Ecommerce path to profitability in Nigeria

By Ayomide Oriade

Right from the market entry, the odds were hugely stacked against ecommerce on the continent of Africa. Despite the availability of huge markets such as Nigeria, Egypt, South Africa and Kenya, there were huge doubts regarding the needed technology, customer exposure and requisite infrastructure for effective ecommerce service delivery.

Like in many other African countries, Nigerian consumers were skeptical about e-payment services which were associated with ecommerce. People were grappling with unsuccessful transactions at automated machine stands and loads of complaints of debits on uncompleted transactions. Till date, even offline shops experience instances where customers prefer cash over Point of sale (PoS) payment options. Added to this were issues bordering on quality, trust, internet penetration and logistics service deficits.

While the aforementioned issues are yet to be fully resolved, many will agree that recent events and covid-19 experiences have shown that ecommerce can thrive in Nigeria. Aside from the fact that preventive measures enforced by authorities further extolled the importance of technology based connection and communication between people, businesses, organizations and processes, ecommerce platforms are being innovative in their service delivery which is rubbing off on their books and customer traction. Their exploits are validating the viability of ecommerce in Africa.

Customer Surge and Profitability

One major argument against ecommerce in Nigeria and Africa is profitability of the business. The recently released Q2 2020 report by Africa’s leading e-commerce company Jumia, showed improvement with increase in gross profit and decrees in operating loss, representing a significant progress on path to profitability. The report has it that Jumia’s gross profit increased by 38% to €23.3 million in the second quarter of 2020, from €16.8 million in the second quarter of 2019, while operating loss reduced to €37.6 million in the second quarter of 2020, decreasing 44% on a year-over-year basis.

Significantly, the company also made progress in usage growth, as the number of active customers; orders placed showed significant increase for the quarter. The report showed that annual active consumers reached 6.8 million, a year-over-year increase of 40%, while orders on the platform grossed 6.8 million, a year-over-year increase of 8%.

“We have made significant progress on our path to profitability in the second quarter of 2020, with Operating loss decreasing 44% year-over-year to €37.6 million. This was achieved thanks to an all-time high Gross Profit after Fulfillment expense of €6.0 million and record levels of marketing efficiency with Sales & Advertising expense decreasing by 51% year-over-year. We are navigating these uncertain times of COVID-19 pandemic with strong financial discipline and operational agility which positions us to emerge from this crisis stronger and even more relevant to our consumers, sellers and communities,” commented Jeremy Hodara and Sacha Poignonnec, Co-Chief Executive Officers of Jumia.

Improved Delivery System

Lack of structured national address systems and poor road infrastructure, increases the complexity of deliveries, thus making Last-mile delivery a major challenge in Nigeria. While global brands like eBay and Amazon had the luxury of the U.S existing logistics structure to ride on in their early years, Jumia, Konga and other African brands had to innovatively establish their own logistics and delivery network.

For instance, Jumia responded by using a learning machine to map out addresses delaying coordinates on deliveries and routes plied, such that as deliveries are made to customers, the mapping coverage improves and delivery routes are optimised. It is thus not surprising that Jumia Logistics and Konga’s

Kxpress has grown beyond servicing only businesses on their platform. Against all odds, Kasuwar Bello, is furthering the course of ecommerce in the North. The first Hausa ecommerce platform is platform has been on for five years and is building a delivery vehicle, KB Express, for public packaging and delivery service.

Innovative payment solutions

E-payment platforms are crucial to development and profitability of ecommerce. There has been a tradition of general resentment towards the internet payment system on the African continent, despite increasing craze for mobile technology among African youth. Though most African ecommerce platforms have relied heavily on cash-on-delivery model, some are making efforts to move transactions towards proprietary payment systems. To encourage the shift, Jumia and Konga offer cash back when customers use their payment systems, JumiaPay and KongaPay respectively.

When Jumia presented its latest report, JumiaPay recorded development. Total payment value on the platform reached an all-time high of €53.6 million, a year-over-year increase of 106%, while transactions on the platform also reached 2.4 million, a year-over-year increase of 36%, representing 35.6% on-platform penetration in terms of orders.

Relevance during Covid-19 lockdown

The impact induced by the COVID-19 lockdown continued to affect the business and it varied greatly from one country to the other. In Nigeria and South Africa, Jumia faced significant disruption as a result of movement restriction. This disruption persisted during the early part of the second quarter of 2020, before gradually easing towards the later part of the quarter. Its operations were suspended in South Africa during the 2 months of the lockdown and in Nigeria, as they were allowed to deliver only essential products during the 2 weeks of lockdown period. Some of the actions taken by Jumia to support the government and its community included.

Its food delivery business, Jumia Food, which was negatively impacted by restaurant shutdowns starting mid-March, resumed normal operations in late May/early June in most cities where we operate the service.

In selected countries, including Morocco and Tunisia, where nationwide lockdowns were implemented, Jumia experienced a surge in volumes starting mid-March with sustained momentum throughout the second quarter of 2020. Across all geographies, we have seen increased demand from brands and sellers to join and expand their business on our platform as the COVID-19 crisis further established e-commerce as an important route to market.

Going by the impact of covid-19 on shopping culture and continuous effort of ecommerce platforms for service improvement, conversation around ecommerce in Nigeria and Africa as a whole is shifting from that of impossibility to one with huge economic potential. And it can be safely said that this sector has the prospect of being a crucial contributor to the achievement of Nigeria’s digital economy projections.

Ayomide, a Public Relations Executive writes from Lagos