Bagallery: In Search for the Operating Model for Growth

Mina Salman, the co-founder of Bagallery, Pakistan’s largest beauty and fashion e-commerce
platform, took her first sip of coffee during her meeting break in Karachi. The meeting she attended
decided the fate of her business’s growth. It was in January 2021, and life for regular Pakistanis
had started returning to normal due to a decline in COVID-19 cases, but her business outlook was
still gloomy. Bagallery’s e-commerce platform depended upon imports of international brands,
and Covid-related restrictions had exacerbated supply chain challenges. The result was customer
order fulfillment delays to an average of twenty-five days. Bagallery also saw increased customer
returns and order cancellations of 31% in 2020, while the industry average was 12% (Refer to
Exhibit 1). Operations were getting difficult due to excessive working capital requirements
attributed to their import-based pre-order model, also called the cross-border model.
An urgent meeting with departmental heads was called to discuss the alarming situation (Refer to
Exhibit 2). While Mina, Mushkbar, and Saad felt they should continue their current pre-order
model, Anas, Farhan, and Abdul Muqeet were convinced that the in-stock model was the solution.
Salman and Umair expressed their positive stance toward the drop-shipping model. After an hour
of deliberations, the tired individuals took a coffee break. Mina took a sip of her coffee, worried
about the fate of the Bagallery and its 150 employees. Before their next quarter's venture capitalist
(VC) meeting, they had to decide the most suitable operating model to bring the company back on
track for its employees and the impatient investors who wanted top and bottom-line growth.
Bagallery
Bagallery was officially founded in 2017 by Mina, a thirty-two-year-old MBA degree holder, a
passionate entrepreneur, a beauty blogger, and an influencer. She was an advocate of high-quality
and trusted skincare products. Growing up, she mostly asked her relatives abroad to purchase
beauty products for her as these were unavailable in the Pakistani market. She realized that many
friends in her social circle also requested their families abroad for the same. This observation
eventually persuaded her to tap into the hidden potential. She got the idea to provide a platform
for Pakistani consumers to buy beauty and fashion products with high standards, quick shipping,
and better customer service. Mina reflected on Bagallery’s idea:
“I wanted to redefine women’s lifestyle and uplift their confidence. I thought about
creating a company that strives for success and empowers Pakistani women”.
Mina brought this idea to life with the help of her husband, Salman Sattar, in 2013. High-end
branded bags like Michael Kors and Kate Spade were sold through their Facebook page, Bagallery.
This was initially done for family and friends and later started for the general public. In the initial
months, the average monthly orders were thirty. The idea to sell only premium international bags
to a niche segment was modified as more mainstream branded bags such as Zara and Aldo were
added. In 2017, Bagallery’s e-commerce platform was launched as a one-stop-shop digital retail
solution for authentic fashion brands for women and men alike. The average number of orders
increased to eighty. In 2017, Salman included his friend, Anas, as a third co-founder and head of
operations. The three founders brought in a total investment of ten million rupees. Mushkbar and
Abdul Muqeet joined one month after Anas joined. Mina recalled:
"We started Bagallery with a small team of five people, and we had to wear multiple hats to get
things done. We had to handle everything from product sourcing to customer service, and it was
not easy."
Mushkbar was responsible for reaching and bringing relevant traffic to Bagallery’s website using
Facebook, Instagram, and influencer marketing. Muqeet was responsible for determining the
number and types of brands on Bagallery’s website and their pricing. He also had to ensure that
the website was less cluttered and easy to navigate in a user-friendly manner. Consideration of
minute details like how many brands should be there after one scroll or after three scrolls was
essential to reduce the bounce rate1.
The team organized an exhibition at a local high-end club in collaboration with international
beauty brand sellers. Bags and expensive beauty and cosmetics stalls were showcased at the
exhibition. To the co-founders’ surprise, the highest footfall was at the beauty and cosmetics stalls.
This persuaded them to include high-end cosmetics and beauty categories on their platform.
Gradually, the company also included international fashion and lifestyle products. A slogan was
added alongside Bagallery’s name, “Bag your deal,” to overcome the challenge of its brand name
specificity (Refer to Exhibit 4 for the initial Instagram post). Bagallery’s vision was:
“To be the #1 online shopping destination for shoppers and sellers of fashion beauty and home
décor products, delivering authentic and quality products, with the best-in-class customer
experience”.
Bagallery’s team believed in their ability to adapt and innovate in times of challenges while staying
true to their core vision and values of customer trust and quality products. From 2017 to 2019,
Bagallery’s customer orders increased from 54,726 units to 389,054 for local and international
brands. It also started partnering with local beauty and fashion brands.
By 2019, Pakistan's startup culture had also started gaining momentum. Bykea, a ride-hailing and
delivery platform, secured $13 million in funding in 2019. The co-founders also realized they
needed funding to sustain their rapid growth, scale their operations, expand their team, and invest
in technology. Hence, Bagallery raised $900,000 in a Pre-Series A round from Lakson Investments
Venture Capital (LIVC) in 2019. LIVC, one of Pakistan’s leading VC funds, invested in high-
growth technology businesses. The fund had made several investments across a range of sectors
and added value to high-growth early-stage companies by allowing them to leverage the vast
operational experience of the Lakson Group.
By 2020, 903 start-ups were operating in Pakistan. Infrastructure advancement, accessibility of
technology, and adoption of internet-based services contributed to the startup growth in Pakistan.
Startup funding also increased. Post Ex, Vava Cars, Car First, Airlift, and Savyour were some
start-ups that raised millions of dollars in funding. Bagallery raised $ 4.5 million in series A
funding in 2020, which was used to grow and scale. The venture capital (VC) funding required
Bagallery to grow exponentially, at least double the size in the next twelve months. VCs did not
get involved in operational matters; however, they took serious notice of the start-up’s top and
bottom lines.

