- BY NEWBIZ TEAM
After experiencing significant growth in 2021 and 2022, most e-commerce ventures are now facing a slowdown in demand and sluggish revenue growth. During the Covid-induced lockdowns, demand for online services reached record highs as more people began to trust e-commerce platforms.
IME Group, one of Nepal’s largest conglomerates, recently acquired a majority stake in Sastodeal, Nepal's homegrown e-commerce platform that has been inactive since early 2024. The IME Group, which previously owned a 10% stake in the company, acquired this new share from Dolma Impact Fund. While details of the deal have not been made public, sources close to IME Group say Sastodeal will be relaunched in the near future. With the latest acquisition, IME Group has a majority stake in Sastodeal while the rest of the stakes are owned by Ramesh Group, ICTC Group and NIBL Ace Capital. Sastodeal has remained inactive ever since Amun Thapa, the founder and chief executive officer (CEO) of Sastodeal, resigned in December 2023.
The exit of Dolma Fund, the resignation of Amun Thapa and IME Group's acquisition of a majority stake in Sastodeal reveal the paradox of the Nepali e-commerce sector. These events highlight the turbulent period for e-commerce in Nepal. However, IME Group's investment reflects optimism in the e-commerce scene despite the challenging environment.
As Nepal embraces the digital age, the landscape of online shopping is evolving, driven by increased internet connectivity, youthful population and advancements in digital payment systems. The growing internet and mobile penetration has acted as a major catalyst for the rise in digital consumers, leading to a surge in online shoppers. The advent of digital wallets like eSewa, Khalti and IME Pay, along with mobile banking, has facilitated this growth further by simplifying transactions and fostering trust in online shopping.
Despite the Covid-19 pandemic, retail e-commerce in Nepal maintained a high growth rate in recent years, with projections indicating that the market size will double in five years. In fact, retail e-commerce in Nepal experienced a significant boost during the pandemic as people turned to online shopping for products such as fast-moving consumer goods, clothing and electronics.
A detailed study of the Nepali e-commerce market by Redseer reveals that the online retail market in Nepal was valued at $100 million. This represents a remarkable growth rate of over 100% since the fiscal year 2016/17.
The e-commerce market growth can be attributed to the rise in internet penetration, which increased from 34% in 2016/17 to 45% in 2020/21. This surge translated into nearly 400,000 new online shoppers. Also, the expansion of product assortments and the onboarding of new brands have also contributed to the growth of e-commerce.
The Redseer report states that there are substantial opportunities for growth in Nepal's e-commerce sector as only 9% of 13 million people with internet access shop online at present.
"E-commerce experienced a significant boom during the Covid-19 pandemic. Despite this growth, formal e-commerce represents less than 1% of the total retail market in the country," said Amun Thapa, founder of Sastodeal.
The e-commerce landscape in Nepal is diverse, encompassing various segments. Nepal’s e-commerce platforms serve the B2B, B2C and C2C markets. According to one study, 15 retail and 25 services e-commerce platforms are currently active in the country. Prominent players in retail e-commerce include Daraz, Sastodeal, Thamel.com, Muncha.com, SmartDoko and Hamrobazar. Additionally, there are numerous platforms operating in food delivery, ride-sharing, travel aggregation, professional services and online education. Platforms like Thulo.com and Pathao are adopting a hybrid model, operating in both the retail and service segments.
While there are several established retail and service e-commerce segments, a significant portion of the retail sector remains informal and unorganized. Of the total retail e-commerce, 40% percent is formal e-commerce, comprising platforms like Daraz and Sastodeal. Another 40 percent is conducted through social media platforms such as Facebook, Instagram and TikTok. The remaining 20% consists of unorganised e-commerce, which includes grey market transactions involving internationally sourced products sold at discounted prices, particularly electronics like laptops and mobile phones. Informal or social e-commerce, primarily operating through platforms like Facebook and Instagram, has flourished in the absence of specific regulations. This segment benefits from the accessibility and informal nature of social media, making it a popular choice among consumers.
