Long touted as the Amazon of Africa after a highly publicized listing on the New York Stock Exchange (NYSE) in 2019, Jumia has since faced a reversal of fortunes, accentuated by a series of missteps or unsuccessful mistakes. forces that have brought its status to a standstill and left market watchers speculating about a possible exit from Nigeria, its biggest market.
As recently as 2016, Jumia became the first unicorn in the mainland valued at more than 1 billion dollars. It had also seen a rapid expansion of its services to more than 15 countries in Africa. However, after a highly underwritten Initial Public Offering (IPO) on the New York Stock Exchange that then went south after an attack by Citron, a New York-based stock intelligence research company USA (which described the filing as a fraud and the company’s shares as worthless), has been an apparent grace-to-turf trajectory for Jumia.
But how did it all go wrong for this e-commerce giant?
When looking at the Jumia debacle, it’s important to situate the fact that the company, since its inception, has been a loss-making entity. Jumia has yet to become profitable, despite more than a decade of huge financial investments and massive spending on marketing and overhead in Nigeria. Considering the fact that Nigeria remains the largest contributor to its revenue profile, one can only imagine how it has fared in other African countries in which it operates. In November 2019, Jumia announced the suspension of its e-commerce operations in Cameroon effective November 18, as the company concluded that its transactional portal is currently not suitable for the current environment in that country. As part of the portfolio optimization effort, Jumia ceased operations in Tanzania effective November 27, 2019. While its Tanzanian operations provided many opportunities for customers and suppliers, the company said it needed to focus its resources on other markets. who can provide the best. value and help Jumia prosper. In addition, the company maintained that the decision would help it achieve greater success in the future. On December 9, 2019, Jumia suspended Jumia Food in Rwanda, making it the third country in two months as part of ongoing monitoring of the business environment and operating costs in the markets in which it operates. However, he expressed his intention to continue doing business online in those countries on classified ads portals, formerly called Jumia Deals.
From the above, it can be seen that the ongoing fighting in Nigeria reflects a pattern discernible elsewhere in Africa.
More importantly, Jumia’s challenges in Nigeria can also be extrapolated from its often-changing business model, which can sometimes seem misguided when navigating a peculiar market like Nigeria. In 2020, Jumia announced a modification to its business model to focus more on its third-party market. This caused the company to pay less attention to its proprietary model, which involved the company essentially buying items and making them available to buyers. Consequently, the intent was to increase their revenue from charging commissions for items listed and sold on their platform, a move that seemed to have an instant impact. In 2021, Jumia generated more revenue ($24 million in Q1 2021 compared to $23 million in Q1 2020) from third-party sales on its platform. However, in what seems like it can’t have cake and eat it, Jumia’s own-owned revenue fell from $12 million in Q1 2020 to $8 million in Q1 2021, a massive 35% decline. Although this change in its business model helped reduce logistics costs (Jumia’s fulfillment costs fell 18% year-over-year to $23.7 million in the fourth quarter of 2020 and in the first quarter of 2021, they were reduced to $17.2 million), gross merchandise volume (GMV) also took a hit as a result. In fact, average order value decreased by 16%, from $35.8 million in Q1 2020 to $30 million in Q1 2021, while GMV also fell 21% compared with 13% in the first quarter of 2021.
Critics also pointed to Jumia’s strategy of outspending Konga, its main rival in Nigeria, as one of the mistakes that got it into trouble. Jumia has spent a huge sum to occupy a dominant voice share in the Nigerian market, without investing as much effort in cleaning up his reputation. However, the reality on the ground shows that while it has consistently spent more than 500 times its nearest rival, Jumia has not seen the massive spending result in any meaningful results in its acceptability, brand love, or trust. on the platform among the Nigerians.