1
percentage of website visitors leaving after viewing one page and without any interaction
Bagallery's Human resources and operations were expanded, and products and services were
further developed. The chief operating officer, Farhan, was hired after receiving Series A funding.
By December 2020, Umair Dangra and Saad Mughal were also hired. Their industry-related
expertise was important as the company grew and needed more structure. They also listed 450
brands and 4000 products with a changed entry system called a customized order management
system(OMS). Fifty percent of its revenue came from the beauty category, especially skincare,
fragrances, and hair care. The remaining fifty percent came from fashion and private labels,
including clothing, bags, and accessories (Refer to Exhibits 5 and 6). By 2020, it also had a
centralized warehouse on rent in Karachi, Pakistan's biggest metropolitan port city (Refer to
Exhibit 7 for Pakistan’s Map). This warehouse served multiple locations within and outside
Karachi.
Mina regularly checked review forums, groups, and social networking sites to listen to her
customers actively (Refer to Exhibit 8 for customer reviews). Recently, negative reviews started
becoming a regular feature. While scrolling down the page of one of the groups, she saw multiple
negative comments. One frequent user of Bagallery commented:
"I am disappointed with the order delivery time. I took almost two months to receive my
package; waiting so long is frustrating. I was excited to try the products, but now I'm
hesitant to order from Bagallery again."
Pakistani Consumer Market
Pakistan was the fifth largest population in the world. It was a South Asian country bordering
India, China, Iran, and Afghanistan. The youth segment dominated Pakistan’s population, with a
median age of 22, 49% comprised females and 51% males. Initially, operating an e-commerce
platform in the Pakistani context took a lot of work. There was a lack of established logistical
infrastructure, and consumers lacked trust in online shopping and payment methods. However, in
2020, Pakistan witnessed an overall e-commerce boom that touched $1 billion value and was
expected to grow to $30 billion by 2023. The boom occurred due to changes in cellular phone
subscribers, which increased to 176 million, 81 million smartphone users, and an increased tele
density (Refer to Exhibits 9 and 10). Covid-19, in early 2020, also brought the required mass
mindset shift toward digital platforms. The number of social media users also increased.
Table 1: Social Media Statistics of Pakistan (2020)
Facebook Users 58 million
YouTube Users 72 million
Instagram Users 16 million
TikTok Users 20 million
Website traffic from mobile devices 80%
Average Time Spent Online 2 hours
Source: Company Files

