A few years back, the Nigerian economy welcomed e-commerce business which instantly became a hot new trend in the country’s economy. The sector caught people by a surprise as nobody ever thought of staying in one’s apartment to buy practically everything that is needed without moving a step. It was indeed phenomenal, a new way of life.
However, it is saddening that the business which brought a ray of hope to many Nigerians in terms of convenience and the easy-to-established business venture has been passing through hard times and gradually moving toward a total collapse in spite of massive buzz the sector generated right from 2012/2013 when it started.
With the way thing are going in the sector, the e-commerce industry which worth over $10billion may go into oblivion except for something critical is done to salvage it by curbing the trend of losses they are recording.
Essentially, many of the e-commerce outlets that sprang up some years back have continued to dwindle in fortune with very little hope of survival.
One begins to wonder why a sudden change in fortune in the sector that many considered a solace to Nigerian consumers in their hectic daily purchase despite the support from the Federal Government by granting pioneer status to operators in the country’s electronic commerce (e-commerce).
Though, the Pioneer Status Initiative (PSI), introduced by Investment Promotion Council (NIPC) was targeted at attracting more people to invest in those sectors that have no investments to contribute to the growth of the economy, the incentive only covered only those investments, such as e-commerce and others that were operating under one year, and excluded those that have been operating for more than one year except they venture into a new line of business covered by the list of 27 new industries and products. The woes of players like Olx, Konga, Jumia, Efritin.com might have been compounded by their exclusion from the status as some of them continued to record losses in the past few years.
The recent closure of Olx office in Nigeria by the management of Naspers, owners of the company is an attestation that all is not well with the industry. Early in the year, OLX, an online marketplace decided to shut down its operation in Nigeria which the management described as an effort to consolidate its business operations in the country, stating that it remains committed to its consumers who buy and sell on its platform.
It will be recalled that no fewer than 100 workers of the company in Nigeria got their employment terminated in March and members of the management team are also awaiting theirs’ in April.
Uche Nwagboso, Public Relations and Communications Lead, OLX Nigeria said, “We made a difficult but important decision in Nigeria to consolidate our operations between some of our offices internationally. Our marketplace will continue to operate here – uninterrupted – as it has since 2010, and we remain committed to the many people here who use our platform to buy and sell every month,”
She added, “We continue to be focused on constantly innovating to make sure that OLX remains the top classified platform in the country. Of course, we are committed to helping our affected colleagues during this transition and have already offered them meaningful financial and other support.
OLX joins a long list of e-commerce businesses who have wrapped up business in the west and east Africa over the past two years after failing to break even. In 2015, Nigeria based Efritin.com closed down with then CEO Nils Hammer citing poor internet penetration and citing the high cost of data as well as economic woes of the country as the prevalent factors responsible for their exit from the Nigerian e-commerce market.
Also, the take-over of Konga by Leo Stan Eke led Zinox Group, integrated ICT solutions, and Original Equipment Manufacturer was another example of a troubled e-commerce business in the country. Zinox Group acquired 99 percent shares of Konga, leaving one percent for a minority shareholder, after months of strategic negotiations with foreign investors Naspers and AB Kin.
Before the takeover, Konga management recorded massive loss due to low patronage. An unconfirmed report revealed that so far, Konga has only been able to garner 184,000 active customers, which translated to approximately 1.1 percent of the Nigerian population, which is an indication that the e-commerce subsector is still at an infant stage.
Before Zinox took over Konga, the e-commerce company started so many measures by charging merchants who list products on the platform moving away from a model which allowed free listing but earned sales commissions. The company also shut its warehouse service and canceled customer’s option of payment on delivery.
Konga also fired around 60% of its staff which Shola Adekoya Konga’s chief executive officer once described as a move that will allow the company run a “more efficient business” and lower its operating costs.
Interestingly, Zinox Group which was the first to launch e-commerce business in Nigeria with the launch of BuyRightAfrica.com that struggled to cope with the absence of credit card and e-payment infrastructure over 12 years ago now bought Konga. In 20I5, Zinox Group also founded Yudala to compete with Konga, Jumia, and others. While Yudala is still not at the vantage position to compete favorably with Jumia, analysts believe that the takeover of Konga by Zinox may pave the way for the possible merger of both Konga and Yudala in order to compete favorably with Jumia which remains the leader in the industry with thousands of daily deliveries.
While Konga was passing through difficult times, the investigation also revealed that Jumia, a member of the Rocket Internet Group, 2016 half year consolidated result stood at EUR35.4 million losses. When compared to its net loss recorded in the previous year, the company managed to reduce its loss by 19 percent. In the first half of 2015, it recorded EUR43.7 million losses. Jumia’s record in Nigeria did not make any difference as the e-commerce company also made NGN21 billion loss in last year, an indication that Jumia, Nigeria’s largest e-Commerce company was far away from profitability.
The same scenario applies to other e-commerce companies including Kaymu, Gloo.ng, DealDey, Privateproperty.com.ng that are still facing hard times in their business.
What is happening to many promoters of e-commerce businesses in the country signifies how tough it is to manage inventory for an online business in a massive and unpredictable economy like Nigeria. Sadly, the hope of many promoters to dominate the e-commerce industry in Nigeria like Amazon could not come to reality in the face of an array of difficulties.
However, many of the analysts are quick to blame the promoters by not carrying out the proper feasibility study of the business and the Nigerian economy well before venturing into it. Other factors they fingered are responsible for the misfortune of the industry include high product prices which are as a result of cost of importation, difficulty by buyers to trust the system with their banking and personal information, high cost of logistics and warehousing with difficult transport system, investment in unimportant software and services that are not relevant to their operations.
There is also the issue of irrelevant advertising and marketing channels, and increasingly acute competition in the industry.
One is sure to say that if something drastic is not done to save e-commerce business, the industry will cease to exist in the next couple of years.
Written by: Tunji Faleye
This article appeared first in www.brandcom.ng