A study of the product-wise share of retail e-commerce in Nepal reveals that electronics have traditionally been the dominant category, followed by fast-moving consumer goods (FMCG), fashion and beauty products. From being heavily focused on electronics in 2020/21, e-tailing is expected to become more evenly distributed by 2025/26 as the supply and demand ecosystem matures.
Impact of economic downturn
After experiencing significant growth in 2021 and 2022, most e-commerce ventures are now facing a slowdown in demand and sluggish revenue growth. During the Covid-induced lockdowns, demand for online services reached record highs as more people began to trust e-commerce platforms. The rise of electronic payments, including internet banking, mobile banking, e-wallets and QR-based payments, which gained traction since the first lockdown in March 2020, further stimulated the retail e-commerce business.
However, in the past 18 months, the e-commerce sector has observed a decrease in demand for fast-moving consumer goods (FMCG), fashion accessories and electronics due to the economic downturn. Overall online demand for goods has dropped by 40%, with luxury goods and electronic items experiencing near-record low demand. Consumers are increasingly opting for more affordable products.
By the end of 2022, the economic slowdown had started to significantly impact the e-commerce industry. Major e-commerce players say that their sales data suggests a noticeable decline even in the purchase of essential items. Luxury goods, which previously saw high sales, are now less in demand as consumers have shifted their focus. Additionally, while consumers previously replaced their mobile phones annually, they are now doing so only every two or three years.
The economic slowdown, which has eroded people's incomes, is clearly impacting online marketplaces, leading to numerous shutdowns and layoffs. This downturn has affected nearly every sector, and e-commerce is no exception. The majority of marketplace e-commerce ventures that emerged during the pandemic years are either struggling to sustain their business or have already ceased operations. One example is Gyapu.com, which went online during the pandemic period and achieved a business of Rs 15 million in its first three months of operation.
Along with the economic downturn, rising online fraud after the pandemic also deterred consumers. Many new online shops promised services but failed to deliver. Issues such as untimely delivery and lengthy refund processes further complicated the situation.
Nepal’s e-commerce platforms serve the B2B, B2C and C2C markets. According to one study, 15 retail and 25 services e-commerce platforms are currently active in the country.
E-commerce ventures acknowledge that their customer base began to decline as they struggled to meet delivery timelines. "A supportive government policy that fosters customer trust could be crucial in addressing these challenges and facilitating growth in the e-commerce sector," said Thapa, adding that increasing awareness in the e-commerce industry is essential across all stakeholders—not just a single company.
The significant downturn in Nepal's e-commerce sector is evident from the drastic measures taken by major players. For instance, Daraz, the largest e-commerce platform in the country, reduced its workforce by 70%, while Sastodeal has ceased operations altogether. These substantial staff reductions and operational halts further highlight the impact of the downturn on the industry.
Sastodeal and Daraz: Navigating Nepal’s Retail E-Commerce Landscape
Thamel.com and Muncha.com, launched in 2000, were pioneers in Nepal's e-commerce scene. They allowed Nepalis abroad to send gifts home and even offered online sales of goats for Dashain, highlighting the potential of e-commerce in Nepal. As the market matured, new players like Hamrobazaar, an online classifieds site launched in the mid-2000s, helped increase confidence in online transactions and digital awareness.
However, it was Sastodeal and Daraz (formerly Kaymu) that played a major role in shaping Nepal's retail e-commerce landscape. Founded in 2011 as a deals and discount platform, Sastodeal gradually evolved into a comprehensive online marketplace. Its founder, Amun Thapa, started the company from a rented garage space after returning from the US. Despite facing various challenges, Sastodeal achieved transactions worth Rs 450 million in the fiscal year 2022/2023.
The early years were challenging for Thapa and his team as many vendors questioned the feasibility of selling goods online. "Our team went from explaining the intricacies of online shopping to guiding vendors on setting up internet modems during that period," recalls Thapa. By 2015, Sastodeal was operating at breakeven, with growing demand from outside Kathmandu. Despite challenges such as the absence of e-commerce regulations and reliable delivery services, Sastodeal thrived, particularly in the electronics market where customers were more willing to make purchases online based on product descriptions and images.