The typical Pakistani customer relied more on the traditional retail experience. Brick-and-mortar
was the preferred channel for purchasing all product categories. Seeing and touching was
believing. This trend was slowly changing amongst the youth and working-class individuals, and
COVID-19 brought an overall positive shift in attitudes toward online shopping.
The Pakistani shoppers looked for the best possible prices and compared them across channels to
get the best deals. They desired convenience, fast delivery, cash on delivery, and buy now pay
later (BNPL) payment options (Refer to exhibit 11 for the Pakistani Market Customers
Classification). For Salman, there was no one-size-fits-all approach to serving e-commerce
customers in Pakistan.
“Understanding consumers’ unique needs and preferences and tailoring our offerings and
services accordingly is important."
Bagallery’s target shoppers represented forward-looking, technology-savvy individuals. It
specifically focused on women inspired to upscale their beauty and lifestyle standards. The
company segmented customers based on their purchase patterns and interests in Bagallery’s
offerings. The core segments were fashion enthusiasts and beauty connoisseurs (See Exhibit 12 for
Bagallery’s customer segments). 88% of products sold on Bagallery‘s platform were women-
related, and 12 % were men-related. However, most females bought these men-related products.
92% of Bagallery shoppers were females, and 8% were males in the 16-44 age bracket. Although
delivery services such as TCS and Leopard provided delivery services to 250 cities across Pakistan,
the percentage of the twenty top cities of Pakistan contributed 90% of sales; smaller cities
contributed 5-7%, and rural areas contributed 3%.
Operating Model
Bagallery had adopted a pre-order/cross-border delivery model, which allowed it to assess
customer demand for specific global products before making inventory investments. This proved
to be a capital-efficient approach. Bagallery’s website displayed product catalogs of international
brands such as ZARA, Aldo, Michael Kors, Kate Spade, and Coach. These displayed brands were
actively hunted by the commercial team at the backend. They looked for discounts on famous
brands worldwide and uploaded them on Bagallery’s website. No partnerships were made with
those international brands. The marketing team created awareness about these deals and discounts
by running ad campaigns on Facebook and Instagram. Based on customer order placement, the
procurement team purchased the ordered product from the relevant brand's website. After receiving
the international shipment of the ordered brands, the operations teams ensured order delivery to
the customer. International brands were delivered to local customers within 25– 45 days of order
placement. This model proved highly successful, attracting thousands of Pakistani shoppers,
especially females, to buy international brands (See Exhibit 13 for the Pre-order model adopted
by Bagallery). This model did not require e-commerce businesses to invest in the warehouses, as
orders to the suppliers were made when customers placed orders on an e-commerce website. This
order was then directly dispatched to the customer upon receipt from the supplier.
The pre-order model had multiple risks. Due to a higher lead time, shoppers changed their minds
and canceled orders, creating an inventory pile-up in the warehouse. Moreover, the fluctuating
customs duties, exchange rates, taxes, out-of-stock products on the international brand's website,
and supply chain slippages (loss in transit/ damages) also created problems.
Other operating models used by e-commerce firms included the in-stock and drop-shipping
models. In the in-stock model, the customer ordered on the e-commerce website. This order was
obtained from the e-commerce brand’s warehouse and dispatched to the customer within six hours.
This model required the e-commerce brand to purchase stocks and maintain required inventory
levels at their warehouses. The amount of stock ordered from the suppliers was based on past data,
and it was bought on credit to be paid within stipulated days. The investments in inventory and
warehouse restricted product variety. If Bagallery had to achieve growth using this model, then it
had to invest in developing Lahore’s warehouse and warehousing staff. Lahore was the second
biggest city in Pakistan. Its central location and proximity to many other big and smaller cities
made it a strategic location for warehouses for many businesses, also enabling businesses to get a
variety of suppliers on board.
In the in-stock model, the inventory management from multiple warehouses required technology
investments. The bulk inventory purchase also required the e-commerce platforms to search for
suppliers offering better prices or to purchase the inventory from the wholesale channel. Overall,
the bulk purchase enabled the e-commerce business to attain better margins due to this.
In the drop-shipping model, the customer placed the order on the e-commerce website like
Bagallery and the supplier of the product fulfilled the order. The e-commerce brand did not carry
any suppliers' inventory and did not require a warehouse. In Pakistan, this model was feasible for
e-commerce platforms showcasing local suppliers' products, as international brands’ order
fulfillment to Pakistani customers was impossible. This model also required the synchronization
of technology between suppliers and e-commerce brands. This sync was important because as soon
as the customer placed an order on the e-commerce website, an email with the customer’s address
and purchase order was sent to the supplier. Extensive data sharing reduced the control of e-
commerce websites. Customer service was a challenge in this model because any complaints from
the customers were directed towards the e-commerce platforms as products were ordered from
their website
Bagallery’s Partners
Bagallery developed partners on multiple fronts to improve its supply chain. For instance, it
partnered with HBL to provide discounts for shoppers who shopped on Bagallery using an HBL
card. It also partnered with Trax Logistics for product deliveries. Trax gave the try-and-buy option
for customers at a price premium. This especially worked for shoes and sandals, as the customers
could open the package, try the pair, and pay once they were happy with the delivery. It also
provided products with a Cash on Delivery (CoD) payment option. CoD was the payment
mechanism that boosted online shopping success in Pakistan, as most shoppers hesitated to enter
credit or debit card details on the website. Moreover, many people saw online shopping
suspiciously as many online sellers and platforms sold and delivered fake, faulty, damaged, or
incorrect products. CoD restored trust in online shopping as payment was made after receiving the
order at the doorsteps. Approximately 90% of online shopping payments were made through CoD,
while only 10% were made at the time of purchase through credit and debit cards. Bagallery
addressed shoppers’ poor-quality perception by offering quality products from authentic vendors.
These products were packed with care, and customers had the option of easy and hassle-free
returns. It also had a dedicated customer service department to handle complaints. Marketing and
supply chain were the key pillars behind Bagallery’s success. Anas believed that the customers
deserved the best.
"We knew that there would be challenges, and we worked hard to ensure that our supply chain
was strong and reliable and that our customers received their orders as quickly and efficiently as
possible."
Bagallery had a separate content team reporting to the marketing head. It was responsible for
developing creative content on Bagallery’s platforms. The company spent approximately 12% of
sales on marketing, of which 65% was spent on paid media and 35% on organic media (Refer to
Exhibits 14 and 15 for marketing activities). The promotion included online content such as
influencer marketing campaigns, how-to videos, skincare videos, and discount offers to generate
customer traffic and conversions. There was a separate budget for out-of-home and digital out-of-
home advertising to build Bagallery’s brand equity. There were online live streams related to
beauty and fashion, including live streams with vendors such as Loreal, Unilever, Cool & Cool,
etc. Bagallery also partnered with Instagram influencers such as Laraib Rahim, Momina Sundas,
Tooba Khan, and other micro-influencers to improve reach, engagement, and views. It also
partnered with TikTok influencers to develop video content to improve reach and engagement.
Email marketing and push notifications were done for customers who had abandoned shopping
carts. All marketing executions were done independently, and no outside agencies were hired.
These activities were essential to get traffic on Bagallery’s website, eventually leading to
conversions. The industry conversion average was 1.4%, while Bagallery’s conversion average
was approximately 2%. Approximately 30 % of Bagallery’s revenue came from new customers,
and 70% came from existing customers.

