[Disclaimer] I am a co-founder of Kyarlay.com, an omnichannel specialty platform for mum and baby products in Myanmar. Our investors include Garena, EME and UMJ. Although the title of the article is on eCommerce which encompasses a wide range of areas from online ticketing to travel & tour services, I will focus my discussion on e-retail of physical goods, the area which I am most familiar with. This article is written from the perspective of a local start-up founder and is heavily influenced (read “biased”) by my experience operating Kyarlay during the past three years. Readers may very well disagree with some parts of the discussion or even find it controversial. I would like to encourage readers to share their perspectives on the issues in the comment section.

COVID-19 emerged in the central Chinese city of Wuhan in late 2019 and became a global pandemic within a very short timeframe.¹ Although the fatality rate is not as high as its cousins, SARS and MERS,² COVID-19 is more infectious and has already resulted in more cases and fatalities worldwide – to date (12 April), there are over 1.78 million cases and almost 109,000 deaths from it. To contain outbreaks, governments around the world deployed a wide range of measures from social distancing to locking down affected areas or even the whole country.³ While these measures are necessary and unavoidable, they cause unintended disruptions to the daily lives of people and businesses. Some analysts argue that COVID-19 will permanently change our world and redefine a new normal.⁴

So Far

Myanmar’s first confirmed COVID-19 case was reported on March 23.⁵ At the time of writing, there are 38 confirmed cases and three patients have already died. Since mid-March, the government has banned large scale public events, including Thingyan, the country's most popular new year water festival and longest annual holiday. Travelers from COVID-19 hotspots were required to go through mandatory 14 days quarantine before all international air travel was suspended on March 30. Major highway bus service routes were temporarily halted as well.

As more people stay at home, eCommerce services have seen a boost. Food delivery services are the main beneficiaries as restaurants in Yangon and Mandalay are urged to only provide takeaway services.⁶ My start-up, Kyarlay, also saw a 61% increase in sales in March compared to February, when COVID-19 had not yet dominated the Myanmar news cycle.

This trend is in line with what is happening in other regional countries. Chinese online retailer JD.com reported a 215% growth in its online grocery sales during a 10-day period between late January and early February.⁷ When Singapore’s Disease Outbreak Response System Condition (DORSCON) level was raised in early February, RedMart’s weekly average number of orders tripled and FairPrice's online orders exceeded that of those placed during the preceding Lunar New Year period.⁸

A Peek into the Future

It is a bit difficult to discuss how eCommerce in Myanmar will look like after the COVID-19 crisis due to uncertainty over the extent of social and economic impacts that COVID-19 will have not just on Myanmar, but also on China and ASEAN as a whole. According to a leaked briefing, Public Health England forecasted that the COVID-19 crisis could last until Spring 2021.⁹ The World Bank Group’s President David Malpass predicts that a global recession will hit the poorest and most vulnerable countries hardest.¹⁰ For the purpose of this article, let’s assume that while avoiding the ‘extreme’ doomsday scenarios, Myanmar will face severe economic hardship across all strata of society.

Increased Adoption of eCommerce

The COVID-19 crisis will accelerate the adoption of eCommerce in Myanmar in the same way the SARS outbreak in 2003 contributed to the birth of eCommerce in China. Similar to COVID-19, SARS was caused by a kind of coronavirus and its outbreak in 2003-2004 infected more than 8,000 and claimed 770 lives.¹¹ SARS forced people in China to go into self-imposed quarantine. It became a watershed moment for eCommerce companies like Alibaba, as Chinese consumers stuck at home started turning to the internet to order items.¹² According to former Alibaba CEO David Lee, “If the SARS outbreak never happened, there might be possibility Alibaba had gone (bankrupt). SARS provided Alibaba the greatest chance to promote, at that moment everyone was forced to use the Internet”.¹³ In a similar way, COVID-19 will encourage more Myanmar consumers to go online and make online purchases. Since the current eCommerce market represents just a small percentage of the country’s GDP,¹⁴ it is ripe for explosive growth in the near future fueled by the COVID-19 crisis.

However, the fast-tracked adoption of eCommerce is not all good news for local start-ups. There are structural obstacles that we will need to overcome to become successful eCommerce operators. The COVID-19 crisis will rob us of this time needed to overcome such obstacles by inviting competition from well-experienced and deep-pocketed regional operators before we are ready to defend our turf. We will take a closer look at these existential challenges in the following sections.

