Kenyan retailers must learn e-commerce calls for different approach

NAIROBI, KENYA: Word is that, if the Chinese are Kings of copy and paste, then Kenyans come closely second as Queens of the art.

For the longest time e-commerce was mostly linked to Amazon the largest American e-commerce retail company.

However the one undisputable fact at present is that the Chinese are the global masters of e-commerce. "Veni, vidi, vici" Julius Ceasar would say. The one thing that many Kenyan retailers have got figured all wrong.

Just to put things into perspective on the state of e-commerce globally here’s a story of three different retailers.

In 1999 a Chinese University English teacher (Jack Ma) would start what is now, 16 years later, the world’s largest e-commerce company, Alibaba, in a small apartment.

In his own words “there were three reasons behind our success. They were very valid points. First, we had no money. second, we did not understand technology. Third, we never planned.”

These were four years after Amazon had started in America. But Ma, at 48 years in 2013, stepped down as Chief Executive Officer, saying in a letter to employees that he’s “no longer young for the internet business.”

In 1995 when Amazon was starting, Wal-Mart, the world’s largest retailer with over 11,100 physical stores in 27 countries, was 33 years old.

But as of 2014, Wal-Mart's online sales were $12.2 billion compared to Amazon's $89 billion. That is seven times difference.

It only gets better, as of March 2016 Alibaba, (37 years younger) has Overtaken Wal-Mart as the world’s largest retailer by gross volume.

The amazing differences in the dynamics of Amazon and Alibaba are a story for another day. What I want to bring your focus to are the dynamics of the approach to e-commerce for Kenya’s traditional retailers.

The biggest mistake with our Kenyan ‘Copy-Paste’ culture is that, we apply it the same way to all things. Our Methodology is always; first, simplify the idea. Second, associate it to an existing concept and third execute based on this understanding.

I will make my case sampling out some of our local traditionally successful retailers like Uchumi, Bata, Tuskys and Nakumatt.

You ask who I am to question the expertise of time tested individuals, be patient hear me out.

Investors guided by mis-guided executives in Kenya are all placing huge bets on going online. You wonder why people never learn from other people’s experiences, taking the case of Wal-Mart versus Amazon in mind.

What traditional Kenyan retailers have not understood is that e-commerce is not a magic wand; realising profits online will take longer that it would offline.

I have it in good authority that certain local investors in the e-commerce space already have their start-ups going burst. This is going to soon be a recurring headline news theme as many more will wind up this way.

E-commerce is not just about having a pretty website, with products that people can come to buy.

From my personal experience at the highest level in e-commerce, I will tell you e-commerce is an eco-system.

Most of our leading local traditional retailers’, including those mentioned above, websites are in a sorry state. Platforms such as Kilimall, Jumia, and newly Ezesha seem to have a better grip of this.

For E-Commerce, coming from a traditional retail setting, you will need to press a mental reset button and start from an empty page. This is extremely hard for the majority.

Do Local retailers have an option, to ignore e-commerce and focus on offline? no, and here I switch to numbers mode. Of Kenya’s more than 50million population, Internet penetration is at above 80 per cent, Mobile Penetration is above 90 percent, and most of the Internet access is happening on Mobile. Not to mention that Kenya is now a fully mobile money economy. The largest purchasers on e-commerce in Kenya over 70 percent are between ages of 18-35 years that tells you that in the next 10 years, to be successful as a retailer you will need a strong digital presence.

Success in retailing has always depended on three simple factors: price, selection and convenience. But traditional retailers have to support traditional distribution networks, and new technology to support Internet transactions. The investment in both threatens companies’ profit margins. Hence boards of traditional retailers must make tough decisions now. Sacrifice now to make profits in future, or make the profits now and bow out in the near future.

Winning formula for traditional retailers

For long-term success, local retailers must have a total separation of the teams in the two business units, their e-commerce unit from their traditional unit. Having only the managing director and possibly the chief finance officer shared across both. Mixing highly skilled local talent with a sprinkle of international expertise.

Digital is a whole different ball game, and many marketing managers locally have no grip of this, their best understanding of digital is social media and presently Google ads, but that is just about it. This is an area where only the very creative and technically adept will cut it. Those who have a genuine love for numbers, with an uncanny knack to analyse and find the trends that will give the business a strategic edge for innovation which brings growth.

Out with the old, in with the new, we really need leaders who know when it is time to let others who are better to take over. At just 48 years, Jack Ma opted to step down as he felt he was too old and others were better placed to take up from where he had reached. This is because for e-commerce unlike with traditional retail, your ability to innovate is tested to the edge, be it on products, services or processes. Jeff Bezos at Amazon is a true testament of this.

Then finally there is that tricky bit of the fulfillment. Assuming that you have got through the hurdles of having a website that Kenyans have an amazing shopping experience on, the next bit is how you handle the customers after purchase. How will that item be delivered, do customers have to pay before or after they make the purchase?

One advantage that Kenyan e-commerce players have is that mobile money here is a success, unlike other parts of the world that are just starting to set this up.

But you ask Wal-Mart how this has worked out. Despite having a super efficient distribution system, which was long the secret to Wal-Mart’s immense profitability. This immense network of stores and distribution centers that, at least in theory, it could have used for superior online delivery, did not make a difference in its online competition with Amazon.

Why? Because as a traditional retailer when you start talking about delivering individual items to consumers, you’ll be out of your comfort zone and no amount of physical offline shops or Fulfillment centers can fix this.

Now Wal-Mart has committed to investing an additional $2 billion over the next two years. With more than 2,200 engineers working in Silicon Valley building its own cloud data centers. Needless to say investors are not too confident about this approach.

For Kenyan retail investors, the best approach to win on e-commerce may be in strategic acquisitions or partnerships, invest in your internal capacity, but also team up with an existing technology company that already has the expertise and resources such as analytic and cloud computing capacity, rather than trying to build your own. The same applies as to setting up an efficient logistics network for your fulfillment.