Discounts were also offered to increase customer conversions and order size for its top-selling
beauty brands. For instance, Garnier Micellar Water limited stock was promoted with the help of
a price-off promotion, which increased customer hourly website traffic by more than 200 percent
during the campaign period. Bagallery secured these discounts through collaboration with local
(For example, Hemani) and multinational (for example, Loreal) vendors. The promotion
campaigns with MNCs were developed based on a joint business promotion (JBP). JBP meant that
brands planned all their launches and campaigns at the beginning of the calendar year and required
their partners, such as Bagallery, to be involved in planning and locking targets. The JBP involved
discussions around the total promotion budget, the number of campaigns in a calendar year, the
discount percentage that Bagallery would get on total brand sales from each campaign, and any
additional incentives. For instance, Bagallery would lock a target of Rs.100 million in sales for
brand X and a discount of 15% on total brand sales for itself. Once these discounts were locked,
there would be no further negotiations. Bagallery generally charged 15% margins from its vendors.
Besides earning through discounts and incentives, Bagallery earned through vendor advertising on
its platforms. Advertisements placed in critical positions on the Bagallery’s platforms helped to
earn.

Mina emphasized the importance of collaboration with vendors:

"Vendors and suppliers are an integral part of our journey, and we work closely with them to
provide the best products and services for our customers."
Onboarding of vendors happened from time to time. Supply chain, commercial, marketing, and
technology teams were involved in this task. This onboarding process involved the following steps:
• Vendor evaluation based on product quality, pricing, and reliability.
• Location visits and evaluation of collaborator and/or partner operating processes.
• Compliance review with Bagallery's partner agreement standard.
• Finalization of the audit review period to ensure adherence with Bagallery’s product
quality and delivery time requirements.
• Engagements related to human resources or technical training and technology integrations.
The stringent onboarding process helped Bagallery to build trust, strengthen the supply chain
relationships among entities and deliver value to customers. Its notable partners included Unilever
and Loreal. Bagallery and Unilever started their partnership in 2020. Multiple marketing
campaigns were executed that year. Bagallery ranked top as an e-commerce channel partner in
Unilever’s BPC category (Beauty and Personal Care). It also acquired the largest share of
L’Oréal’s entire e-commerce revenue stream and was the first e-commerce website that integrated
Loreal’s Modiface into its website when the latter was launched.
In 2020, Bagallery partnered with a famous Pakistani fashion retail brand, Sapphire. This created
a buzz in the market and attracted many other major Pakistani clothing and footwear players. Some
of Bagallery’s vendors paid to purchase their brand’s sales data. Bagallery served more than
1,700,000 visitors monthly and had more than 1,000,000 satisfied customer orders nationwide by
the end of 2020 (Please refer to exhibit 10 for the positive customer reviews). In case of serious
issues or complaints, Bagallery enabled the vendors to directly contact the customers.
Bagallery’s Competitive Landscape
Broadly, Bagallery competed with generalists, beauty specialists, and fashion specialists.
Generalists like Daraz, Yayvo, and Homeshopping.pk. These e-commerce platforms carried
products ranging from beauty to electronics to groceries. There were online beauty specialists like
Cosmetic Planet, which only carried beauty products. The third competitor set was fashion
specialists like Sapphire and Khaadi, which sold fashion items like apparel and accessories.
Bagallery was positioned as a beauty and fashion e-commerce platform (Refer to exhibits 16 and
17).