Irrawaddy Dolphins' Tough Fight Against Yangtze Crocodiles

Irrawaddy Dolphins - photo credit to WWF

The quick explosive growth of eCommerce will prompt Alibaba to expand its activity through Shop.com.mm. Regional operators such as Shopee may also enter the market to take advantage of the situation. Although the global economic downturn may restrict these giants' ability to invest resources, the investment needed for Myanmar expansion will be insignificant for them. For example, Shopee's losses in 2019 amounted to US$ 1.45 billion, averaging US$ 4 million a day.¹⁵ If Shopee is to expand into the Myanmar market with the budget of just one-day loss for the whole quarter, local start-ups will struggle to compete with them.

Funding for Myanmar start-ups has long been scarce even before the COVID-19 crisis due to a variety of factors. It will now become almost non-existent in the near future. Even at the ASEAN level, the COVID-19 crisis sours investors' appetite and slows fundraising activities.¹⁶ For a comparison, Asia’s private market funding fell 27% in 2003 and 29% in 2004 compared to 2002, due to the SARS outbreak.¹⁷

Jack Ma once famously said that "eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose. But if we fight in the river, we win."¹⁸ eCommerce in Myanmar will be fought in the river. While the terrain and the environment will be different from Yangtze river, Irrawaddy dolphins will have to be at their best to outsmart and outmaneuver against Yangtze crocodiles.

Supply-Side Calculus Favours Regional Operators

Regardless of whether an eCommerce platform adopts the inventory-led model, marketplace model, or hybrid model, the number and variety of products available on the platform is a key factor in the success of the platform.

An inventory-led model is where a company sources directly from the brands & sellers and stock it.¹⁹ Amazon adopted the inventory-led model in the 1990s. The inventory-led eCommerce company needs high sales volume to enjoy economies of scale and negotiate better pricing and payment terms. On the other hand, a pure marketplace model does not hold stocks - eBay is an example. For a marketplace eCommerce company, it is important to attract as many active sellers as possible on the platform to provide a wide range of products to the potential customers.

While local start-ups are still building up these supply-side capabilities, Alibaba, Shopee and other regional operators can immediately tap into their existing sellers from other countries, especially from China. Shopee sellers from China can now sell directly to customers in Thailand and Indonesia with Shopee Logistics Services (SLS) delivery network handling the cross-border delivery.²⁰ SLS claims that it can now deliver products from China in 3 days. Shop.com.mm also offers "Global Collection" which sells products from overseas sellers.

Projects such as the China-Myanmar Economic Corridor will further improve connectivity and the flow of goods between the two countries. This will facilitate regional operators to ship orders directly from China. It will not be a stretch to think that in the next one to two years, we may be able to order anything from China and get them delivered to our doorstep in two to three days. With huge resources to set up necessary infrastructures for the fulfillment, the regional operators can blow local start-ups out of the water pretty quickly.

How to prepare?

As a struggling founder myself, I am not best qualified to suggest how we should prepare to overcome these existential challenges. Instead, I would like to share what we are doing at Kyarlay.

The major challenge against regional operators is that they can deploy significantly larger resources (funds, logistics, etc.) than us. To counter that, we optimize the fundamental cost structure in everything we do at Kyarlay, so that our $1 is worth much more than theirs. We cannot deploy the same playbook that regional operators use from go-to-market strategies to daily standard operating procedures. Since most regional operators are general eCommerce operators, I will use the terms "regional" and "general" interchangeably.

Efficient Cost Structure

The first major decision for us is to focus on the Mum & Baby product category to give ourselves several structural advantages against general eCommerce operators.

The mantra of Everything Store, popularized by Amazon, is religiously followed by all general eCommerce operators. The idea is to have every product in one place so that customers do not need to visit multiple places to buy everything they need. Shop.com.mm claims to have 500,000 products on their website.²¹ Regional operators like Shopee and Lazada have tens of millions of products.²² The idea is great but the complexity and operational expense grow exponentially with the number of available products.

One may argue that in a pure marketplace model, the eCommerce company does not manage product listing or hold stocks, thus simplifying the operation and minimizing expense. If that is the case, there is another monumental challenge of monetization. Without widespread usage of online payment in Myanmar, it is impossible for pure marketplaces to facilitate the payment and take a commission. Even if the eCommerce company adopts a hybrid model, the complexity and the operational expense is still bound to grow with the number of available products. I am not against the idea of the Everything Store but we do not have necessary funds to build an Everything Store and reap its benefits.