During that period, Sastodeal experienced gradual growth and began importing goods from China. Daily website visitors reached up to 5,000, and customer service stood out—cakes were sent to customers if their orders were missed. Monthly turnover hit around Rs 400,000. Success in selling mobile phones led Tele Talk Pvt Ltd, a subsidiary of Ramesh Corp (formerly Lucky Group), to seek collaboration. A Gionee mobile campaign on Sastodeal sold 150 phones in the first week alone.
This success attracted an investment of Rs 50 million from Ramesh Corp, which enabled the platform to adopt corporate practices by implementing proper accounting and reporting systems. By 2017, Sastodeal was boasting an annual turnover of Rs 50-60 million.
Kaymu, which launched in 2014 and later integrated into Daraz, was owned by the German startup powerhouse Rocket Internet. It operated as an online marketplace, connecting sellers and buyers similar to eBay or Alibaba. Kaymu introduced best practices to the market, investing heavily in vendor training and customer education. In 2016, Daraz merged with Kaymu under the Daraz brand. In May 2018, Chinese e-commerce giant Alibaba Group acquired Daraz.
According to Rajeev Amatya, a former Managing Director of Daraz, the initial phase of establishing Kamyu (now Daraz) was challenging due to the need to educate buyers about e-commerce. “Consumers were unfamiliar with e-commerce platforms and found it difficult to create accounts and log in. It took time for Daraz to educate them,” he said.
He noted that initially, people would comment, “I need this product,” and sellers would ask for their phone numbers to complete sales. “This is how small-scale sellers were operating on social media,” he added.
Amatya also said e-commerce is a cash-intensive business. “Consumers are drawn to offers and cashbacks, but when these promotions end, site traffic often decreases,” he explained. “The costs associated with technology, marketing, and branding are significant challenges for newcomers and local businesses.”
Following the rebranding, Daraz implemented a policy to avoid listing duplicate products on its marketplace. Previously, 90% of shoes were duplicates, but this change led to higher prices for products. Despite this, Daraz successfully began building trust with both sellers and buyers. Sellers received training, and buyers were attracted by appealing offers, which helped retain them on the platform. Initially, educating buyers was challenging as many consumers were used to purchasing from social media sites and were unfamiliar with e-commerce platforms. Tasks like creating accounts and logging in were new to them, requiring considerable effort from Daraz to familiarise consumers with the e-commerce process.
Alibaba's entry presented a significant challenge to local competitors due to its extensive resources and advanced technology. By 2022, Daraz's Gross Merchandise Volume (GMV) was estimated at Rs 3 billion, increasing to around Rs 5 billion in 2023. Six years after Alibaba's acquisition, Daraz has become Nepal's leading e-commerce platform, managing 5,000 to 6,000 orders daily and featuring 19,000 active sellers.
Industry insiders suggest that the recent management rejig, including layoffs, has set Daraz on a path to profitability. With competitors like Sastodeal and Gyapu underperforming, Daraz seized the opportunity through a strategic reduction in staff. This decision has positioned Daraz as the dominant player in the market, enabling it to achieve a strong growth rate.
Suman Rayamajhi, Managing Director of Upaya, said socio-commerce sites are experiencing significant growth. "Socio-commerce in Nepal accounts for 50% or more of the total market, highlighting the extensive scale of informal e-commerce businesses. The government, however, has plans to introduce new legislation to regulate this sector," Rayamajhi stated. "If the bill is approved, only formally registered businesses will be permitted to operate in the market. Currently, individuals can sell products through social media without official registration. Once the bill is enacted, it will establish a formal market structure, simplifying the process for new entrants," Rayamajhi said.
Sastodeal's Downfall
The competition in the e-commerce market intensified with the entry of Daraz in 2018. Soon it became clear that competing with Alibaba would be challenging due to its market share, technology, brand recognition and overall business prowess.
While homegrown companies like Sastodeal had to invest heavily in new technologies, Daraz leveraged Alibaba’s existing technological infrastructure which allowed it to focus on customer education. Recognizing the need for substantial capital and advanced technology to stay competitive, Sastodeal pursued additional investments.