Generalist E-Commerce Platform - Daraz

Daraz, in Pakistan, started operations in 2012 as a part of Rocket Internet and changed the online
shopping dynamics in Pakistan. It was a generalist e-commerce platform that provided customers
with a one-stop shopping solution for different customer needs across Pakistan. It was an open
marketplace. A seller could easily register on the Seller Center app, add details, get quick
approvals, upload products, and get the online business live. Daraz doesn’t care if the product is
genuine or not. However, the reputation of the supplier depends on the customer reviews. If a
customer faced any problems with products purchased on Daraz, they would give bad reviews to
that seller. This created customer trust issues due to fake deliveries and damaged product
shipments, as multiple vendors sold all types of products on its platform. To tackle this issue, Daraz
launched Daraz Mall in 2019. This allowed only reputable and licensed brands to sell their products
on Daraz’s platforms. It secured a market leadership position in Pakistan’s e-commerce industry.
Daraz was sold to a Chinese company, Alibaba. By 2021, Daraz had 40 million monthly active
users and access to 50 million products across 100 categories.
Daraz invested heavily in marketing campaigns, promotions, and discounts to attract and engage
customers. It utilized various channels to reach a large audience and generate sales. It utilized
various delivery models to cater to different orders and customer needs. In addition to the pre-
order/cross-border model, it employed other delivery models, such as fulfilled by Daraz (FBD). In
the cross-docking model, vendors transferred products to outbound vehicles for distribution
without storing products in their warehouses. This approach minimized inventory holding costs
and reduced order fulfillment time. The delivery timeline for cross-border orders varied depending
on the location and availability of the product. For FBD orders, Daraz absorbed complete
responsibility for the warehousing, packaging, and delivery, intending to deliver within a specific
timeframe. Cross-border orders involved international shipping and varied delivery timelines
depending on the country of origin and customs clearance processes. It offered convenient
payment options, doorstep delivery, and customer protection policies, enhancing the overall
shopping experience for its customers.
Fashion And Clothing Competitors

Brands in this competitive landscape included Pakistani multi-channel brands like Gul Ahmed,
Khaadi, Sapphire, limelight, Al-Karam Studios, Nishat Linen, and Sana Safinaz, which had also
started their e-commerce platforms. Gulahmedshop.com took the digital lead in the fashion and
clothing category. It commenced its online presence in 2015, appealing monthly to 1 million online
visitors. By 2020, the online visitors to Gul Ahmed Shop had reached 62 million. These brands
had an in-stock operating model. Laam and Jomo also operated in this space as online fashion
stores. Laam had a pre-order operating model. Similarly, niche brands like Elan also had a pre-
order model.
Pakistani Beauty and Skin Care Brands

Local Pakistani brands such as Saeed Ghani and Co Natural offered beauty and skin care products.
Saeed Ghani started in 1888. Its products were initially only available in its retail shops but were
later made available in online stores and supermarkets. Co Natural was a Lahore-based business
that sold organic products across the country. Co Natural was able to raise $825,000 in funding in
2020. The brand achieved about 3000 order fulfillment capabilities monthly with a monthly
marketing expenditure of about $1350. Both brands had an in-stock operating model.
Naheed Super Market (NSM) and Imtiaz Super Market (ISM)

