E-commerce: The hits and misses for businesses

On April 12, 2019, then Jumia chief executive Juliet Anammah rang the traditional New York Stock Exchange (NYSE) bell to signify the e-commerce company's first day of trading.

At $14.50 (Sh2,030.58 per current exchange rate) per share and trading under the ticker JMIA, Jumia, a Pan-African firm, became Africa's first tech start-up to be listed on a major global exchange.

While standing on a platform with the Jumia logo emblazoned on the background, the employees and founders clapped and clenched fists of joy; the mood resonated well with the famous gong of the traditional NYSE bell.

Wall Street had finally become host to one of Africa's own.

Established in Lagos, Nigeria in 2012 by Jeremy Hodara and Sacha Poignonnec, the rapid rise and success of the e-commerce platform led to analysts referring to Jumia as the "African Amazon", this was a homage to the American e-commerce giant Amazon.

Jumia in Kenya

Then, in 2013, Jumia ventured into the Kenyan market.

"When Jumia launched in Kenya, it became the industry standard for the sale of goods and services online. Its main competitors included OLX, Sky Garden, Kilimall and Masoko," notes Steve Mbiu, a Nairobi-based website developer.

This success in Kenya was attributed to a well-to-do economy, affordable internet, and smartphone penetration.

According to Joel Rao, the CEO of Digital and Customer Experience at Dentsu Kenya, other factors were the catalyst for this growth.

"If an e-commerce platform provides convenience, value, trust, and relevance to their target market, growth is assured," he says.

With Jumia as the pioneer, several other e-commerce start-ups were set up.

Understanding e-commerce

Today, many other players have ventured into e-commerce, among them, traditional retailers such as supermarkets, who are now operating WhatsApp business accounts and other social media pages to sell their products and services.

So, what exactly is e-commerce?

"Electronic commerce simply means transacting business activities using information and communication technology (ICT) facilities," explains Dr Njeri Kinyanjui, an economics lecturer at the University of Nairobi (UoN).

"The potential of e-commerce caught the public's attention because of successful ventures like the electronic bookshop, amazon.com, and the growing number of other internet-based retailers in the business-to-consumer (B2C) e-commerce area. However, business-to-business (B2B) e-commerce has grown more quickly than B2C forms of electronic trading," she adds.

Policy constraints

According to Mr Mbiu, e-commerce sites rarely produce their own products. What they do is provide digital platforms for people to sell products and services. They also provide logistics for delivering the products.

Today, with a website or a social media account, it is now possible for anyone to own an e-commerce store.

However, there is a downside to e-commerce as pointed out by Judy Nyamato, the Operations Manager at Beyond Deals, an e-commerce platform dealing in among others, electronics, footwear, kitchen appliances, attire, and foodstuffs, among others.

According to Ms Nyamato, the government needs to remove some stumbling blocks that are currently suppressing growth in the e-commerce space.

"To realise gains, the government should create an enabling business environment by revising the current expensive operational license fees, enacting affordable tax regimes, and putting in place favourable legislation that will encourage business growth as these are some of the challenges stifling growth in the e-commerce sector," she explains.

Niche market

Mr Rao, on the other hand, says that for an entrepreneur to succeed in the e-commerce space, they have to target a niche audience, take advantage of developments like urbanisation and an educated, tech-savvy populace, and of course use payment solutions like M-Pesa.

"Players like Copia are doing well because they deliver goods specifically to people in rural areas. Glovo, on the other hand, targets middle-class Kenyans living in urban settlements, so does Carrefour which has even integrated self-checkout in their shopping app," he says.

Unfortunately, some e-commerce platforms have gone under while big players like Jumia are struggling to stay afloat. For instance, in March this year, Zumi, an e-commerce platform dealing with non-food commodities, shut down after it ran out of funds.

The firm's co-founder and CEO William McCarren, cited difficulties in fundraising that undermined sustainability.

"With a heavy heart, I share the news that Zumi will be closing its doors. The current macro environment has made fundraising extremely difficult, and unfortunately, our business was not able to achieve sustainability in time to survive," wrote McCarren.

Other platforms that have folded include Kalahari and Sky Garden. The latter was later acquired by the Lipa Later Group

Other e-commerce businesses, meanwhile, either retrenched, reorganised, rebranded, or even closed shop altogether.

Jumia, although still operational, has been on a downward spiral. The firm reported a loss of Sh11.8 billion by the close of 2021 in the Kenyan business.

This was a Sh1.2 billion increment from the Sh10.6 billion booked in 2020 which in turn was a rise from Sh9.7 billion recorded in 2019.

Regulatory filings show that the online marketplace had accumulated a total of Sh99 billion in gross losses as of the close of 2021 from all the over 10 markets that it operates in worldwide.

Solutions to real problems

The CEO of Anza Now, a recruitment agency, Bobby Gadhia, credits the rapid collapse to founders' failure to visualise ideas that provide unique solutions to tangible problems.

"Tech is a very tricky space. Unless you have a unique solution that solves real problems, you cannot survive. People usually have emotional connections to their ideas but when you analyse closely, there is no substance to what they are offering," says Mr Gadhia.

The problem is not just a local one. Regionally, less than 30 per cent of African e-commerce businesses have turned a profit. This is despite billions of shillings in investments. In the last 18 months, investors have injected over Sh55.9 billion into African e-commerce. Despite all these investments, profits have been hard to come by.

Avoid copy and paste

Nyamato says that to realise profits, African e-commerce organisations must refrain from imitating Western countries' business models.

"Africa is a composition of countries with different cultures, economies, and currencies; it is very different from the countries in Europe and North America that it imitates when it comes to e-commerce," she observes.

She further said that the optimism about e-commerce in the continent is clouded by some serious challenges.

"Operators have to deal with the reality of a small middle-class market, a lack of functional addressing systems, poor road networks, a general preference for cash over mobile money payments, the lack of logistics networks, worries about fake or poor products, and security concerns," adds Ms Nyamato.

According to Joel Rao, African governments should also help create conducive environments where start-ups can thrive by improving road networks, lowering the costs of setting up businesses, lowering the cost of data and internet connectivity and addressing insecurity concerns.