Dolma Impact Fund subsequently became a venture capital investor in Sastodeal, committing to a four-year investment period before exiting the partnership. Dolma aimed to stimulate e-commerce market growth and planned to eventually sell its stake. Their strategic plan involved seeking a potential acquisition by a major e-commerce entity, either through purchasing the entire company or acquiring Dolma's stake.
Dolma’s involvement introduced the prospect of acquisition into the conversation. It had anticipated that Indian e-commerce companies might enter the Nepali market. Consequently, Amun and his team began exploring potential e-commerce partners, including those from Singapore.
At that time, SastoDeal held a 30% market share, with Daraz commanding 60% percent and the remaining distributed among other players.
The strategic objective was to increase Sastodeal's market share to 40-50%. To achieve this, Sastodeal implemented a cash-burning strategy which involved vendor acquisitions, customer discounts and heavy promotional investments. The board was pleased with the allocation of up to Rs 15 million monthly for the purpose, with annual expenses going as high as Rs 200 million. This helped Sastodeal record a 1000 percent year-on-year growth for Sastodeal, compared to a 15% industry growth. However, this significantly raised Sastodeal's expenditures.
By the onset of the Covid-19 outbreak in 2020, Sastodeal’s workforce had expanded to 200 employees, and branches had been established in five cities. The website offered a broad range of categories, including fashion, FMCG, and electronics.
Sastodeal now had a decision to make - either pursue an acquisition or secure another substantial investor with $15-20 million before Dolma’s planned exit. Despite ongoing investments from existing backers and new investors such as IME Group and NIMB Capital, the company struggled to sustain growth. Efforts to secure additional funding were unsuccessful, and the necessary investment to compete with Daraz did not materialise.
Thapa and his team explored the possibility of involving foreign investors to secure additional funding. They enlisted a Singaporean company as an investment advisor to identify potential backers. The Singaporean firm engaged in pitching to numerous companies on their behalf.
For an entire year, attempts to attract investors proved futile. The market presented significant barriers, as many prominent investors were unfamiliar with the country. Concerns surrounding the Ncell's capital gains tax (CGT) controversy further deterred potential investors, who preferred India and Bangladesh and did not consider Nepal for investment for the next 5-10 years.
The collapse of Sastodeal can be attributed to several factors - the major one being the prohibition of Foreign Direct Investment (FDI) in the retail sector. This regulation restricts e-commerce enterprises with foreign investment to operate under a marketplace model - they cannot directly buy and sell inventory but act solely as intermediaries. This restriction severely limited Sastodeal’s operational capabilities and growth potential.
Initially, Sastodeal managed its own warehouse which allowed for efficient inventory and logistics management. However, after receiving funding from Dolma Impact Fund and becoming an FDI-backed entity, the company had to adopt the marketplace model regulations. This shift restricted Sastodeal’s ability to handle inventory directly and operate as a full-fledged retailer. Coupled with financial strains and unmet investment promises, the regulatory environment ultimately led to the company's downfall, making it difficult for Sastodeal to compete with global giants like Daraz.
Dolma Impact Fund made substantial investments in Sastodeal, starting with $500,000 and increasing to approximately $2.7 million. This foreign investment necessitated Sastodeal’s transition from managing its own inventory to relying entirely on a marketplace model. Before this investment, Sastodeal had better control over quality and margins through direct stock management.
Thapa offers two perspectives on Dolma’s investment in Sastodeal. “On one hand, SastoDeal would not have achieved such significant growth without Dolma’s support. Before Dolma’s involvement, local investors were hesitant to invest in e-commerce, but Dolma helped build confidence among them,” Thapa said. “On the other hand, Dolma’s entry as a foreign direct investment (FDI) company restricted Sastodeal’s ability to engage in certain retail operations.”
From the investor's perspective, Shabda Gyawali, Investment Director at Dolma Impact Fund, said that their experience with Sastodeal provided valuable insights into the unique dynamics and needs of the Nepali market. “Although the outcomes may not have met our expectations, it is important to acknowledge that market readiness is influenced by various factors, including infrastructure, consumer behaviour and economic conditions,” Gyawali said.