NSM and ISM were considered trustworthy retail brands for consumers who wanted to buy skin
and beauty products. They started as brick-and-mortar supermarket stores. NSM made its online
appearance in 2018 and reached 860,000 total visitors online. ISM did not have an online presence.
Most generalists worked with a mixed operating model, while the beauty and fashion specialists
worked with the in-stock model.
Bagallery had better bounce rate percentages than its competitors (Please refer to exhibits 18 a, b,
and c).
Operating Models
Bagallery’s operating model till 2020 was a pre-order model. However, due to unprecedented
challenges such as shipping delays and supply chain disruptions due to COVID-19, Anas felt they
should change the operating model from pre-order to in-stock as soon as possible. The need was
urgent because they had to show their first-quarter 2021 results to the demanding investors. With
a $ 4.5 million investment, they expected two times growth in sales.
Anas was disappointed that his team worked around the clock to ensure timely delivery but still
saw a 30% decline in sales in the third and fourth quarters of 2020. The pre-order model's gross-
to-net ratio was low (Refer to exhibits 19 a and b). This meant that for sales of 100,000 units, only
65000 units were fulfilled. This was mainly due to a high lead time of 45 days from order
placement to delivery. Customers often changed their purchase decisions and canceled orders or
refused to take the order when it reached their doorsteps. Many times, customers buy online brands
from brick stores. Order cancellations also happened due to product out-of-stock situations on the
international brand’s website. Order cancellations created an inventory pileup.
Anas had observed that in an online shopping context, same-day delivery reduced order
cancelations because shoppers generally didn’t change their decision so quickly. He felt that the
in-stock model would increase the gross-to-net ratio. The three co-founders and the departmental
heads had an extensive decision regarding the different model options.
Anas argued:
“We should only sell what we have in the warehouse and increase the sales of available stocks.”
Mina replied:
“You don’t need to invest in additional warehousing and inventory maintenance costs with the
pre-order model. With in-stock, you must invest in inventory and warehousing. Warehousing
would require renting space, building racks and pallets from scratch based on our requirements,
and hiring staff. Can we invest so much in this? It will also greatly limit shopper variety. With pre-
orders, you can show all product varieties available on different brand websites without investing
anything upfront. Customers have more options; you only need to purchase what customers order!”
Abdul-Muqeet and Saad nodded in agreement with Mina.
“What about customer satisfaction?” Anas retorted.
Salman started, “Anas, the in-stock model limits variety. It would require us to become more
capital-intensive”. I believe the cross-dock2 or drop shipping would be the most suitable for us.
With cross-dock and drop shipping models, products don’t need storage and would be transferred
immediately for distribution. Our ERP system would sync with the supplier’s system and not
require warehouse and inventory investments. The vendor would directly deliver to the customer
from its warehouse. It would be easy to maintain our cash flow.”
Farhan nodded in agreement with Salman.
Saad, who had been listening silently to the entire argument, got up to share his thoughts:
“So, Salman, are you suggesting a model that requires system integration with the supplier? Do
you think that’ll work? Yes, it may work with Daraz or any other local player and firms with
limited scale, but not us! Firstly, their website may have been built on a content management
system such as Shopify or WordPress that matches their vendors, enabling them to sync their
systems easily. Things may not be so simple for us. We would need to invest heavily in technology
and still face the system’s syncing difficulties. Also, suppliers would never be comfortable sharing
their stock reports as that is confidential information for most. There is a possibility of the supplier
fulfilling the bulk order of another business customer and not fulfilling Bagallery’s order. Lastly,
manpower at the supplier’s end may not be as fast as people at our end. This mismatch between

2
In a cross-dock model, products come to the Bagallery warehouse and are immediately dispatched to the
customer. In a drop shipping model, products are directly dispatched to the customer by the vendor.
the working speeds and syncing may lead to a breach of SLA3 that requires us to fulfill orders
within 48 hours. Let us go with the in-stock model. I would endorse Anas’s suggestion.”
Abdul Muqeet added, “With the cross-dock model, the challenge is that we would also be required
to maintain inventory of some regularly purchased items at our warehouse. What would happen if
customers ordered multiple articles from many suppliers in the same cart? If some items must be
fulfilled from our warehouse while others require fulfillment from other suppliers, how sure can
you be that all articles will be sent as one single order simultaneously? Any fulfillment problems
with the suppliers will lead to our stock build-up. I agree that this model works for Daraz because
they deliver orders containing multiple articles from different suppliers separately and charge
separate delivery charges for each supplier, but we have one delivery charge for a single order no
matter what the number of items is in a cart”.
“I think we should continue with the existing pre-order model.” Mushkbar pitched in. “After all,
we have been riding on its success. Let’s not forget that our investors are interested in our
business’s growth and scalability”.
Farhan got up from his seat with a marker to write down numbers on the board to calculate
differences in the returns for all three models.
“Let’s compare these numbers again,” he said, “then we can return to the discussion.”
The room went silent again as Farhan started writing on the board.
Bagallery Prospective Future
Bagallery’s future looked bright as the Pakistani context worked in its favor. It anticipated future
projections of serving 3,500,000 visitors per month, targeting 3,000,000 customer orders locally
and internationally, and achieving an annual turnover of $ 30 million by 2023 (See Exhibit 20).
This bright picture, however, rested upon the crucial decision that the team would make. A decision
that would work for the company’s employees and the investors. Mina knew her strong team would
sail through this storm as they had previously done many times.

Exhibit 1 – Financial Position of Bagallery

2017 2018 2019 2020
No of Orders 54,726 226,165 389,054 611,820

3
Service Level Agreement
 Gross Sales (in
183,414,613.0 760,109,596.5 3,054,287,559.3
PKR) 1,507,262,434.8
Net Sales (in
115,551,206.2 478,869,045.8 2,473,972,922.0
PKR) 1,175,664,699.0
Gross to Net
0.63 0.63 0.78 0.81
Ratio
Profits (in PKR) 26,576,777.4 110,139,880.5 428,821,973.0
223,376,293.0
Percent Change
- 314% 103% 92%
in Profits
Source: Company Files

Exhibit 2- Bagallery Team Structure and Department Chart

Exhibit 3- Educational Background of the Co-Founders (Source: Company Sources)

Mina- Founder, head of PR and communications, Beauty Influencer and Public Speaker,
CBM 2007

