September 29, 2020
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Retail Mega Stores and E-Commerce In Nigeria, Is The Grass Really Green?

Shopping

At the advent of the tech ecosystem in Nigeria about a decade ago, there were high speculations that e-commerce was the future of the economy. However, these speculations might not have been entirely right. This is because about a decade later, the majority of the online retail stores are still unable to thrive in the Nigerian economic sphere. In fact, a considerable number of such firms had either been acquired by other firms, divested or exited the industry altogether. For example, even after a decade of being in existence in Nigeria, Jumia has year after year  reported a loss. It still reported a N17.1 billion loss in Q2of 2020 as unlike other parts of e-business, COVID-19 failed to boost revenue enough to break even.

E-commerce
E-commerce

E-commerce was introduced in Nigeria through a “copy and paste model” in a bid to “be among” or for a better word, keep up with the pace of global economic trend and growth. The large population of Nigeria was deceptive bait for investors in that sphere. The truth is that special consideration has not been given to our unique case and our realistic target market to ascertain the consumer behavior, spending power and unique needs.

It will be great to know that even though our population is perked at 200million, according to the NDIC, 98% of that Nigerian population have less than N500, 000 ($1,250) in their accounts. And of course you have to consider the fact that the poorest Nigerians are unbanked and don’t have smart phones. These two variables make it almost impossible for e-commerce to happen for anyone without them.

Wrong Target
Wrong Target

Strange but true to say that anything you are selling to the average Nigerian is competing with food. On average nearly 60% of a Nigerians income is spent on food. But this average is spread across all segments including the rich. So we can assume that most Nigerians are spending 80%-90% of their income on food.

With an average estimate of about one hundred and fifty-eight million individuals in 2010, the Nigerian land space seemed viable for any business on the surface. Most of these firms however neglect the importance of determining their target audience among these millions of individuals.
Nigeria, being a country that is traditionally accustomed to cash transactions for centuries, has over two-third of its population belonging to the middle class and lower class respectively. Among this huge portion of the total population, a relatively lower percentage can afford the disposable income for purchase of goods and services; with most of them preferring offline payment.

Offline Payment
Offline Payment

Despite the increase in online sales by 60 per cent in Nigeria, with hourly orders on the rise, a digital trends report by HootSuite in 2019 put global average spending on e-commerce purchases at $499 with China in the lead. In Africa, South Africans lead with a spending pattern of $109. Egypt spent $96; Ghana $59; Nigeria $44; Kenya $42 and Morocco $41. With Nigeria’s average spending on e-commerce purchases pegged at $44, it indicates a shortfall of $65 and $455 on the African and global standards respectively. Conversely, Nigeria’s total population is thrice as much as South Africa’s but the latter has a higher purchasing power on e-commerce platforms. Hence, making it a better market than Nigeria.

From OLX, Efritin, Fero, Wiko, Wechat, Tambo, Easy Taxi to Opay, several firms have tested the Nigerian industry and withdrawn due to their inability to scale. In terms of consumer behavior, we use online stores to check pricing, and then most times prefer to after it, close our laptop, and then cross over the street to the brick and mortar store to buy. So we see more website hits than sales. Our foreign investors (who may not have even visited the streets of Nigeria) rarely see how population doesn’t equal sales. In a high-profile case last year, Konga, one of Nigeria’s pioneer e-commerce companies was sold—likely at a loss for its investors—after failing to match expectations despite pulling in over $70 million in investment since it was founded in 2012. The struggles of Konga was initially perceived in early 2017 when their staff strength was slashed by a whooping 60%. Konga’s predicament is just one amidst many business failures in Nigeria within the last two years. OLX, a popular classifieds platform, Efritin owned by Saltside Technologies (Swedish Company), Dealdey which is an online discounts platform as well as Careers24 have all had their unfavorable share of the situation. This has made them to either scale back their operations, divest from e-commerce or shut down completely.