According to Gyawali, the primary challenge was the consistent scale of investments required to compete with a global giant like Alibaba. “Our resources were limited, and we were unable to secure additional investments at the necessary level," he said. "Competing in the e-commerce sector demands substantial capital for infrastructure, marketing, and customer acquisition, which proved to be beyond our capacity.”
New Laws to Ensure Fair Practices and Boost Consumer Protection
While e-commerce currently faces challenges, ‘socio-commerce’ sites are thriving and showing strong growth. Socio-commerce involves businesses operating through social media platforms like Instagram and Facebook. In Nepal, socio-commerce accounts for 50% or more of the total e-commerce market, highlighting the significant scale of informal e-commerce. In response to this growth, the government has decided to introduce new regulations to oversee the sector.
The government is preparing to implement strict legislation to better manage its rapidly growing e-commerce sector, akin to installing traffic signals in a bustling city to ensure smooth and safe travel. The draft bill, already submitted to the National Assembly, proposes severe penalties for non-compliance, similar to hefty fines for traffic violations. This initiative aims to bring structure and order to the expanding world of online shopping, thereby ensuring that the sector operates smoothly and fairly. Operators of online platforms and sellers could face jail time of two to three years and fines ranging from Rs 300,000 to Rs 500,000 if they fail to process returns or exchanges within the stipulated time frame. The bill also targets e-commerce platforms that breach advertised guarantees and warranties.
The proposed law, which has been in development for over a decade, seeks to address various issues that have plagued the e-commerce sector. Since e-commerce began in Nepal in the 2000s, the lack of regulation has led to frequent complaints about damaged products, incorrect items delivered to consumers, price discrepancies, and inadequate return and refund policies.
Consumer rights activists and e-retailers have long argued that a comprehensive e-commerce law is overdue, as the current regulatory vacuum has allowed unscrupulous practices to flourish. Under the draft bill, e-commerce platforms are required to retain transaction details for six years and operate solely through official websites or apps. This measure aims to ensure clear records of transactions and hold online businesses to established standards.
Market insiders believe that formalising the e-commerce sector through this bill could integrate informal online sellers into the formal economy, enhancing consumer protection and ensuring adherence to return, exchange and refund policies. The bill also requires e-commerce platforms to register with the Department of Commerce, Supplies and Consumer Protection. Unlisted platforms will face fines ranging from Rs 10,000 to Rs 50,000. They also must provide detailed information on sales prices, delivery charges and payment methods. Likewise, they will also have to manage returns and refunds effectively if the products do not match their advertisements.
Moving Ahead
Stakeholders believe that while the closure of Sastodeal and the downsizing of Daraz may signal challenges, they do not necessarily indicate that the Nepali market is unprepared for e-commerce. They argue that despite existing challenges, there remains significant potential for growth and innovation in the long term.
Gyawali emphasised that e-commerce is a complex and evolving sector, especially in emerging markets where obstacles are frequent. "It is essential to recognise that market readiness is influenced by numerous factors, including infrastructure, consumer behaviour and economic conditions. The current situation underscores the need for continued investment in digital infrastructure, consumer education and supportive policies to foster a favourable environment for e-commerce to flourish in Nepal," he added.
Most e-commerce companies rely on in-house logistics for deliveries within Kathmandu and partner with third-party providers for other regions. The inefficiencies in the logistics network for transporting goods from Kathmandu to other areas result in high transportation costs. Additionally, many companies use private, rented warehouses in Kathmandu and do not utilise external warehousing services. The lack of bonded warehouses for unsold goods compels many platforms to store imported products in their own facilities. Uniform customs procedures for both large and small consignments further contribute to increased processing times.
The study reveals that the primary reason for avoiding e-commerce was a lack of product reliability, which led to trust issues. The absence of a dedicated institution to enforce regulations proposed in the E-Commerce Bill exacerbates this problem. Furthermore, the lack of data protection laws is deterring customers from engaging in e-commerce. Likewise, it suggests that consumers would be more inclined to use e-commerce if they had assurances of data security.
Industry people say, there is an opportunity for a new player to enter the market, though it will require substantial investment. Competition is crucial, as monopolies can be detrimental to both consumers and the market.