Salman- CEO- strategy, seasoned sales professional with experience across the Middle East,
including Unilever, Mondelez, and Friesland Campina, where he led a business of over $500mn
as Sales Director. CBM 2007

Anas- Head of Ops and Procurement, supply chain expert, MBA supply chain focus, IBA

Mushqkbar- Head of Marketing, FMR marketing Pfizer, Nestlé, MBA-Marketing, gold medalist,
CBM 2016
Abdul Muqeet- Commercial Head, FMR Founder of Sports Media Company, founding member,
CBM 2016

Saad Mughal-CTO, Head of Product Khareed, start-up consultant Pakistan, US, IBA 2016

Farhan Syed-COO, Head of E-Commerce L’Oreal Pakistan, LUMS 2015

Umair Dangra- CFO, CFO Bays International, ORIENT McCann, KPMG Chartered Accountant

Exhibit 4 – Snapshot of Initial Instagram Post

Exhibit 5– Bagallery Milestones for Selected Years

Year 2017-2018 2019 2020
Employees 5 40 110

Beauty, Skincare, Bags, Haircare,

Main Categories Available
Fragrances, Footwear, Beauty
Tools, Clothing, Fashion
Beauty, Skincare, Bags,
Bags, Beauty Accessories, Watches, Jewelry,
Clothing, Haircare
Home Decor, Lighting, Mobile
Phones, Gadgets, and Phone
Accessories

No. of Brands Available 50 200 450

Pakistan, US, UK, KSA, Turkey,
Order Delivery Location Pakistan Pakistan Spain, Australia, Canada, Sri
Lanka, Bangladesh
Source: Company Files

Exhibit 6 – The Top 5 selling items with categories of the Year 2020

Item Category Sourced From

 The Ordinary - Niacinamide 10% + Zinc
Skin Care The Abnormal Beauty Company
1% - 30ml
Maybelline New York- Baby Skin Instant
Pore Eraser Primer
Beauty Care L’Oreal
Sunsilk - Black Shine Shampoo - 185ml Hair Care Unilever
The Ordinary - Hyaluronic Acid 2% + B5
- 30ml
Skin Care The Abnormal Beauty Company
Neutrogena- Cleansing Water Gel, Hydro
Boost, Normal to Dry Skin, 200ml
Skin Care Johnson & Johnson
Source: Company Files

Exhibit 7– Pakistan’s Map

Source: https://www.worldometers.info/img/maps/pakistan_physical_map.gif

Exhibit 8 – Customer Reviews

Source: Company Facebook page

Exhibit 9- Ecommerce Sales Growth in Pakistan (4-Year Statistics)

Source: SBP Annual Report FY 2020

Exhibit 10 – Tele-density and Broadband Penetration in Pakistan (5 Years Percentages)

Source: SBP Annual Report FY 2020

Exhibit 11- The Pakistani Market Customers Classification

Main Segments Description Age Group
This segment consisted of tech-savvy individuals residing
in urban areas. They were early adopters of online
Urban Millennials 18-34 Years
shopping, digitally connected, and value convenience,
variety, and competitive pricing.
These customers were typically employed individuals who
had limited time for traditional shopping. They appreciated
Working Professionals 25-44 Years
the ease and time-saving benefits of online shopping,
especially for essentials, electronics, and fashion.
This segment comprised fashion-forward individuals who
prioritized staying up to date with the latest fashion trends.
Fashion-conscious
They were active on social media platforms, followed 18-34 Years
Trendsetters
influencers, and were willing to invest in fashion and
beauty products.
 This segment sought the best deals and discounts available
online. They were price-sensitive customers who actively
Bargain Hunters 18-54 Years
compared prices across different platforms and prioritized
cost savings in purchasing decisions.
This segment represented customers residing in rural areas
of Pakistan. They might need more access to physical retail
Rural Customers 25-54 Years
stores and rely on e-commerce platforms to fulfill their
shopping needs, especially for locally unavailable products.
These customers were passionate about technology
products and gadgets. They kept themselves updated with
Tech Enthusiasts 18-44 Years
the latest tech advancements and were keen to explore and
purchase gadgets online.
Source: Company Files

