicking collect is a great halfway house where you say well having ordered online you you then go to the more familiar kind of sort of vent YouTube to pick up right instead sometimes it's also the technology that we use is not so different from Direct Selling and we know that in Pakistan households do already have experience of Direct Selling so it's not so different in terms the process is simply what the mechanism is rather different now I agree um so as we are talking about you know the technology so people are not aware of technology so can you share as any insights because you guys have cause you guys had to run the show so you guys have jumped into technology as well so can you share any intervention that you guys brought in in just last one month or so to encourage your sales online over to you gossip so I think generally I think consumers are adapting to the ticket to new technologies like last week my mother was ordering groceries online which is never done before and and talked about it from a brand's perspective fans are touring you know different ways where people can you know call in an order maybe through whatsapp we can so they're trying to facilitate people consumers in different way to make it easy for him to sort of order right I have a very interesting question over here professor now Joan is a one of the he's a professor of supply chain and entrepreneurship in one of the leading business schools in Pakistan Karachi and so he is asking this question to one of you what is going to be a typical Oscar or not consumer in the emerging market what do you professor Jonathan well I think that's an excellent question and if we knew the answer to that we're making our investments accordingly but my sense is that there are kind of a number of possibilities you know one release from lock down perhaps many consumers will be just so delighted to get out and there's another comment on the live chat saying well actually the in Pakistan mole culture is flourishing people love to get outside and shopping for them in a fun loving activity that will be the new consumer they were bounce back to the old behavior on the other hand I also see markets where in lockdown people are very very cautious and reluctant to go back to business as usual in the UK for example we've seen a real changed from much more frequent daily shopping for food which was happening over the last few years to gain back to big weekly or fortnightly food shops because that seems being safer we may see different demographers behaving differently different lifestyles behaving differently as well so I don't think we can say there's one answer to the coronavirus close friend of virus consumer I think we may see different lifestyle responses perhaps younger people less vulnerable to the virus may well feel more confident in going out older more vulnerable people may permanently change their behavior because they feel really vulnerable and exposed to the threat of infection and a social interaction that's it what was your experience over the last one month so do you see you know any any attribute of your current market how are they changing yeah I think talking about pose it's it's difficult to say you know what foot-post Brona world will be but survey by Nielsen was showing that you know in Pakistan we're very optimistic an eight out of ten people think that you know this will go away very soon so I think so I'm optimistic in that sense that once it's you know locked down hence we will have people coming out I was looking I mean there was a him I was talking to someone and he was nailing that lock down in Mossad first meters ended and people have rigged come out to show up and you know because like Jonathan was saying like people are fed up of staying inside and this only sort of entertainment people have is like going to the mall it is and into shop you're reminding me like some million dollars sale of hermes in China we hope but the important thing is obviously customer safety so no matter what means we have to make sure that even when the stores open we made sure that our employees are safe and obviously prefer it safe as well it's very instructed to look at China for example and because that's what the earliest markets to come out of lockdown you can see there that consumers very reluctant to go into restaurants for example but they are going to food stalls there to the extent that actually I think he's having shopping festivals in certain cities try to encourage people to the citizen we have another interesting question over here so how can so so you'll know you are also talking about it a customer will change potassium is also talking about it but then there is another question how can I judge these insights so any tip from you guys how can you know this well we're not one advantage of e-commerce is that the data collection is very good and again someone else on the chat is saying well I get the marketing opportunity for retail businesses will be the customer data because that will actually allow us to track some of this so in some sense is some of the platform businesses some of the ecommerce businesses have an advantage because they can track in real time changing buying behavior in relation to certain products of course local independent retailers have been doing that for generations so again as I go back to my earlier point you know the local businesses know their customer base they know if they're able to trade at least and what then how their customers are changing in terms of their requirements but not being able to trade you you're in the dark about what's going to happen after after coronavirus so the data is pretty critical and we're seeing a lot of new kinds of data coming through Google Trends data and some of the mobile community monitoring and so on to understand what the downturn