Increasing awareness in the e-commerce industry essential
E-commerce experienced a significant boom during the Covid-19 pandemic. Despite this growth, formal e-commerce represents less than 1% of the total retail market. However, with increasing internet penetration, e-commerce is poised for further growth. Operating an e-commerce business presents considerable challenges. Retail e-commerce involves not only the complexities of product sales but also the logistics of delivering goods to customers' homes. A supportive government policy that fosters customer trust could be crucial in addressing these challenges and facilitating growth in the e-commerce sector.
As of today, the e-commerce industry continues to face significant challenges and remains a struggling sector. Since the end of 2022, the economic slowdown has started to impact the e-commerce industry. Looking back, there are two perspectives on Dolma's investment in Sastodeal. On one hand, Sastodeal would not have evolved into such a significant company without Dolma's support. The exponential growth achieved is largely due to the backing of venture capital firms like Dolma. Before Dolma's involvement, local investors were hesitant to invest in e-commerce, but Dolma helped build confidence among investors.
On the other hand, Dolma's entry, as a foreign direct investment company, limited Sastodeal's ability to engage in certain retail business operations, which necessitated compromises on margins and overall profitability. However, when the decision was made to bring Dolma on board, the primary goal was growth. Therefore, despite the trade-offs, Dolma's involvement cannot be considered a disadvantage.
E-commerce adaptation will take time
During Covid-19, like many digital platforms, the e-commerce sector experienced a sudden boom as people were confined to their homes. This significantly changed consumer habits. However, now that physical stores have reopened, many consumers prefer to see products in person before purchasing. The e-commerce sector has always been a cash-burning business. When platforms offer discounts and promotions, consumers rush to buy. But without these incentives, business slows down, indicating that while consumers are familiar with e-commerce, they have not fully adapted to it. As the pandemic subsides and markets reopen, Nepali consumers are gradually returning to physical stores.
Consumer behaviour is evolving, but adaptation will take time. The market in Nepal is relatively small compared to busier countries where people are more inclined to shop online due to time constraints. In Nepal, people still prefer to buy from physical stores. Consumers are likely to order online only for items they cannot find locally; for example, groceries are easily available in physical stores.
Moreover, policies are still lacking. Even Facebook pages are considered e-commerce platforms, and these unregulated platforms have contributed to distrust due to quality issues, raising concerns about trustworthiness. While these platforms offer alternatives, they have not yet gained full consumer confidence.
E-commerce is not a domain for immediate profits
While the closure of Sastodeal and the downsizing of Daraz might suggest challenges, it does not necessarily imply that the Nepali market is unprepared for e-commerce. E-commerce is a complex and evolving sector that often encounters various hurdles, especially in emerging markets. Our experience with Sastodeal has provided valuable insights into the unique dynamics and needs of the Nepali market. Although the outcomes may not have met our expectations, it is essential to recognise that market readiness is influenced by numerous factors, including infrastructure, consumer behaviour, and economic conditions. The current scenario highlights the need for continued investment in digital infrastructure, consumer education, and supportive policies to create a conducive environment for e-commerce to flourish in Nepal. While there are challenges, there is also significant potential for growth and innovation in the long run.
Looking at both developed and emerging markets similar to Nepal , we understand that e-commerce is not a domain for immediate profits; it requires a long-term perspective and a commitment to market retention. The leadership team, spearheaded by Amun, demonstrated strong potential, not just in terms of profitability, but also in terms of long-term impact creation. With Televentures already investing, our investment aimed to support and further strengthen the capable team. While these factors presented significant obstacles, they also provided critical insights into the complexities of developing a robust e-commerce ecosystem in emerging markets like Nepal. We do not view our experience with Sastodeal as a failure. Despite the financial losses, the knowledge and insights gained have been substantial. One of the most important lessons we learned is the critical importance of scale and sufficient capital in the e-commerce sector. Competing against well-established global players requires significant investment in infrastructure, technology and customer acquisition. We also recognised the challenges of attracting foreign investment in a smaller market like Nepal, which reinforced the need for strategic partnerships and innovative funding approaches.
