• Sunday, June 16, 2024
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Retail megastores and e-commerce in Nigeria, is the grass really green?

Retail

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 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 still reported a N17.1 billion loss in Q2 as COVID-19 failed to boost revenue.

Although there have been various perspectives to this downturn in the economic situation of e-commerce firms, I strongly believe that the problem is as old as the inception of the industry itself. 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. However, special consideration was not given to our unique case and our realistic target market to ascertain the consumer behaviour and needs. Most e-commerce firms were purportedly introduced to Nigeria because of the perceived “green land” due to the high population index in the country. But it will be great to know that according to the NDIC, 98 percent of Nigerians 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 smartphones. These two variables make it almost impossible for e-commerce to happen for anyone without them.

Strange but true to say that anything you are selling to the average Nigerian is competing with food. On average nearly 60 percent 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 percent – 90 percent 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.

Despite the increase in online sales by 60 percent in Nigeria, with hourly orders on the rise, a digital trend 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.

E-commerce firms as well as other stores must carefully redesign their model to fit into the Nigerian context. No business thrives in Nigeria, except it is tailored to the Nigerian structure and unique peculiarities.

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) don’t 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 whopping 60 percent. 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.

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 favour 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 marketing to generate sales. It should be noted that marketing is basically for awareness, which in turns translates to sales if successful. There is a need to push out valuable and appealing content as this is the magnetic force for a brand. But most e-commerce firms push unconvincing contents to their audience, especially on social media and expect brand loyalty or even an ignition. The only thing more important than what you are selling to a customer is what you make them believe they are buying. There are so many adverts out there, but very few of them have the required contents needed for the business to scale and grow.

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 capita 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.

Conclusively, e-commerce firms as well as other stores must carefully redesign their model to fit into the Nigerian context. No business thrives in Nigeria, except it is tailored to the Nigerian structure and unique peculiarities.