in mobility actually is in different markets and so on but I think your your question or is that actually you know that that's pretty critical to tracking what is what is what behavior is changing and where it is changing and I think it's gonna be much more complex than a simple singular change in behavior I think you'll see a lot of different responses I agree and and perhaps then there is some room for for data analytics as well so now we need to go into the deeper layers or for our data so perhaps if you were not using it previously now it is very critical because we have to be as you said Professor Jonathan we need to be agile and very innovative there's another perspective aspect of it so we were just talking about you know be to see market but when there isn't huge b2b market so so how do you see how this b2b market will change a professor Jonathan ah now that's an interesting one because again I go back to my earlier answers around around supply chains and the role of for the business-to-business interactions again in some markets we've seen business business interactions dry up so for example catering hospitality sector very very badly affected by this in many many markets to the extent that the business is supplying them I've had to look for other sources of customer revenue so for example at my local area the local egg producer that used to rely on supply Oxford colleges has not been able to supply those colleges because where students have gone home so they'd have orient themselves around new sources of custom so again I think this is not just a challenge for b2c businesses it's a challenge of being three businesses as their traditional sources of custom either closed or and will change their sourcing practices and that's you know was the hidden part of the impact of coronavirus I think we hear a lot about retailing here a lot about customer behavior the consumer end we don't certainly hear as much about the some of the intermediate agents and value chain the wholesalers distributors the businesses operations I think there there are some really big hidden impacts that we need to understand better understand possible responses to and just to connect professor Johnson's comment here to you calcium because you are running a business and your businesses across the country and of course there are some intermediaries and there is a whole world supply chain so so can you share with us certain a couple of challenges that you guys have you say it's a perhaps a month or one and a half months is not that a long period to see that challenge over 2,000 I mean if we talk about supply chain I think firstly I think the globalization as we know it might be at the end of that a lot of brands but you know even globally would want to source products looking and this is more so true in Pakistan because we already have a very fine import duty of 67 percent so I think going forward brands that are vertically integrated will will have an advantage move on on you know the previous question the challenge as Prime's have that you know in Pakistan 80 percent of the retail market is informal and only 20 percent is formal so we don't really have access to correct data or you know just to understand it that that is better just have to rely on our own data and you know try to predict what how the consumer will change what the demands are alright last question is very exciting so let me put it there in front of you guys so what are we going to do in the era of Bitcoin and cryptocurrency so people are talking about it there's a lot of first stuff coming from China yeah so professor Jonathan what is your take on it I think this is a really fun question to speculate about earlier on the conversation we talked about the the continuing relevance of cash payments in Pakistan for example that that's going against the tide in thinking about cryptocurrency and Bitcoin yet on the other hand you know we also know that well implemented Bitcoin system particularly if it's thought through and backed is one way of building a trusted payment system so I'm sorry bit of a skeptic it hasn't worked in many markets governments not particularly keen on cryptocurrencies because they can't control them and so many the central bank's have been very opposed to the growth of cryptocurrencies we see these these examples popping up as investment vehicles and so on I'm less comfortable with the idea that we will see immediate changes in emerging markets particularly affecting if you like the b2c end of the business in relation to cryptocurrencies but I could be proved completely wrong right and I said this is last question but I think this particular question is very important and in particular special e with reference to that this is the month of Ramadan Eid is coming and a lot of retailers actually wait for the month of Ramadan and E for their sales so let me bring this question here on the screen and particularly this question is for Qasim so Qasim how do you see this you know coming along now I think I mean it's it's going to be a bi
challenge because all retailers at land inventory according to the each season we're getting a lot of mixed signals from the government right now there's sort of odds that we might actually open up before Eid but I feel when if we do open up we were doing scenario planning and we feel that we need to open up we'll just be able to achieve 30 percent of our sales as to last year so so that's my sort of for pass for a and because of that you know it's a you challenge inventory management all right thank you guys thank you for joining us I'm sure our viewers have also enjoyed it so because this is our a regular feature also a tech talk with dr. Ferrara we come back the next Saturday with our new panel and exciting discussion have a good day take care of yourself thank you thank you