Closely related to this are some of the unethical pranks that have dogged Jumia over the years. After taking a beating in its share value following revelations by Andrew Left, a Citron short seller in 2019, Jumia confirmed that several class action lawsuits have been filed against the company and its officials in New York for alleged misstatements. and omissions in its IPO prospectus. . Furthermore, Jumia, in the same year, admitted that it had discovered instances of incorrect orders placed and subsequently canceled on its marketplace platform, wrongly inflating its order volume. Some of the improper sales practices, the company said, were carried out by its own staff at Jumia Force, its network of commissioned agents. The fraudulent orders generated $17.5 million in GMV between the last quarter of 2018 and the first two quarters of 2019, prompting allegations that they had been used to pad the company’s financial statements filed as part of its public offering. initial. Recently, Jumia was in the news for all the wrong reasons once again this year, with more than 60,000 fake Nokia 105 units already distributed by the e-commerce company to its outlets in Africa to boost their sales and numbers. Reports indicate that Nokia 105 is a branded product of Nokia and highly sought after in Africa. Since the relaunch of Nokia phones, some of their products have been targeted by criminals who clone them and sell them at lower prices to beat the competition. Checks at Nokia also showed that the fake Nokia 3310, Nokia’s smartphone rave and best-selling brand before it suffered from the market eclipse, had appeared in China shortly after its 2017 relaunch, as well as in some markets. from Asia and Africa. Jumia is believed to have been one of the distribution channels for these fake Nokia phones.
Not long after this development, the company had announced the departure of co-CEOs Jeremy Hodara and Sacha Poignonnec, former McKinsey consultants, who founded the company in 2012 along with Tunde Kehinde and Raphael Kofi Afaedor.
But beyond this, the exit of a number of key investors seems to present the most valid evidence of Jumia’s shaky foothold in the Nigerian market. Added to this are the historical losses that have become a kind of tradition for it. Jumia has racked up more than $1 billion in losses since its inception in 2012 as it continues to burn cash to stay relevant in the market, but without a clear and discernible strategy for profit. Only a fool would have supported Jumia’s strategy of burning cash, with losses of more than $221 million every financial year.
Leadership has also continued to be a major pain point to consider. The vagaries and quirks of the Nigerian eCommerce market require deep local insight that has obviously been lacking at Jumia. In fact, opinions from industry insiders suggest that the company’s leadership is inexperienced and caught off guard, especially with regard to a core understanding of the Nigerian market. But the dismissal or departure of two founders and some of the company’s senior staff also seems to have come too late.
He had predicted years ago that Jumia’s fight with Konga in a market that never existed could destroy the potential of Africa as a future market to bet on. Naspers and AB Kinnevik, Konga’s former owners, were smart enough to sell to a strong and experienced indigenous company in the Zinox Group. The people at Zinox at least understand the market, have built a solid reputation for leadership and consistent success in the industry for more than 30 years, and are financially strong enough to navigate the difficult market.
Konga pioneered the third-party market structure that Jumia later imitated. In addition, Konga launched the omnichannel structure, which has remained the pillar of its business model, which has also been adapted by global e-commerce players such as Amazon and Alibaba, among others. This model has helped Konga take a piece of the growing appetite for online shopping, while also allowing it to tap into the still prevalent traditional shopping predilection of the average Nigerian. Since its acquisition in 2018 by the Zinox Group and the subsequent operational merger between it and Yudala, we read that Konga has reduced losses by more than 45% and has also achieved growth of more than 800% in the last 18 months. Crucially, Konga’s advantageous understanding of the Nigerian market finds further expression in its merging of an online platform with a growing chain of physical stores that includes its strong digital logistics, as well as its strategy of maintaining a highly ethical and focused approach. on the client. business approach.
Clearly, there is strong optimism that Konga will survive, despite the hurdles in the difficult Nigerian market, but with Jumia, it would take a miracle. If founders anywhere in the world can’t make their company profitable before they exit, it’s almost impossible for any corporate genius to restructure and turn it around unless they sell.
As they say, founders understand the DNA of their companies.
Kameni Doe, an emerging markets expert, writes from Yaoundé, Cameroon