Business Failure
Business Failure

Several other factors have also contributed to the failure of e-commerce in Nigeria. Prominent among these factors is logistics. A lot of the e-commerce platforms have still been unable to ensure that the satisfaction of their clients is not compromised in terms of service delivery and quality of products. This has generated distrust, thereby making clients to either favor other firms such as Amazon and Alibaba or opt in for offline purchases. The essence of e-commerce is to guarantee comfort and satisfaction but it seems like very few firms have gotten that strategy right in Nigeria.

Another salient barrier is the reliance of e-commerce firms on advertising to generate sales. It should be noted that advertising is not marketing or sales (most people interchange all terms and confuse themselves. The three are not the same). Advertising is basically for awareness, which in turn should pave the way for marketing (a deeper engagement) that translates to sales (transactions) if successful. There is a need to push out valuable and appealing content as this is the magnetic force for a brand. Most big commerce brands have big budget for advertising (which is a fixed cost) but nothing major for peer to peer based marketing and commission based sales model (which is a variable cost in accounting). Even with their advertising, most e-commerce firms push unconvincing contents to their audience, especially on social media and expect brand loyalty or even an ignition.  While attempting to build a brand, they neglect the Hexavian saying that “the  only thing more important than what you are selling to a customer is what you make them believe they are buying”. Conviction. Most of us end users are not just convinced yet. There are so many adverts out there, but very few of them have the required contents or funnels needed for actual  sales  and sticky revenue modeled engagement. Except a business has a sticky revenue model (repeat patronage from same users which leads to brand loyalty and up-sellling), it becomes hard for that business to scale and grow.

Social Media Marketing
Social Media Marketing

The most recent of this pull out from the Nigerian space is the official press release of Shoprite Superstores Limited in July,2020. Shoprite, a South African firm which is also the largest superstore in Africa, commenced operations in Nigeria in 2005. The news of Shoprite intending to sell most or all of their shares came as a surprise to a lot of people. After all, no one would have expected Shoprite to be running at a loss! But the candid truth is that, the firm has not been attaining profitability in Nigeria. Poor macroeconomic economic situation, high cost of sales, a poor population that it services with low per capital income, inventory theft (by both the customers and staff), a lot of operational waste, and the Coronavirus pandemic have all contributed adversely to the growth of the firm. To add to this is the devaluation of the Naira which wipes out any significant progress in profit when converted back to dollars to pay foreign vendors. It is even harder for Shoprite to be dynamic in its operations due to the rigid and bureaucratic structure, which is identifiable with large superstores. Hence, the need to seek refuge before the Wall of Jericho falls completely. The winners of the loss by the megastores and even the open mega markets during social distancing will be the neighborhood departmental stores and minimarts if they learn to leverage on the fact that even in COVID-19 induced panic suggests that crowded markets are a socio-health risk.

Shoprite Superstores
Shoprite Superstores

Conclusively, e-commerce firms as well as other stores must carefully redesign their model to fit into the Nigerian context. Anyone seeking to go into e-commerce should first identify its niche (and then test the brand with a smaller but diversified geographical market to avoid burn out). And then scale after they pass that test. Even before attempting to sell, fix logistics and supply chain management for delivery (reliability, speed, convenience and excitement must be checked as part of the offering).  No business thrives in Nigeria, except it is tailored to the Nigerian structure and unique peculiarities.

Eizu Uwaoma
Eizu Uwaoma

 

Eizu, ©Hexavia!

Strategy. Business StartUps and Corporate Restructuring Consulting

T: 08035202891

Uwaoma Eizu is the lead strategist at Hexavia! He is a graduate of Mathematics with two MBAs and over a decade of experience working with startups and big businesses. His core is in building startups and in corporate restructuring. He is also a certified member of the Nigerian Institute of Management, Institute of Strategic Management of Nigeria and the Project Management Institute, USA. By the side, he writes weekly for the Business Day newspaper.

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