Exhibit 12- Bagallery’s Customer Segments

Bagallery’s Customer
Segments
Fashion Enthusiasts
Beauty Connoisseurs
Trendy Professionals
Social Media Influencers
Occasion Shoppers
Customer Segment’s Description
Included customers with a strong interest in fashion and actively
searched for the latest trends and styles. They were passionate about
staying updated with fashion news, following fashion influencers, and
investing in trendy clothing and accessories. This segment constituted
approximately 35% of Bagallery's customer base, with a steady growth
of 10% year over year.
Comprised customers who were found to be highly knowledgeable
about beauty products and trends. They showed close attention to
skincare, makeup, and hair care and were willing to invest in high-
quality beauty products to enhance their appearance. Around 25% of
Bagallery's customers fell into this segment, with a remarkable increase
of 15% in the last year.
This segment included customers who were typically working
professionals with the instinct to value fashion and style in their
personal and/or professional lives. They prioritized fashionable and
sophisticated clothing options in their buying patterns, reflecting their
personality and career aspirations. This segment represented about 20%
of Bagallery's customer base, with consistent growth of 8% on an annual
basis.
Individuals in this segment had a significant following on social media
platforms and actively engaged with their audience on fashion and
beauty-related topics. They often collaborated with brands, shared
recommendations, and strongly influenced their followers' purchasing
decisions. Approximately 10% of Bagallery's customers categorized in
this segment showed a notable surge of 20% in the last year, indicating
the growing influence of social media in the fashion and beauty
industry.
These customers were specifically interested in finding outfits for
special occasions such as weddings, parties, or events. They sought
unique and standout pieces to help them make a fashion statement
during important moments. This segment accounted for 5% of
Bagallery's customer base, with a significant increase of 12% against
the previous year, driven by a demand for exclusive and unique fashion
options.
 This segment included customers who purchased fashion and beauty
products as gifts for others. They looked for various options and valued
Gift Shoppers attractive packaging, personalized touches, and convenient gift services.
Around 5% of Bagallery's customers were gift shoppers, consistently
growing at 7% annually.
Source: Company Files

Exhibit 13 – Bagallery Operating Model – Pre-Pandemic

Exhibit 14 – Bagallery and Influencer Collaborations

Source: Company Files

Exhibit 15- Bagallery’s Influencer Collaboration Results

Source: Company Files

Exhibit 16 – Bagallery’s Positioning

 Bagallery

Source: Company Files

Exhibit 17 – Bagallery’s E-commerce standing.

Source: Company Files

Exhibit 18 a - Bagallery’s Performance of Key Performance Indicators Against Competition

Source: Company Files

Exhibit 18 b- Bagallery’s Performance of Key Performance Indicators Against Competition

Source: Company Files

Exhibit 18 c- Bagallery’s Performance of Key Performance Indicators Against Competition

Source: Company Files

Exhibit 19a – Comparison of Pre-Order Model, In-Stock Model, and Drop-Shipping Model
Existing Model Suggested Model
Pre-Order Model In stock Drop Shipping
Capex
Investment in
1,282,800,775 2,437,321,472 -
Inventory
Supporting Assets
2,204,789 4189099 500,000
Investment
Opex
Warehousing Space 6550 sq ft 16000 sq ft 2000 sq ft
Human Resources 110 160 120
Technology Investment 42,550,548 47,231,108 66,123,552
Expected Sales (2020- 3,054,287,559.30 3,054,287,559 2,138,001,292
2021)
Gross to net Ratio 0.65 0.84 0.8
Net Sales 1,985,286,914 2,565,601,550 1,710,401,034
Additional yearly Sales 580,314,636 -274,885,880
Additional monthly 48,359,553
Sales
Gross Margin 15% 15% 15%
Contribution Margin
(Returns) 297,793,037 384,840,232 256,560,155
Admin Expenses
1,000,000 25,000,000 1,000,000
 Marketing expenses
1,000,000 600,000 1,000,000
Net Income
295,793,037 359,240,232 254,560,155
Total Investment 381,785,945 119,626,263 66,123,552
Return on Investment 77% 300% 385%
Source: Interviews (Data has been modified due to confidentiality)

Exhibit 19b- In-Stock Model Inventory Cost

Expected Sales 3,054,287,559
Average monthly sales 254,523,963
Inventory to sales ratio 0.8 Historic Average
Required inventory 144,000,000
Current inventory (Value) 75,691,567 From Stock Report Summary
(Dec 2020)
Net Investment in inventory 68,308,433
Investment in Holding Cost for
Inventory (PKR)
Average SKU Value 689 From Stock Report Summary
(Dec 2020)
Additional Inventory Required 99,141
Average Holding Cost Per Unit 12
(Monthly)
Total Holding Cost (Monthly 1,189,697 OPEX
Inventory Holding Cost 14,276,363 OPEX
Total Investment (PKR)
Net Investment in Inventory 68,308,433 CAPEX
Inventory Holding Cost (Yearly) 14,276,363
Total Cost CBD4 (Yearly) 1,920,000 OPEX
Investment in Equipment 519,300 CAPEX
Total Investment Required (Year 1) 119,626,263 CAPEX+OPEX

4
CBD is call before dispatch. This system was developed so that the company could call the shoppers before dispatch
because sometimes shoppers were not available when the product reached their doorsteps. These returned products
added to the inventory cost for Bagallery.
Exhibit 20 -Future Prospects and Bagallery Growth Potential