As a result, we offer an estimated 4,000 essential products for mums and babies. As we grow, we expect this number to increase up to 10,000 products, which is still significantly lower than general eCommerce platforms. This allows us a lower cost structure and optimized operation. It's far cheaper for us to make sure every product detail is accurate and informative with relevant product images and videos. It is also much easier for us to prevent stock outage to provide great customer experience. Our customer service staffs are also well trained with product knowledge to answer any queries from the customers.

Since all our sales come from just one product category, it gives us more leverage when dealing with suppliers. It is easier for us to achieve supply-side economies of scale to enjoy better pricing and payment terms. Ability to work with factories directly to manufacture private labeled products also increase our gross margin and improve our bottom line.

Our logistic operation is also cheaper and more optimized due to the limited number of products that we carry. We now provide a 4-hour express delivery service to selected townships in Yangon with the use of mini-fulfillment centers (which are usually housed in our physical shops) around the city. It is cost-efficient and provides fast delivery to customers who are now accustomed to instant gratification. It would be impossible for general eCommerce operators to offer the same level of service at our cost structure. Even if we consider 4-hour delivery unnecessary for most eCommerce transactions, the close proximity of our mini-fulfillment centers to the customers means that our delivery expense is lower.

Community

Optimizing the cost structure is nothing if we cannot attract customers. At the risk of sounding cliche, the community is at the heart of everything we do at Kyarlay and is our main customer acquisition and retention strategy. We create a network effect by developing an online community of parents. Our "Community" feature in our app allows parents to ask questions and share their stories with one another. It also provides parents with useful tools such as Due Date Calculator and Week-by-Week Pregnancy Guide. The community gives parents a reason to use the app even on the days they do not need to make purchases. The more members we have in Kyarlay online community, the more useful and valuable it becomes and the stronger the network effect. This also gives us a deeper understanding of our customers and the ability to react more quickly to their needs. Even if general eCommerce operators want to build online communities like ours, it is structurally impossible because their customers are different from one another. We do not need to spend millions of dollars to build the network effect in the same way general eCommerce operators have to do.

Conclusion

Local start-ups face challenges that are formidable and may even seem unfair. It is tempting to suggest Government intervention to protect local start-ups against regional eCommerce operators. However, it is not feasible because Myanmar relies heavily on China on everything from fast-moving goods to infrastructure investment. Protectionist measures may also only benefit large local businesses, stifling innovation and presenting even more challenges to small start-ups. After all, we work in start-ups because we love to solve these challenges and the start-up folklore is filled with instances of David outsmarting Goliath. I am confident that we will see the rise of a few local start-ups from Myanmar within the next 3 to 5 years alongside the regional operators. We will strive to make sure Kyarlay will be one of them.

Sources

[1] Rolling updates on coronavirus disease (COVID-19)

[2] Coronavirus is less deadly than SARS and experts say that's why it's killed more people overall

[3] Italy just recorded the highest single-day death toll of any country with a coronavirus outbreak. Here's how this catastrophe unfolded.

[4] How will coronavirus change the world?

[5] Covid-19 - Way forward

[6] Myanmar’s Food Delivery Boosted by COVID-19 Restrictions

[7] Coronavirus's Impact on Consumers and Businesses in China

[8] Commentary: Has COVID-19 made e-commerce and online shopping the new normal?

[9] UK coronavirus crisis 'to last until spring 2021 and could see 7.9m hospitalised'

[10] Remarks by World Bank Group President David Malpass during Press Call on First Operations for COVID-19 (Coronavirus) Emergency Health Support

[11] Sars: The people who risked their lives to stop the virus

[12] The SARS epidemic threatened Alibaba’s survival in 2003—here’s how it made it through to become a $470 billion company

[13] How Jack Ma Led Alibaba Through The 2003 SARS Outbreak

[14] Colliers Myanmar Retail Quarterly Report Q4 2018

[15] Shopee parent company Sea Group widens net losses to USD 1.46 billion in 2019

[16] Startups need to manage cash and have “a bit of luck” to survive Covid-19

[17] How COVID-19 Could Affect Startup Funding in Asia

[18] The Crocodile And The Shark: Could Alibaba Swallow eBay?

[19] Marketplace or Inventory-Led, which ecommerce model works best?

[20] Cross-border opportunities and pitfalls in Southeast Asia with Shopee

[21] Shop.com.mm grows rapidly in Myanmar

[22] Lazada, Shopee lead the pack in e-commerce race